After a mammoth stock run-up last week, perhaps a bit of a reversal was to be expected yesterday. But the attributed reason for the downdraft was quite sinister. The euro suffered its biggest drop in several weeks against the dollar and notched a new record low against the Swiss franc. The selling was sparked by a story in yesterday’s “Wall Street Journal” about issues with the July stress tests of European banks. Also, the euro was weighed down on comments from Germany’s banking association that the country’s 10 largest banks may need a significant capital contribution. Furthermore, the yen rallied after a Bank of Japan Governor intimated publicly that the Bank of Japan was not planning on massive attempting to stop the rise of the Japanese yen. All of this in turn let the yen to a multi-year high against the dollar and caused the spreads between bonds of countries such as Greece to widen against 10 year yields in Germany to levels not seen since the height of the European debt worries earlier this year. Over the next lightly traded few days, keep an eye on this entire situation as any exacerbation in any direction in the bond and currency markets can very easily have an exaggerated impact on stock prices.
Markets in Asia were lower overnight with Tokyo down 2%. In Europe, prices originally trended lower as bond spreads in Ireland widened out, but then Portugal had a successful bond offering so that provided a floor to the bourses with most of them up ¼% to ½%. Oil and gold are both modestly with the dollar steady. The Beige Book is out at 2PM. Overall, it looks to be very slow once again with many participants leaving a bit early. Trading will likely have a slight upside bias but the key word there is ‘slight.’ Focus on the limited earnings plays, merger plays, the fertilizers, and relative weakness plays (particularly early in the day).
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
X- closed near a high
MCP- closed near a high after JP Morgan initiated coverage on the stock
CASY- closed near a high after getting a higher takeover bid
MIND- decent earnings
PVH- decent earnings
ALTR- decent earnings guidance
GORO- closed near a high
CHNG- closed near a high
JKS- closed near a high
VRX, BVF- closed near highs amid positive buzz over cost synergies expected from their pending merger
ZGEN- agreed to be acquired by BMY for $9.75/share in cash
VRTX- positive data announced on the company’s hepatitis C drug
POT- rumors out there of a higher bid from Sinochem
ONXX- entered agreement with Ono Pharma for development and commercialization of Carfilzomib
Bad-The following stocks have bad news and/or a weak technical pattern
CREE- closed near a low
CSKI- closed near a low after issuing a poor earnings outlook
CHBT- closed near a low
IDIX- closed near a low after the FDA ordered the company to halt its hepatitis drug
MA- closed near a low
NI- share offering
FMCN- share offering
CNST- closed near a low
UDR- share offering
ANGO- poor earnings guidance
CPII- announced termination of merger agreement with CMTL
TLB- poor earnings
SLAB- poor earnings
Earnings:
WED SEP 8 BEFORE
CIEN SFD TLB
WED SEP 8 AFTER
GAME MW
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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