Negative News From Europe Unsettles Markets: Dave's Daily

The FT did report a euro zone divide now exists among leaders. A negative summary of this report comes from Zero Hedge with their sober view. Bank raids from the European Commission were noted at TheStreet where price-fixing is being investigated and may produce some scalps the masses seek. Greek riots were ubiquitous and easy to watch streaming on the web. I think the public would rather default than have the austerity demanded.

One of the more interesting stories today was embedded in Morgan Stanley's earnings report. The street expected the company to earn $.30 but the company beat with $1.15 based on an accounting adjustment. How did that work? The company has debt, and plenty of it, but they adopted the unique DVA (Debt Value Adjustment) ploy. It goes like this. The company's debt has become worth much less in the open market. If they bought the debt back in the open market they would gain $3.4 billion in profits--as CEO James Gorman stated: "It's a bizarre accounting anomaly". I'll say! Without this adjustment the company earned $.03. This is the kind of stuff going around these days that doesn't pass the sniff test. I wonder if you could perform this trickery as a small business person trying to borrow some money from a bank like Morgan Stanley. Not a chance in hell would be the answer.

All this is unsettling and markets fell sharply with euro zone news and especially including the release of the Fed's Beige Book which showed very poor economic growth.

Apple's (AAPL) earnings miss still reverberated through the tech sector and some of the outsized gains in financials were taken back.

Gold prices fell once again and commodities overall were lower. The dollar rallied only slightly while bonds were somewhat stronger.

Volume was about average for the period while breadth per the WSJ was quite negative.

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The NYMO is a market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE. When readings are +60/-60 markets are extended short-term.

The McClellan Summation Index is a long-term version of the McClellan Oscillator. It is a market breadth indicator, and interpretation is similar to that of the McClellan Oscillator, except that it is more suited to major trends. I believe readings of +1000/-1000 reveal markets as much extended.

The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge". Our own interpretation is highlighted in the chart above. The VIX measures the level of put option activity over a 30-day period. Greater buying of put options (protection) causes the index to rise.

Continue to Concluding Remarks

After the close DJIA heavyweight American Express (AXP) reported earnings of $.90 which missed expectations or $.96 and the stock was somewhat lower.

Meanwhile back in Europe, the Greek parliament passed the austerity package on the first vote while 100K workers were on strike and taking to the streets.

Thursday brings us the usual reports from Jobless Claims, the Philly Fed and Leading Indicators. Who knows what will come from Europe overnight.

Barring any other news or credible rumors it's logical to assume markets will remain tense until Sunday's meeting in the euro zone.

Let's see what happens.

Disclaimer: The ETF Digest maintains active ETF trading portfolio and a wide selection of ETFs away from portfolios in an independent listing. Current positions if any are embedded within charts. Our Lazy & Hedged Lazy Portfolios maintain the follow positions: QQQ, XLK, XLU, EFZ, SH, EUM, VT, MGV, BND, BSV, VGT, VWO, VNO, IAU, DJCI, DJP, VMBS, VIG, ILF, EWA, IEV, EWC, EWJ, EWG, EWU, EWD, GXG, THD, AFK, BRAQ, CHIQ, TUR, & VNM.

 

The charts and comments are only the author's view of market activity and aren't recommendations to buy or sell any security.  Market sectors and related ETFs are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period.  Chart annotations aren't predictive of any future market action rather they only demonstrate the author's opinion as to a range of possibilities going forward. More detailed information, including actionable alerts, are available to subscribers at www.etfdigest.com .

 

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

Dave Fry is founder and publisher of ETF Digest, Dave's Daily blog and the best-selling book author of Create Your Own ETF Hedge Fund, A DIY Strategy for Private Wealth Management, published by Wiley Finance in 2008. A detailed bio is here: Dave Fry.

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