Caution: Break Out And Falling Market Coming To A Broker Near You

Opening Market Commentary For 06-13-2012

Markets opened marginally lower as expected and with little fanfare and then gained speed in falling, then hesitated, then continued, then hesitated once again. You know, I hate days like this. Volume was light to anemic at the start and by the 10 minute mark it had remained red, but moderate as the markets ‘sorta’ melted further down. By the 20 minute mark light to moderate volume turned green as the ‘dippers’ bought up the dip, such as it is. Finally, by 10 am we witnessed Charlie Brown’s football being snapped from under the ‘dippers’ feet leaving them to scramble covering their buys.

(By 10:30 the markets did move back up and above opening prices – more later.)

The trend is bearish, but light volume will keep investors guessing for a while as range bound or sideways markets are always difficult to surmise what is on Mr. Market’s plate for the day. Even in face of a bearish outlook, as we have now, one can’t always determine daily trends and today is one of them. Low volume has typically moved the markets up by the end of the day but it is a difficult task to determine early on. The risk/reward ratio today is also very low as this morning churns on leaving day traders in a quandary awaiting for the break out that is coming. Swing trading is very much alive as more as more short selling takes place.

The 10 o’clock reporting of medium importance US Business Inventories (APR) gained +0.4% vs. +0.3% expected and +0.3% last month. This news only moved the markets up moderately and the bias is still negative.

The ‘not so good’ financial reports for the morning will not help drive the markets up today even though markets are considered VERY oversold. Some financial analyst’s feel we could see a short term bounce to alleviate the oversold status. Here is the financial reporting this morning in graphical form. The first column is what was reported and the second is what was expected and the third is the last report.

The European news continues to be dreary and not very inspiring to make any ‘leap of faith’ buying of long securities. In fact, more short selling appears to be the order of the day by many analysts.

@zerohedge:

Forget Three Months: Italy May Have Two Weeks Tops, As “It Already Is Where Spain Is Heading”

“Yesterday, Austrian finance minister Maria Fekter ruffled the unelected Italian PM’s feather by saying “forget Spain, Italy is next in the bailout line” – a statement which as expected was promptly loudly refuted, mocked, and scorned by everyone possible: the type of reaction that only the truth can possibly generate in Europe.

So far so good: after all the typical European reaction to any instance of the truth is loud screams of “lies, lies” and promptly sticking your head deep in the sand.

However, this time around Italy may not have the benefit of the doubt, nor the benefit of some sacrificial replacement of a prime minister: Silvio is long gone, and at this point switching one banker figurehead with another will do precisely nothing.

Which is why this morning’s assessment from Bloomberg economist David Powell is spot on: “Italy would probably be forced into receiving a bailout if it were to face another two weeks like the last seven days.”

But the punchline: “The bad news for Italy is the country’s stock of debt is already as large as Spain’s may become after years of fiscal turmoil. In other words, Italy already is where Spain may be heading.”

@telegraph:

Greek have been withdrawing €800m a day from the nation’s banks, reports CNBC, and stocking up on pasta and canned goods ahead of the weekend’s elections.

Some more bank lending figures which don’t paint a pretty picture for Greece and Spain:

ECB lending to banks in euros rose by a further €8.5bn last week, said Simon Ward, chief economist at Henderson Global Investors.

That was “consistent with continued deposit flight from the periphery, necessitating increased borrowing from the ECB and national central banks. Lending has increased by €52.8bn over the last five weeks,” he said.

“Greece and Spain probably account for the bulk of the €52.8bn lending rise over the past five weeks. Calendar May figures show an increase in Banco de Espana lending to banks of €26.3bn. Banca d’Italia lending, by contrast, was little changed – up by only €0.6bn.

The gap between the €52.8bn system-wide rise over the past five weeks and the €26.3bn Spanish increase in May suggests that Greek banks have suffered an outflow of up to €26bn, equivalent to 6pc of their total assets at the end of April and 15pc of their domestic deposit base.”

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Written by Gary