Financials may have been down, but that hasn’t stopped the market from kicking them. The weak Euro, which I’ll get into, was one catalyst weighing on the sector. However, there were two individual company news items that hit the stocks, putting pressure on the ETF, leading the market lower. Goldman Sachs GS (-2.5%) was a major contributor, after receiving a subpoena from the Financial Crisis Inquiry Commission. The subpoena is for failing to comply with the panel’s request for documents and interviews in a timely manner. Bank of America BAC (-3.4%) reported that it will settle charges with its Countrywide unit for collecting excessive fees. BAC will pay $108 million. According to the WSJ, the US contribution to the IMF bailout of the European nations will be $100 billion. That might be a hard sell to an already overtaxed nation. Given the fact that the US is already running extreme deficits, this concern over whether or not the US will pay raised concerns as to whether or not the IMF has enough backing to save the Euro-zone. In the end, the Euro suffered. We did not see the Euro fall to the low of overnight trading at 1.1877, but after opening slightly higher in the US, it closed near the lows of the NYSE trading session. The fears continue to mount that the ECB and IMF cannot pull off a bailout of the Euro-zone countries without either causing a major recession or the demise of the European Union. In either case, it spells bad news for the currency, a weak trading partner for the US and the world, and falling commodity prices as the Dollar rises in value.
Apple Inc. AAPL (-2.0%) introduced its newest version of the iPhone. This is a stock up 22% this year and was more the victim of “sell on the news” trading rather than a reaction to the device itself. Research in Motion RIMM (-5.2%) also fell dramatically on the news of the new iPhone, as it is a major competitor. However, it’s not just Apple that is hurting RIMM, but that the other competitors in the space are adding capability and software almost as fast, and that is bringing more competition into the space for RIMM. Tech was a victim for other reasons than just the weak leadership. Tech is a “consumer sensitive” sector. After Friday’s weak jobs report, the domestic recovery was drawn into question. That led to a drop in all of the consumer sensitive stocks. The weak Euro raises the price of US goods to other countries, in addition to an ever-rising likelihood of a recession across the pond. That puts some sales of Tech devices at risk. Finally, the weakness in the Euro versus the Dollar, Yen, and Ausi Dollar has caused an unwinding of the carry trade, which has directly impacted the so-called “risk trade”. As money abandons risk, Tech and small caps are on top of the list. The Russell 2000 fell 5.00% on Friday and dropped another 2.44% yesterday. That compares rather negatively to the Dow’s 3.15% decline on Friday followed by a modest 1.16% dip yesterday. The “risk trade” is clearly being unwound, and that has had an adverse impact on Technology over the past week.
Technically, summer has arrived. We were surprised by the relatively light volume in Friday’s decline. We did see a spurt of heavier trading in the final half hour of yesterday’s session. The market fell rather sharply in the final hour. The Goldman subpoena was the catalyst for the weakness, but we broke a few small technical levels as well. Volume hadn’t even crossed over 1 billion shares on the NYSE at 3:30 pm, but finished the day with over 1.4 billion shares trading. With nearly a third of the day’s trading volume happening in the final half hour and the S & P falling through Friday’s intra-day low of 1060.50, sell programs must have come into play. The index has undercut the closing low level for February, although it is still above both the February and May intraday lows. As we see more and more summertime volume levels, it makes it easier to move stocks with less volume. That may be fun for traders, but it is unnerving for investors, especially retail investors. The more derivative instruments we see, the more the market movements get exaggerated. I think we are seeing one of those movements. There wasn’t really any new news that was compelling in the afternoon. Leadership was failing, both Tech and Financials, which caused traders to lose hope in a Monday morning bounce. The economic calendar is rather boring until Friday’s Retail Sales report. Last but not least, when we’re moving into summer. Institutional investors tend to see staff start taking early June vacations as the kids get out of school.
The recent May low is really the point that traders will be looking at as support. The Dow’s intraday low was at 9774, the S & P’s low was 1040, and the NASDAQ’s low was at 2140. The underperforming Russell 2000 is right here at 617. The good news may be that we are extremely oversold at this point in time. Therefore, breaking below this support might prove to be a short-term washout move, to shake out the weak holders. The bears can make a compelling case about trade, basic materials, energy, and the multinationals, but earnings are around the corner and profits have been a major motivating catalyst for the bulls. A decline in late summer, if the global picture fails to improve, would be worrisome. However, corporate profitability is still likely to provide a bullish catalyst in the weeks and month ahead.
Financials may have been down, but that hasn’t stopped the market from kicking them. The weak Euro, which I’ll get into, was one catalyst weighing on the sector. However, there were two individual company news items that hit the stocks, putting pressure on the ETF, leading the market lower. Goldman Sachs GS (-2.5%) was a major contributor, after receiving a subpoena from the Financial Crisis Inquiry Commission. The subpoena is for failing to comply with the panel’s request for documents and interviews in a timely manner. Bank of America BAC (-3.4%) reported that it will settle charges with its Countrywide unit for collecting excessive fees. BAC will pay $108 million. According to the WSJ, the US contribution to the IMF bailout of the European nations will be $100 billion. That might be a hard sell to an already overtaxed nation. Given the fact that the US is already running extreme deficits, this concern over whether or not the US will pay raised concerns as to whether or not the IMF has enough backing to save the Euro-zone. In the end, the Euro suffered. We did not see the Euro fall to the low of overnight trading at 1.1877, but after opening slightly higher in the US, it closed near the lows of the NYSE trading session. The fears continue to mount that the ECB and IMF cannot pull off a bailout of the Euro-zone countries without either causing a major recession or the demise of the European Union. In either case, it spells bad news for the currency, a weak trading partner for the US and the world, and falling commodity prices as the Dollar rises in value.
Apple Inc. AAPL (-2.0%) introduced its newest version of the iPhone. This is a stock up 22% this year and was more the victim of “sell on the news” trading rather than a reaction to the device itself. Research in Motion RIMM (-5.2%) also fell dramatically on the news of the new iPhone, as it is a major competitor. However, it’s not just Apple that is hurting RIMM, but that the other competitors in the space are adding capability and software almost as fast, and that is bringing more competition into the space for RIMM. Tech was a victim for other reasons than just the weak leadership. Tech is a “consumer sensitive” sector. After Friday’s weak jobs report, the domestic recovery was drawn into question. That led to a drop in all of the consumer sensitive stocks. The weak Euro raises the price of US goods to other countries, in addition to an ever-rising likelihood of a recession across the pond. That puts some sales of Tech devices at risk. Finally, the weakness in the Euro versus the Dollar, Yen, and Ausi Dollar has caused an unwinding of the carry trade, which has directly impacted the so-called “risk trade”. As money abandons risk, Tech and small caps are on top of the list. The Russell 2000 fell 5.00% on Friday and dropped another 2.44% yesterday. That compares rather negatively to the Dow’s 3.15% decline on Friday followed by a modest 1.16% dip yesterday. The “risk trade” is clearly being unwound, and that has had an adverse impact on Technology over the past week.
Technically, summer has arrived. We were surprised by the relatively light volume in Friday’s decline. We did see a spurt of heavier trading in the final half hour of yesterday’s session. The market fell rather sharply in the final hour. The Goldman subpoena was the catalyst for the weakness, but we broke a few small technical levels as well. Volume hadn’t even crossed over 1 billion shares on the NYSE at 3:30 pm, but finished the day with over 1.4 billion shares trading. With nearly a third of the day’s trading volume happening in the final half hour and the S & P falling through Friday’s intra-day low of 1060.50, sell programs must have come into play. The index has undercut the closing low level for February, although it is still above both the February and May intraday lows. As we see more and more summertime volume levels, it makes it easier to move stocks with less volume. That may be fun for traders, but it is unnerving for investors, especially retail investors. The more derivative instruments we see, the more the market movements get exaggerated. I think we are seeing one of those movements. There wasn’t really any new news that was compelling in the afternoon. Leadership was failing, both Tech and Financials, which caused traders to lose hope in a Monday morning bounce. The economic calendar is rather boring until Friday’s Retail Sales report. Last but not least, when we’re moving into summer. Institutional investors tend to see staff start taking early June vacations as the kids get out of school.
The recent May low is really the point that traders will be looking at as support. The Dow’s intraday low was at 9774, the S & P’s low was 1040, and the NASDAQ’s low was at 2140. The underperforming Russell 2000 is right here at 617. The good news may be that we are extremely oversold at this point in time. Therefore, breaking below this support might prove to be a short-term washout move, to shake out the weak holders. The bears can make a compelling case about trade, basic materials, energy, and the multinationals, but earnings are around the corner and profits have been a major motivating catalyst for the bulls. A decline in late summer, if the global picture fails to improve, would be worrisome. However, corporate profitability is still likely to provide a bullish catalyst in the weeks and month ahead.