Tuesday, November 01, 2011

The Morning Call Corzine and the Greeks wreak havoc


The Market

Technical


The indices (DJIA 11955, S&P 1253) began correcting from an overbought condition yesterday. However, they remained well within their intermediate term trading ranges (10725-12919, 1101-1372) and a newly forming short term up trend (11393-12341, 1209-1315).

Volume rose; but breadth took a big hit. The VIX was up 22% and returned to the upper zone of its current trading range--not good for stocks.

GLD also took on the nose but remains well within its intermediate term up trend.

Bottom line: after a spectacular October move to a very over bought condition, a little profit taking like we got on Monday isn’t surprising. A further move to the S&P 1209 (lower boundary of short term up trend)/1230 (former resistance, now support) level would be an occasion for further nibbling.


November seasonality map (short):
http://marketsci.wordpress.com/2011/10/31/seasonality-map-for-november-2011/

Fundamental

Headlines


The only economic data yesterday was the Chicago PMI which was OK. What got the Market off to a rocky start was the bankruptcy of MF Global, an investment banking firm with a large proprietary trading desk (read sizable holdings in EU bonds and CDS’s). With still fresh memories of Bear Stearns and Lehman Bros. on their minds, investors got squirrelly and sold stocks down.
http://www.zerohedge.com/news/panic-behind-mf-scenes-company-refuses-disclose-information-regulators-even-death

It gets worse:
http://www.zerohedge.com/news/someone-going-jail-mf-global-caught-stealing-hundreds-millions-customers

And (short):
http://www.zerohedge.com/news/here-come-unintended-consequences-stock-futures-liquidity-dries-post-mf-bankruptcy

And the impact on the EFSF (medium):
http://www.zerohedge.com/news/demand-efsf-paper-collapses-world-wakes-post-bailout-hangover

Then later in the day, Europe pushed back into the headlines as the Greece announced it would conduct a referendum on the terms of its bail out. What you say? These paragons of fiscal irresponsibility want a vote on their own bail out? Do they understand the concept of looking a gift horse in the mouth? Score that a yes and a no. And score me as confused by it as the rest of the Market.
http://www.zerohedge.com/news/open-europe-greek-referendum-democracy-finally-coming-home

Whatever the reasoning, it does illustrate the theme that I enunciated last week: the EU leadership had put forth a plan; few details; and it requires the support of 17 different countries. Don’t get me wrong, I am not saying that they are making no progress; I am saying that there is a considerable distance between the cup and the lip, so expect some spillage along the way.

Bottom line: I believe that the EU will keep itself together with chewing gum and bailing wire (barring a ‘no’ vote from the Greeks) and that it will be able to postpone the day of reckoning long enough to make the real reforms that are necessary (if the eurocrats have the cojones to do it). The good news is that they don’t have to have it done by tomorrow.

In the meantime, the US economy shuffles forward, the developing markets seem to have bottomed and there remains a whiff of QEIII in the air. That should allow stocks to trade at Fair Value. So any whackage that allows us to buy stocks in their Buy Ranges gives us a chance to Add to those holdings.