Accident-Prone Markets: Dave's Daily

 

With volume remaining holiday light and many indicators signaling overbought conditions, we've suggested markets were an accident waiting to happen. This is why what long positions we had were only half-sized. Much of Friday's losses, and the trigger for a decline, were tied to angst and confusion over Greek debt and austerity deals.

Right out of the gate Friday came word a reported Greek deal Thursday was "insufficient" from the EUs view. Demonstrators were on the streets in Athens protesting both violently and peacefully. It's all a little too much for Greek politicians to confront courageously and effectively. So another deadline has come and gone but the pressure hasn't abated. The positive and negative news cycle will continue.

To add to the trouble S&P downgraded 34 of 37 banks in Italy following the country's downgrade. This shouldn't surprise anyone but it did throw some gas on the fire of negative sentiment.

Earnings news was scant on Friday and the only economic news of note was Consumer Sentiment (72.5 versus 74.3 expected & prior 75). Little noticed overall was a U.S. budget deficit projection of $1.3 trillion for 2012--this without even a budget passed by the U.S. Senate. Stating the obvious Bernanke urged more action to heal housing markets but much of this is already clear to most.

With more eurozone woes the dollar rallied while gold and commodities (oil, base metals, agriculture and etc) fell. Bonds rallied as stocks fell.

Stocks gapped lower early and remained down all day. Leading stocks and ETF sectors lower Friday was naturally eurozone issues (EZU and IEV), more volatile emerging markets (EEM and EEB) and materials (XLB) The exception from Thursday's results was LinkedIn (LNKD) which rose over 17% on positive earnings and no doubt some short covering.

Volume was modestly higher once again on sell days which are common as trailing stops get hit. Breadth per the WSJ was negative which at least reduces some overbought conditions.

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SPY - The SPDR® S&P 500® ETF is a fund that, before expenses, generally corresponds to the price and yield performance of the S&P 500 Index. Our approach is designed to provide portfolios with low portfolio turnover, accurate tracking, and lower costs.
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IWM - The iShares Russell 2000 Index Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the small capitalization sector of the U.S. equity market as represented by the Russell 2000 Index. The index represents the approximately 2,000 smallest companies in the Russell 3000 Index.
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QQQ - is an exchange-traded fund based on the Nasdaq-100 Index^®. The Fund will, under most circumstances, consists of all of stocks in the Index. The Index includes 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq Stock Market based on market capitalization. The portfolio is rebalanced quarterly and reconstituted annually. See more details

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