Europe’s problems finally became a bit of a problem state-side for the American stock market yesterday. For the first time since the debut of the euro in 1999, a euro member lost its investment grade status as Standard and Poor’s cut its debt rating three rungs to “junk” status. The move ostensibly puts Greek debt at the same status as bonds issued by Azerbaijan and Egypt. What sunk European stocks in particular yesterday (stocks throughout the continent fell 3% to 4% across the board) was a downgrade of Portuguese debt as hinted at in yesterday’s blog. There has been a school of thought that besides the decent economic recovery the United States’s economy is trying to make, the American stock market’s rally has been aided by inflows from European money. I mean, if I am a relatively wealthy Greek shipping magnate and I am afraid of the direction of my own country’s debt and equity securities much less worried about the rest of Europe, the United States looks like a pretty good investment conduit for my funds. Of course, that can artificially drive up a market, but it is of little consequence if I want a little risk and don’t want to hold my monies in say, the National Bank of Greece. The counterargument is the contagion side- that is the side that reared its ugly head yesterday. For perspective, the U.S. two-year Treasury note has a yield of about 1%. It’s bad enough that the yield on the Greek two-year note topped 18% yesterday, but the two-year in Portugal surged to a 5% yield as well. Furthermore, there was a decline in the bonds of such nations as Ireland and Spain. This in turn led investors out of many investment vehicles with oil down over 2%, copper 4%, aluminum 7%, and American stocks about 1.5%. Combined with the Goldman hearings, appetite for risk declined markedly yesterday as financials and techs tumbled across the board (although GS finished ahead marginally on the trading session). The thing to keep an eye on in the immediate-term is Germany’s reaction to this as the crisis is intensifying and along with it, the euro. It is a precarious situation because if Greece, Spain, Portugal, and even Ireland begin having serious problems, it marks down the euro and it’s anybody’s guess what could happen. And this, kids- this is where day traders come into play as stocks become more volatile (the VIX was up over 10% yesterday). So, although we are in the waning stages of this quarter’s earnings season, it looks like stock prices will be much more erratic in days to come with a focus on Europe.
Markets in Asia were hit very hard overnight with Tokyo down 2.6% and Hong Kong 1.5%. In Europe, prices were sharply lower but came back as an EU spokeperson said that negotiations with Greece were on track. Markets in places like Germany were down almost 2% intra-day but as of this writing, the DAX is down only ½% and the FTSE in London is actually marginally higher. The euro is actually the strongest currency intra-day right now with the dollar down nearly a euro although up a yen. Futures were initially lower with stocks like AAPL down three points around 5:30AM, but trading nicely higher now as the euro has strengthened. For the day, everything hinges on the euro. As long as the euro is stable, look for a nicely higher open followed by a bit of a dip by some nervous longs. The ferocity of the dip will set the tone for the day; if it is strong, trade relative strength. If not, look for an A-B-A2 to the upside.
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
BRCM- decent earnings
DFG- decent earnings
LIFE- decent earnings
ISSI- good earnings
MOLX- decent earnings
NSC- decent earnings
CSII- received FDA approval for Orbit II coronary clinical trial
RFMD- decent earnings
DTG- decent earnings
GLW- decent earnings
OC- decent earnings
TEL- decent earnings
TMO- decent earnings
ROK- decent earnings
RCL- better than expected earnings guidance
Bad-The following stocks have bad news and/or a weak technical pattern
X- closed near a low after posting earnings
CLF- closed near a low
FORM- closed near a low after posting earnings
UIS- closed near a low after posting earnings
FTBK- reversed in closing near a low
ASFN- reversed in closing near a low
AIG- closed near a low
PRU- closed near a low
NOV- closed near a low
AMP- closed near a low
MAS- closed near a low
CAS- closed near a low
CREE- closed near a low
NARA- closed near a low
CAAS- closed near a low
NTY- closed near a low after posting earnings
IBM- closed near a low despite announcing an increased stock buyback
PNRA- poor earnings
AMAG- poor earnings
PNC- Treasury Department announces public offering of warrants to purchase common stock
RHI- terrible earnings
WBSN- poor earnings
BWLD- terrible earnings
MTW- poor earnings
HTCH- terrible earnings
CNXT- poor earnings
JST- terrible earnings
FLEX- poor earnings
PMTC- poor earnings
AMKR- poor earnings
PFCB- poor earnings
Earnings:
WED APR 28 BEFORE
ABX AOL ATI
BCRX BEN BRY
CMCSA COP CP
DOW DTG EQT
GD GLW GT
HES HST IACI
IMA JBLU MHS
MSO NOC OC
PFCB PX ROK
S SAP SEE
SLAB TEL TMO
VTR WLP
WED APR 28 AFTER
ACE AKAM ALL
AVB BEC BIDU
CCI CERN CLF
CML COG CVD
EQR ESRX FSLR
FTI GG GMCR
HRS ILMN ITRI
KRC LNC NFX
NLY NTRI OI
OII OIS OKE
RE RYL SKX
TSRA V VAR
VRSN WLT XLNX
Good luck today.
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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