Market Intellect Is Lacking In Face Of Reality

Opening Market Commentary For 07-27-2012

Market opened up moderately higher for the second day after ECB’s Draghi empty promise’s sent the DOW up 200 points. This morning the ‘not-so-good’ US financial’s pushed the premarkets higher but will it stay there? The opening 10 minute volume was red and low.

Volume following the opening turned to green, and moderate as DaBoyz are waiting in the wings to push with all their might to melt the markets up when the volume dries up. The 10 am session is choppy and directionless action doesn’t exactly give me the confidence of a continuing bull rally in the making. Extreme caution is advised until the market dust settles. Investors are apparently in self denial as the green lines of an unconvincing advancing market grow larger by the minute.

@telegraph:

-The US economy grew by 1.5pc in the three months to June, its slowest rate of growth in a year, according to the US Commerce department.

This follows a revised 2pc (from 1.9pc) expansion during the first three months of the year.

Although the reading was better than the 1.4pc expansion forecast by economists surveyed by Bloomberg, it was dragged down by a sharp slowdown in household spending, which accounts for 70pc of US GDP.

–The number is a bit better-than-expected, but still the consumption is weak . . . the economy is quite weak, muddling along growth levels.. . . The outlook for U.S. economy looks challenging based on the data. The revisions to GDP data are relatively small . . .

-Germany’s central bank says ECB bond buying would “blur the line between monetary and fiscal policy,” as it pours cold water over hopes of fresh action by Mario Draghi.

Rumours of a full-scale Spanish bail-out have resurfaced this afternoon, with sources telling Reuters that the country may need a €300bn rescue if borrowing costs remain elevated.

Luis de Guindos, Spain’s economy minister, was said to have mooted the idea at a meeting last week with German counterpart Wolfgang Schaeuble. The EU official said:

De Guindos was talking about €300bn for a full programme, but Germany was not comfortable with the idea of a bail-out now.

French president Francois Hollande has confirmed that he will talk to German Chancellor Angela Merkel about help for Spain . . .

German Chancellor Angela Merkel and French President Francois Hollande are singing from the same hymn sheet as Mario Draghi. Following a teleconference between the two leaders, they said in a statement:

France and Germany are fundamentally tied to the integrity of the euro area. They are determined to do everything to protect it.

Member States must fulfill their obligations to this end, as must the European institutions, according to their prerogatives, .

They reaffirm the need for rapid implementation of European Council conclusions of 28 and 29 June.

The Bundesbank may not be in the most generous of moods this morning, but the German government is doing its best to keep positive sentiment flowing through the markets.

Georg Streiter, deputy chief government spokesman, told reporters that Germany would do “everything that is politically needed” to help the euro. He said:

The president of the ECB said the ECB will do all that is necessary to maintain the euro and the German government will do all that is politically needed to maintain the euro […] The ECB makes its contribution and the German government makes its contribution.

. . . . Draghi’s comments are still having some effect on the bond market. Spanish ten year borrowing costs aren’t as low as they were this morning, but they’re still below 7pc, at 6.93pc.

The DOW at 10:15 is at 12954 up 65 or 0.50%.

The 500 is at 1369 up 10 or 0.74%.

The $RUT is at 781.43 up 4.37 or 0.56%.

SPY is at 137.15 up 0.92 or 0.68%.

The trend is positive and the current bias is up.

WTI oil is at 89.64 trading between 89.20 and 90.25 and the bias is neutral.

Brent crude is at 105.95 trading between 105.25 and 106.40 and the bias is neutral.

Gold is at 1619 trading between 1611 and 1628 with a negative bias.

Dr. Copper is at 3.42 up from 3.38 earlier.

Earlier this morning the USD tumbled from 83.05 to 82.48 earlier and recovered to 82.52 but selling pressure still remains with the trend being negative.

@leavitt:

“There are many things go be concerned about. As a technical trader who tries to keep things simple and not fight the trend, this is the one that concerns me most – the divergence between the small and large caps, or more specifically between the Russell 2000 and the S&P 500.

The S&P doesn’t look too bad – up, down, up, down and after six weeks the index is unchanged.

The Russell on the other hand has not matched the most recent higher high and higher low.

Instead it made a lower high and lower low. When money does not flow into the smaller speculative issues, a warning is flashed.”

Yesterday the markets screamed to new highs for the week because Draghi made some empty promises and painted himself in a corner. What happened to the markets today when Germany said ‘Nein” to the remarks of Draghi. This is a big deal and the US markets continue to fundamentally ignore the EU and its financial connection to the US.

@zerohedge:

As Europe Desperately Attempts To Talk Down Bond Yields Further, Bundesbank Finally Says “Nein”

Following two days of desperate attempts by the ECB to talk down record peripheral bond yields without any actual action, it is only logical that while Merkel is on holiday, we get a third day of talking to buy some time purely thanks to rhetoric and jawboning, before the Chancellor comes back and spoils the party. Sure enough, here it comes via French Le Monde, whose host nation knows very well that after Spain and Italy, France is next:

• ECB PREPARING TO BUY SPANISH, ITALIAN DEBT, LE MONDE SAYS

But while the cat may be away, the Bundesbank has decided to take at least some matters into its own hands:

• BUNDESBANK SAYS IT HASN’T CHANGED STANCE ON ECB BOND BUYING, REMAINS OPPOSED TO FURTHER BOND BUYING BY THE ECB

Then just to confirm that nobody in Europe has any clue what is going on and its politicians are now just making things up on the fly, we get this:

• HOLLANDE-MERKEL TO SPEAK BY PHONE AT 1 PM ON HELP: LE MONDE

And the logical response:

• STREITER SAYS `DOESN’T KNOW’ ABOUT MERKEL-HOLLANDE CALL

Sigh – when one sees such relentless lies and confusion what else can one say but… “Europe.”

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Written by Gary