PMI data overnight continues to confirm the thesis that economic growth is slowing around the world. As everyone starts to talk and clamor about it, something usually gives. G7 finance ministers are schedule for a conference call later today to discuss the European Debt and Banking Crisis, and the market is looking to see if they will come out with a united solution ahead of the G20 summit later this month.
At this point, I’m not sure what the markets want to hear as the past solutions to deal with the problems have exacerbated the current situation. Recently, they are now talking about pooling all the bad debt (around $3 trillion) and putting it in a bad bank for 25 years! Wow, let me invest in some of that bank.
Goldman Sachs (GS), which put a Generational Buy call on the S&P at 1415, is now saying to sell it around 1270 (a lot of value added there). The JP Morgan (JPM) loss is now $4.1 Billion vs. the original $2 billion announcement. I think it will likely end up north of $5.5 billion.
Last week I started talking about S&P 1245-1255, and now I see everyone isolating that zone as a place we “should” bounce from. This tells me we might pause in front of it, or go crashing through it so it doesn’t make it easy for most. Either way, during systemic crises, the market doesn’t have to do anything! It doesn’t have to bounce, and it can frustrate shorts before it goes lower. Everyone should do less, and preserve capital.
This part of the correction gets tough, because those who missed early sell signals need to contemplate if they can sell now to potentially save what could be another 8-10% of downside. Or if they sell now, miss a turn and be the guy who hits out near the bottom. Do what makes you feel comfortable and safe so you are not controlled by the market. This will be a long Summer!
Futures are slightly lower based on Fair Value. It seems like they like to press them higher in the last 30 seconds of the day, making it harder to hold shorts before another gap down.
The first SPY support level to watch is yesterday’s low of $127.13. The next spot is $126.10-126.40 (a pretty big one), then $124.50-125.50 is when I think it gets a bit more compelling if we get there quickly.
The 200day served as resistance twice yesterday which now stands at $128.67. The longer we stay below this level the more conviction the Bears will get to deepen this correction. Sometimes institutions whip around this area as they try and distribute stock before another decline. There are a lot less players to fool these days. If market closes above 200day, the Big Resistance zone is $129.55-130.50 (a level to be sold).
High beta tech yesterday provided some cash flow opportunities as they gave a small brush back pitch for the Bears.
Amazon (AMZN) was strong all morning and closed strong. See if that continues.
Apple (AAPL) gave a nice short below $560.50 and then a nice long later in the day above $555. See if it goes positive today for cash flow. It’s still above the 100day.
Google (GOOG) is 20 points below the 200day day (or sell zone of $596) but holding bigger support at $560.
Baidu (BIDU) also gave a rare opportunity to make money long, see if it can continue.
Facebook’s (FB) new point of reference is $26.44. Keep using that pivot to trade against as no one really knows where the bottom will be here.
Remember when some people were talking about Zynga (ZNGA) at $20 for the FB IPO? Well, it’s $5.71. If you have a thesis, you save a lot of money if you wait for the market to confirm it. I lost way too much money here trying to position on what I thought should have happened! It did not.
Banks were very heavy yesterday as I guess some knew that JPM would have more bad news.
JPM closed near recent lows and is opening below it on the new loss news. $30.42 is a spot but very big support is $28 area. I guess watch to see if this stock that is so battered and bruised goes green, perhaps giving a sign that it’s all priced in now. Look at action to see a divergence before you decide to do so!
Morgan Stanley (MS) has been an avoid most of this year as the weakest one. I continue to think it needs to be avoided.
Retail (RTH) likes to bounce when that market tries to grab some footing. It’s showing relative strength.
Under Armour (UA) still acts well. Lululemon (LULU) is trying to hold on. Wal-Mart (WMT) is super impressive. Target (TGT) is holding higher.
Oil (USO) bounced a bit yesterday. Ultimately I think it’s a rally to sell. The Oil Service Sector (OIH) has been very weak and trying to bounce off bottom. Nothing compelling yet.
Gold (GLD) had an inside day yesterday. Traders would have liked some upside follow through quickly, but it could take a day or so. It would be easier to stay long if it holds $156.16 as long as it holds the gap area in the next few sessions $154.50-$155.50 it still has high probability to get some momentum above $158-$158.30.
No need to be a hero in this market. You don’t have to be the last one to cover, or the first one to buy! Know your time frame and preserve capital!
Disclosure: Scott Redler is long SPY, SBUX, GLD.