A term tossed around yesterday was “Basel III.” It was arguably the number one influential factor with regard to yesterday’s stock market action yet most traders (including myself) could not give a coherent explanation of exactly what it was. It all started in 1988 in Basel, Switzerland when a group of central bankers published a set of minimal capital requirements for banks. The requirements were cemented by the G-10 nations in 1992. Basel II in 2004 updated all of this in an attempt to create a worldwide benchmark which banking regulators could use when creating regulations much less the amount of capital needed to safeguard the many varied risks that banks encounter. Fast forward to the present. Basel III is an attempt to shore up some of the concepts from Basel II in particular with tighter definitions of capital requirements, conduits to attempt to limit counterparty credit risk, and a provision for non-subjective liquidity ratios. Basel III will specifically require banks to hold high-quality capital totaling at least 7% of their risk-bearing assets. It is a gigantic rise over the current 2% but is much lower than what banks were worried about; it also has a phase-in algorithm extending to January 2019 or later. The net of all of this is that most big banks worldwide fit the criteria already. Thus, the market initially rallied yesterday because the fears of an overhang, i.e. banks being forced to sell shares of stock to raise capital, were dissolved. There was also a sigh of relief that most banks are OK and that there weren’t any surprises. However, the market drifted lower yesterday in the afternoon because a lot of this was somewhat expected plus it makes one wonder where exactly the limbo bar has been placed here. If all that was required to be a major league baseball player was the ability to swing a baseball bat, I am guessing many more of us would be major league baseball players. That said, the thought that banks are being given a green light to make more loans is of course a good thing overall. So, in a nutshell, this seems to be a one-day event as there is a slew of economic news out this week domestically…but it was a pretty major market-influencing event to be sure yesterday.
Markets were quiet overnight with Tokyo down 0.2% and Hong Kong ahead 0.2%. The action in Europe is quite similar with every major bourse within a whisker of unchanged. Retail sales data came out slightly stronger than expected this morning which gave a brief lift to futures. Gold is notably stronger to the tune of 1% with the dollar slightly weaker across the board. Business inventories (0.8%) are out at 10AM. Look for a quiet day with prices not straying too far from yesterday’s levels. The bias seems to be a tinge lower with the dollar falling a bit. Focus on the earnings plays and retailers such as BBY, the small cap biotechs in the news, and the stocks that closed near their highs yesterday for potential short covering this morning.
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
ZUMZ- decent earnings guidance
GS- closed near a high
DTG- closed near a high after receiving a $50/share bid from HTZ
DIN- closed near a high
LULU- closed near a high on continued earnings momentum from Friday
JKS- closed near a high
CDII- received major contract from Beijing Tianrum Construction
JNY- closed near a high
CIE- closed near a high
GGC- closed near a high
PTC- closed near a high
ULTA- closed near a high
RVBD- closed near a high
MMYT- closed near a high
QLIK- closed near a high
XNPT- closed near a high
IRWD, FRX- positive phase 3 Linaclotide results
BBY- great earnings
CBRL- decent earnings
Bad-The following stocks have bad news and/or a weak technical pattern
POWI- cut revenue guidance
LH- closed near a low after acquiring Genzyme Genetics from GENZ, but it will be dilutive to earnings
DYP- closed near a low after their auditing firm was changed; also, there was an exodus of executives and directors
INET- closed near a low
VOLC- notes offering
FUL- poor earnings
DGI- cut earnings guidance
GMCR- acquiring Van Houtte; sees deal
Earnings:
TUES SEP 14 BEFORE
BBY CBRL KR
TUES SEP 14 AFTER
PLL
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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