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21Jul2015 Market Update: Wall Street Lower On Weak Earnings, Oil Falling Again Along With U.S. Dollar

Written by Gary

Afternoon markets are starting to show more weakness after leveling off after the morning plunge because of weak earnings reports from International Business Machines and United Technologies dragged down the Dow Jones Industrial Average.

U.S. dollar continues to slip while oil has reversed its recover (of sorts) to begin a decent once again.


Here is the current market situation from CNN Money

North and South American markets are lower today with shares in U.S. off the most. The S&P 500 is down 0.47% while Brazil's Bovespa is off 0.11% and Mexico's IPC is lower by 0.11%.

Traders Corner - Health of the Market

Index Description Current Value
Investors.com Members Sentiment: % Bullish (the balance is Bearish) 75%
CNN's Fear & Greed Index Above 50 = greed, below 50 = fear 27%
Investors Intelligence sets the breath Above 50 bullish 47.7%
StockChart.com Overbought / Oversold Index ($NYMO) anything below -30 / -40 is a concern of going deeper. Oversold conditions on the NYSE McClellan Oscillator usually bounce back at anything over -50 and reverse after reaching +40 oversold.

+7.65

StockChart.com NYSE % of stocks above 200 DMA Index ($NYA200R) $NYA200R chart below is the percentage of stocks above the 200 DMA and is always a good statistic to follow. It can depict a trend of declining equities which is always troubling, especially when it drops below 60% - 55%. Dropping below 40%-35% signals serious continuing weakness and falling averages.

45.60%

StockChart.com NYSE Bullish Percent Index ($BPNYA) Next stop down is ~57, then ~44, below that is where we will most likely see the markets crash. 53.85%
StockChart.com S&P 500 Bullish Percent Index ($BPSPX) In support zone and rising. ~62, ~57, ~45 at which the markets are in a full-blown correction. 56.20%
StockChart.com 10 Year Treasury Note Yield Index ($TNX) ten year note index value 23.43
StockChart.com Consumer Discretionary ETF (XLY) As long as the consumer discretionary holds above [66.88], all things being equal, it is a good sign for stocks and the U.S. economy 78.82
StockChart.com NYSE Composite (Liquidity) Index ($NYA) Markets move inverse to institutional selling and this NYA Index is followed by Institutional Investors 10,930

What Is Moving the Markets

Here are the headlines moving the markets.

Harley beats expectations despite dollar, pricing headwinds

CHICAGO (Reuters) - Harley-Davidson Inc beat Wall Street profit and sales expectations on Tuesday despite headwinds from a strong U.S. dollar and steep discounts by rivals, sending shares up 4 percent.

Verizon profit beats on customer additions; revenue outlook lowered

(Reuters) - Verizon Communications Inc on Tuesday lowered its full-year revenue target after users on average paid less for its services during the second quarter amid continuing industry competition and promotional activity.

Refiners Can Keep Floating on Cheap Oil

Refining stocks have been the star energy performers this year, mostly due to cheap oil. That should continue in the second half, despite looming risks.

Take Cover - Wall Street Is Breaking Out The Bubblies

Submitted by David Stockman via Contra Corner blog,

Let's see. Google's record market cap gain on Friday was actually a squeaker. At $66.9 billion it easily passed in one day the entire $50 billion market cap of Caterpillar's global heavy machinery and engine franchise built up over a century. But only by a hair did it best Cisco's $66.0 billion gain on April 17, 2000.

But perish the thought that Friday's fireworks had any resemblance to the shooting star act of Cisco and hundreds of other tech high-flyers 15 years ago or the epic bloodbath that commenced shortly thereafter.

Then again, something was going on with the GOOG beyond the fundamentals. Notwithstanding that Google is one of the most fantastic value creating enterprises on the planet, there was nothing in Friday's earnings report for Q2 that warranted a 16% re-rating of its market cap.

Indeed, the $345 million or 9.6% gain in net income from the prior quarter was not much of a talisman. Fully 75% of the gain was accounted for by a lower tax rate (from 22.1% to 20.7%) and a cutback of what had been ballooning G&A expenses (from 8.8% of sales to 8.2%). Aside from these benefits at the margins of what is a $70 billion sales machine, net income grew at an unremarkable 2.9% over prior quarter and 7.4% over prior year.

Yet Friday's re-rating was considerable on a valuation basis. GOOG is entering corporate middle age as it presses upon the law of large numbers, and even with the Q2 uplift its financials clearly show its age. During the three and one-half years since CY 2011, Google's growth rate for both sales and net in ...

Citibank ordered to pay $700 million over credit card practices

(Reuters) - Citigroup Inc's consumer bank has been ordered to pay $700 million in relief to borrowers for illegal credit card practices, the U.S. Consumer Financial Protection Bureau said.

Is The US Shale Industry About To Run Out Of Lifelines?

Earlier today, Chesapeake Energy - in a mad scramble to conserve cash - eliminated its common dividend, a move which i) will save the company around $240 million per year, but ii) caused the stock to plunge to a twelve-year low.

The company said that a "reduction in capital" stemming from the "current commodity price environment" had left it unable to invest as much as it would like in its "world class assets." Chesapeake also said its "liquidity position remains extremely strong with more than $2 billion of unrestricted cash on [the] balance sheet and an undrawn $4 billion revolving credit facility."

As we noted this morning, it remains to be seen how that liquidity position will hold up in the face of persistently depressed prices. Of course one thing that's perpetuating the "current commodity price environment", is easy access to capital markets. We've discussed the dynamic on too many occasions to count, but because it is in fact one of the most important narratives around when it comes to understanding both the current state of the global economy and why illiquid corporate credit markets are so dangerous, we'll recount it briefly:

Access to cheap cash via capital markets allows otherwise insolvent producers to keep drilling even as prices ...

Greece looks to seal bailout deal in weeks

ATHENS (Reuters) - Greece should wrap up bailout talks with international lenders by August 20, once parliament approves the second package of measures demanded by creditors on Wednesday, the government's spokeswoman said.

Federal Reserve Approves Capital Restraints for Big Banks

Under the regulations, the banks with the biggest Wall Street operations have to meet higher capital requirements or reduce their size.

Greeks Laugh As Bankers Implore Depositors To Return Money

Via Keep Talking Greece,

President of Greek Banks Association Louka Katseli appealed at the citizens to return their money to the banks. "Banks are absolutely trustworthy," Katseli told Mega TV "as guaranteed by the ECB and the Bank Association, but they would have been even more powerful if 40 billion euros had not been withdrawn in the last months.

Katseli, a former PASOK Minister, appealed to citizens to return their deposits to the banks "now that the banks are open" after a three-week holiday and capital controls.

"Let's all help our economy," Katseli urged Greeks and added "If you take your money out of your chests and houses - which are not safe in any case - and deposit at banks, this will enhance liquidity."

"?here will be no need to "haircut" deposits in the future if we all act responsibly," she added -cheerfully I suppose.

Katseli's appeal triggered laughter among Greeks and one stressed with hint to capital controls "Oh yes! I will bring my money back to the bank and get it back 60 by 60 euro."

Another one noted "Ah sure! Banks will never see my money again, I prefer to buy tonnes of peanuts with it."

A third commented "Certainly. And the banks will go bust after a while..."

A fourth reckoned a very unfortunate incident in 2010 and busted into tears and laughter. Back then Finance Minister Evangelos Venizelos had appealed to the Greeks to buy Greek bonds. The man invested 10,000 euro to help Greece. Two years later, his investment underwent a 5 ...

Gold Hammered Down In Sunday Night's 2-Minute, $2.7 Billion "Unprecedented Attack"

Gold Hammered Down In Sunday Night's 2-Minute, $2.7 Billion "Unprecedented Attack"

- Gold market comes under "unprecedented attack" - Telegraph
- "Sharp drop bore similarities to bear raids by Chinese funds" - FT
- Paper contracts for 57 tonnes of gold dumped onto market in two minutes
- Gold still holding up in euros, Canadian dollar and other currencies
- Very negative sentiment towards gold signals close to bottom
- Physical gold still vital financial insurance despite simplistic anti gold narrative

21-07-2015_1

FT Front Page Today - July 21, 2015

The post mortem continues and many are once again proclaiming the death of gold … as was done in 1999 and again in 2007 … prior to the start of gold's multi-year bull market and the resumption of the bull market in 2007.

Sentiment is as bad as we have ever seen it and worse than in 2007, after the price of gold fell nearly 5% or $50 with many markets closed and in illiquid market conditions on Sunday night.

Some $2.7 billion worth of gold futures contracts were sold on the COMEX in less than two minutes.

The Financial Times had an interesting article with the wonderfully-balanced headline, Gold bugs squashed by aggressive selling, which speculated that "Chinese fun ...

The "Smartest Money" Used Last Week's Surge To Dump Even More Stock

It was one month ago when we first noted that, perhaps in advance of what was correctly perceived as contentious Greek bailout negotiations, the "smart money", i.e., hedge funds and institutions, had just sold the most stocks on record. This is what BofA's Jill Hall said "BofAML clients were big net sellers of US stocks in the amount of $4.1bn, following four weeks of net buying. Net sales were the largest since January 2008 and led by institutional clientsâ€"after three weeks of net buying, institutional clients' net sales last week were the largest in our data history."

Fast forward to today when we got the latest BofA client flow update in which we were expecting to find that the "smart money", flush with cash and taking advantage of the Greek "deal" would piggyback on last week's biggest weekly market surge since October 2014 when Bullard hinted at QE4 and unleashed a buying surge.

To our surprise we find that not only did "smart" money continue selling, but they were joined by the "smartest" money of all, hedge funds.

From BofA:

Last week, the S&P 500 rallied 2.4%... as the situations in Greece and China turned seemingly less dire and 2Q earnings began to come in better than expected. Amid the rally, BofAML clients were small net buyers of $32mn in US stocks, led by private clients. (Private clients' flows in recent weeks have suggested uncertainty over market direction, as they've alternated between buying and selling most weeks since May.) Institutional clients and hed ...

Small Caps Slammed, Nasdaq Turns Negative On Week As USDJPY Rolls Over

USDJPY rolls over after the Fed revised IP lower and BoJ comments on inflation outlook, Johnny 5 decided "time's up," and stocks tumble..


BOJ'S KURODA SAYS EXPECTS JAPAN'S INFLATION RATE TO ACCELERATE CONSIDERABLY IN COMING MONTHS

*U.S. PRODUCTION RISES LESS THAN PREVIOUSLY ESTIMATED, FED SAYS

Sending stocks lower...

Because all that matters is "carry"...

Charts: Bloomberg

Is This Why The Dollar Is Sliding?

Stocks, bond yields, and the Dollar suddenly started dropping right as The Fed unveiled its revisions for industrial production and capacity utlization.

Already at weak levels, both were revised notably lower, slowing the market's rate-hike expectations and stalling any hope that the recovery is gathering pace.

Judging by the chart below, the June payrolls report was right: snowfall in the summer was indeed much worse than most remember.

Which begs the question: after double-seasonally adjusted GDP numbers is "Toshiba-adjusted" GDP coming next?

U.S. banks prepare for oil and gas company loans to worsen

NEW YORK (Reuters) - U.S. banks are setting aside more money to cover bad loans to energy companies after oil prices plunged over the last year, raising the possibility that deteriorating loans could start to weigh on their earnings, some analysts said.

Daimler Could Hit Rougher Patches Ahead

Mercedes' parent Daimler is racing at top speed into its quarterly earnings this week, but it could struggle to accelerate further.

Earnings Summary for Today

Earnings Calendar provided by Investing.com.

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To contact me with questions, comments or constructive criticism is always encouraged and appreciated:

gary@econintersect.com

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