July 10th, 2012
in Gary's blogging
Closing Market Commentary For 07-10-2012
Today was one of those days when a lot of news was in play but nothing was happening in the markets until later in the session. This morning the upside was contained by a gloomy mindset on the global outlook. Around 1:30 the major indexes slid off the neutral shelf they had been riding on and melting to lower numbers as 'hopium' started to wear off. Volume was low enough not to cause any great anxiety that we didn't already have concerning the bears starting to tango a bit. By 2:30 the markets eased down a full 1%, but volume remained the same at low to moderate. Finally the Bears continued clawing at the bulls finally sent them back to the corral to hide. The gates are still open so the bulls may escape again.
We still have anxieties that linger regarding the ability of World leaders to 'fix' the problems that they created in the first place. Tensions are building throughout the various parts of the World as various 'Black Swan' scenarios are realized as possible events coming to fruition. I mention a few below, but any one or a combination could develop into a 'Perfect Storm' of unprecedented proportions.
One is China having a hard landing and its effects on the US and Europe. Another is Europe itself being able to survive the continued 'can kicking'. This along with real fears of the Keynesian politicians continual throwing money at the 'problems' as the debt climbs into stratospheric levels. Another is Middle East tensions becoming critical as a third US aircraft carrier was JUST dispatched to Mordor. Any of these events, or a combination, could push the US into a recession and I am not prepared to 'guess' at the dastardly effects on the US markets other than it won't be a pretty picture for investors who have previously gone long.
Caterpillar (CAT -4.6%) leads the DJIA lower (-0.8%) after Cummins slashes its 2012 outlook. Joy Global (JOY -6%) tumbles as well. The XLI -1.8%. More from Cummins (CMI): "Order trends in the U.S. for trucks and power generation equipment have softened and demand in Brazil, China, and India is not improving." Ouch.
Already lower following more slowing news out of China and earnings warnings from the tech sector, stocks took a mid-afternoon hit when Cummins cut its 2012 outlook. The 10-year Treasury yield fell below 1.50% again, and oil took a beating. The airline sector is the subject of merger speculation and troubles continue at J.C. Penney.
The RRR** turned out to be decent for trading, after the fact, but unless you are into guessing, it was best to sit this session out. As for tomorrow the outlook is the same, caution, mainly because of the low volume today may repeat itself.
The DOW at 4:00 is at 12653 down 83.17 or -0.65%.
The 500 is at 1341 down 10.99 or -0.81%.
The $RUT is at 795.17 down 9.63 or -1.20%.
SPY is at 134.13 down 1.19 or -0.88%.
The trend is slightly bearish and the current bias is down.
WTI oil is at 93.96 trading between 95.92 and 83.64 and the bias is negative.
Brent crude is at 97.95 trading between 100.32 and 97.72 and the bias is negative.
Gold is down today at 1568, trading between 1564 and 1600 with a negative bias.
Dr. Copper is at 3.39 down from 3.44 earlier.
The 500 at the close.
The DOW at the close.
“Investors have become increasingly concerned with a possible "perfect storm" scenario, where turmoil in Europe reaches a boiling point, the US economy contracts, and China and emerging markets face a hard landing. Investors are hoping for the best and could be preparing for the worst by buying US treasuries.
News that China's Crude Oil imports have fallen to the lowest level since December is a sign that the nation could be headed for a rough landing. Lack of faith in the financial markets by investors as well as fears of a European meltdown. . .
Unlike the troubled nations of Europe, investors have kept their faith in France and Germany, which could give the two nations more resources to bailout the rest of the continent. . . . a sign that investors have not completely given up on Europe, there is plenty of uncertainty ahead. . . . There has been increased talk of a potential economic firestorm in the not so distant future, which could happen if the US faces a double-dip recession, while Europe flounders and BRIC and emerging market economies are unable to halt their recent slide.
“With all that’s going on, would you believe the market, as measured by the S&P 500 index, is only 4% off its high? Some folks interpret this fact as investors “shrugging off” bad developments, looking ahead to some unseen, glorious future that none of us individually can imagine.
But the “wisdom of crowds” is overrated. I see an epidemic of denial — denial at a level last seen near the 2007 market peak, when central bank policy was thought to be propping up stock prices. That denial didn’t end well.”
** RRR = Risk Reward Ratio
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Written by Gary