Draghi Comedy Hour Sends Markets Lower

August 2nd, 2012
in Gary's blogging

Opening Market Commentary For 08-02-2012

The premarket SP500 went from yesterday's close of 1375 to 1382 (7 points) as the European Central Bank President Mario Draghi began to speak about a plan to enacting fresh stimulus measures to stem Europe’s debt crisis. I honestly thought the market was going to be considerably higher today after watching the ecstatic early premarket returns this morning.

Then Draghi started to speak and the premarket went nuts on what investors thought was good news and the premarket moved even higher. Then it became clear he was talking about a plan just to make a plan and the SP500 literally dropped like a rock to 1356 (26 points) in a matter of minutes where it stayed until the opening bell. The DOW was off 100 points which is nearly unheard of in premarkets.

Follow up:


The markets finally opened in a rather muted fashion as the cash crowd recovers from the premarket bomb dropped on them. Red was the color of the anemic volume and it slowly gathered steam as the 'BTFD dippers' jumped in keeping things in check. After rising a few points the US Factory Orders number came out FALLING to a -0.5% while economists expected +0.05 from the previous reported -0.5. Very disappointing and moved the market trend to a bearish for a few minutes and then resumed the melting up as the dippers continued to buy, BUT on falling volume.

Typically premarkets don't move all that much, but this morning it was different and if you went long over the last several sessions you are showing a loss before the market opens. Now is when you watch for another reversal to the upside. Exciting yes, dangerous yes and unless you are VERY good at guessing, I suggest you sit on your hands. The RRR** is excellent this morning, except no one knows which way things are going to go when low volume persists as it is this morning. If I remember correctly I opined yesterday to be careful and watch out for unexpected reversals of magnitude.

The DOW at 10:15 is at 12916 down 49.89 or -0.36%.

The 500 is at 1370 down 4.36 or -0.32%.

The $RUT is at 772.32 up 1.41 or 0.18%.

SPY is at 137.30 down 0.32 or -0.23%.

The trend is neutral and the current bias is up.

 

WTI oil is at 87.73 trading between 89.60 and 87.00 and the bias is negative.

Brent crude is at 105.76 trading between 107.28 and 105.05 and the bias is negative.

Gold is down today at 1596 trading between 1613 and 1587 with a negative bias.

Dr. Copper is at 3.33 down from 3.38 earlier.

Earlier the USD tumbled from 83.20 to 82.25 and shot up to 83.40 and recovered to 83.19 just about where it left off yesterday afternoon.

Headlines from this morning.

Even the US financial's were good and by themselves should have driven the markets up even with the poor ISM at -0.5% . But that goes to show you just how important the EU is to investors in the US and should never be doubted of its importance. First column is what was reported. The second is what was expected and the third is the last report.

@marketwatch:

Spain's IBEX 35 index drops 4.8% as Draghi speaks

Dow futures down 92 points to 12,832

@SA

Draghi: Responding to a question, he says the Governing Council discussed a reduction in interest rates, but decided now was not the time. Does the ECB read the newspapers?

@zerohedge:

Take home: Germany calls all the shots at the ECB and Germany is NOT on board

Draghi: The ECB may undertake "outright open market operations," i.e., bond purchases

Market Reaction - Gravity Bites As Draghi Serves Cold Plate Of Epic Disappointment

As he began to speak the EUR rallied, EGBs rallied and ES rallied - last minute hopiness wrung out of the system, but as soon as he explained that his plan to promise a plan which plans to promise a solution was nothing but another promise and not an actual plan, so everything reversed.

S&P futures are  -17pts from pre-Draghi, Gold back under $1600, and the USD is ripping higher, Treasury yields are down 8bps from pre-Draghi, EURUSd is perfectly unch at 1.2275 after trading up over 1.24 as he began.

Spain and Italy have given back the immediate euphoria with Italy now 20bps wider from pre-Draghi and Spain +10bps (though still -60-80bps from before his comment last week).

@dailyfx:

US CONTINUING CLAIMS (JULY 21) COMES IN AT 3272K VS. 3288K EXPECTED. PRIOR REVISED TO 3291K FROM 3287K.

$FED does nothing (nor signals immediate action); ECB does nothing; Chinese PMI manufacturing worse than expected = risk-off.

So much for a Bazooka. . . More like a cap gun. . . all noise n lights. . .

S&P: Portugal 'BB/B' Ratings Affirmed; Outlook Remains Negative On Exposure To Spain.

US ISM NEW YORK (JULY) COMES IN AT 55.2 VS. 49.7 PREVIOUSLY.

@foxnews:______

The Labor Department reports initial claims for state unemployment benefits rose 8,000 to a seasonally adjusted 365,000. The prior week’s reading was revised to 357,000 from 353,000.

** RRR = Risk Reward Ratio

To contact me with suggestions or deserved praise:

gary@econintersect.com

Written by Gary















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