Tuesday, May 25, 2010

Ugly Morning in Premarket

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During all those weeks and indeed months the market rallied without a care in the world, I often said one of these days we are going to wake up to a -2 to 3% morning as payback. This appears to be one of those days. Suddenly news everywhere matters. Yesterday we had a hint of what might come today as the stock market actually fell on a Monday - which put that session in the stark minority during the past 8-9 months.

In our weekly summary I said technically we have 2 points to the downside, last week's intraday lows in the upper 1050s and then February 2010 lows of S&P 1045. As of this typing the 1045 is very much in play. I also said, if that level breaks it could get ugly so if bulls are to make a stand this is the place to make it.


The next obvious level if 1045 breaks would be November 2009 lows at S&P 1030, and below that October 2009 lows of S&P 1020. Neither of those is that far below 1045 obviously! If those break September 2009 lows of 990 come into play. Can you imagine we are talking this way after 2.5 months of unmitigated gains in mid Feb to late April? Even I would say there is some good value in the market based on corporate profits below S&P 1000, but value means little when people are in panic.

Today's culprits appear to be some shuffling of debt amongst Spanish banks (hide it in this one! no this one!) and Korean political stress. One must wonder when the ECB is turned into a full fledged Federal Reserve and takes their rates from a hearty 1% to 0%, and goes "all Bernanke" with a full blown QE program. Because the only solution to debt is more kicking of the can down the road, as Helicopter Ben taught us.
  • U.S. stock index futures sank after a report that North Korean leader Kim Jong Il last week ordered his military to prepare for combat and amid mounting concern Europe’s debt crisis will endanger the global recovery.
  • Concerns over the health of European finances deepened after four Spanish savings banks submitted a proposal to the nation’s central bank to merge their businesses. The Bank of Spain is stepping up efforts to buttress or combine the weakest of Spain’s “cajas,” or mutually owned banks.
  • The International Monetary Fund said in a report yesterday that Spain’s banking industry “remains under pressure” as consolidation has been too slow.
  • The Bank of Spain said on May 22 it appointed a provisional administrator to run CajaSur, a savings bank crippled by property-loan defaults. The seizure is the first under a state- financed rescue plan that Standard & Poor’s estimates may cost as much as 35 billion euros, increasing the burden on Spain’s finances as the government tries to reduce its budget deficit.
  • U.S. two-year swap spreads pushed out to their widest levels in 13 months on Tuesday, with traders expecting benchmark dollar LIBOR to keep ratcheting higher as the euro zone debt crisis makes banks wary of lending to European institutions.

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