At 12PM ET today (late afternoon/early evening in most of western Europe aka well after the close of the European bourses), European regulators are going to release the European version of their “stress tests.” These tests are an attempt to measure the wherewithal of European banks to withstand major future economic panics (much less bank panics). Various indicators seem to hint at placid results from the recent rally in European equities to more sophisticated measures like the Markkit iTraxx Europe Senior Financial Index of credit-default swaps on 25 banks and insurers. These financial conduits measure the cost of insuring against a bank default and are priced at their lowest level in several months. Thus, there are three scenarios which could occur today. The best case is that the report is hunky-dory. Indeed, when the banks passed a real stress test a few weeks ago when the worst banks did not need to borrow as much money as was thought, it took a lot of worry out of the market. However such an outcome is highly unlikely as there are definitely some problems there. The worst case is that the report is terrible, i.e. it indicates problems system-wide even at the major banks. Such a scenario is unlikely as well as it’d set off a panic (and would obviously be very bad for equities). The case that is the most likely is the big vs small case in which all big banks will be shown to be OK while selected small banks will be in need of further financing. Because this is expected, there likely would not be a major reaction to the news. Indeed, I’ve already heard certain snippets such as Goldman Sachs estimating about 90% of the banks will pass with several small to medium sized Spanish banks failing. Regardless, on a muggy July Friday with little news out at mid-afternoon, the stress test news is something to watch out for today particularly if any early headlines are leaked and certainly at noon if not.
Markets in Asia had a good showing overnight with Hong Kong up 1.1% and Tokyo up twice that at 2.2%. In Europe, the gains are more muted with Frankfurt up 0.6% and Paris up 0.5%. Commodities are mixed with gold up slightly and oil down slightly. The dollar is flat against the yen but notably weaker against the euro and pound- interesting ahead of the stress test results. Futures too are mixed with the S&P’s up slightly but the NASDAQ’s down slightly. It looks off-hand like it will be a consolidation session but very active in individual stocks. The wildcard is obviously the stress tests but the effects of the results are likely to be mute unless they are exceptionally bad. Focus on all the earnings plays, big cap techs like AAPL, and wait/watch for reaction if any to the stress tests and trade accordingly.
Reiterating-
If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified.
If something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified-
Good- The following stocks have good news and/or a strong technical pattern
BCR- decent earnings
ETFC- good earnings
RVBD- decent earnings
ATHN- good earnings
ALGN- good earnings
CMG- great earnings
MOS- decent earnings
CYMI- decent earnings
BLUD- decent earnings
WYNN- closed near a high
CLF- closed near a high
QCOM- closed near a high after posting earnings
AEIS- closed near a high after posting good earnings
NTGR- closed near a high after posting good earnings
FFIV- closed near a high after posting good earnings
APC- closed near a high
FDX- closed near a high on the UPS earnings
AFL- closed near a high
DLX- closed near a high after posting good earnings
KWK- announced the sale of its Quicksilver Gas Services unit
F- good earnings
ASH- decent earnings
DOV- decent earnings
JCI- decent earnings
R- decent earnings
Bad-The following stocks have bad news and/or a weak technical pattern
AMZN- terrible earnings
SNDK- poor earnings guidance and the CEO is retiring somewhat unexpectedly
COF- poor earnings
BEC- terrible earnings
IBKR- poor earnings
CAKE- poor earnings
SWKS- poor earnings
QLGC- terrible earnings
MCRL- poor earnings
RMBS- poor earnings
FLEX- poor earnings
ESRX, ABC- closed near a low after poor earnings from competitor MHS weighed down the sector
MLNX- closed near a low after posting bad earnings
LH- closed near a low after posting bad earnings
WDC- closed near a low after posting bad earnings
SWI- closed near a low after posting bad earnings
STJ- island reversal in closing near a low after posting earnings
ACTG- poor earnings
RST- poor earnings; CEO resigned as well
WL- bad earnings
MHP- poor earnings
SLB- poor earnings
MCD- poor earnings
JCI- poor earnings
Earnings:
FRI. JUL. 23 BEFORE
ASH DLR DOV
F HON IDXX
IR JCI KMB
MCD MHP R
SLB TROW VZ
WL
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
Joseph R. McCandless- Managing Partner
D. Timothy Seaquist- Managing Partner
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