by phil - July 28th, 2015 8:34 am
Wheeee, what a ride!
Already this morning, EU markets have taken back almost all of yesterday's 1.5% drop as a rash of M&A announcements spur bargain-hunters in various sectors. M&A announcements are a particularly desperate form of market manipulation on the part of the Banksters as these deals take months to put together and their announcements are usually timed with great care.
In this case, a group of deals have been rushed forward to give the sheeple the impression that the markets are undervalued but it's just the announcements of pending deals that have been accelerated to give you the impression that we're at some sort of bottom so, like the poor Chinese Retailers who ran back into the markets the past two weeks, you can take more shares off the hands of Banksters who failed to sell ahead of the drop and need another crack at it.
The banks don't even care if they are screwing their own clients – they have hundreds of Billions at play in the markets and if rushing a deal gives them a 1% bounce for a couple of Billion, what do they care about the effect on their $100M fee (negligible anyway). They certainly don't care what they are doing to the retail buyers – check out this typical story of how they are financially raping the farmers in China:
Oops, sorry, you can't check it out, it's been redacted on Bloomberg already (I was surprised they showed it in the first place). This morning a video report on China followed a farmer who had about $200,000 in his account and was playing the market and, due to relentless Government promotions and the urging of his broker, he accepted a $1M margin account and continued buying stocks to record levels. The bubble burst and he lost not only his whole $200,000 but now owes $200,000 to the broker.
He then takes a day's trip to Beijing to complain to the Government, in the naive belief that they will fix things for him because it was the Government's propaganda that got him to invest in the first place. Of course, no one will even see him about his problem and he is forced to take the long ride home, where
by ilene - July 28th, 2015 5:05 am
As I have noted for the last two weeks, this earnings season carries a special significance. It provides an alternative to the official data on the economy. After a bad week for stocks, the punditry will be asking:
What is the message of the market?
Prior Theme Recap
In my last WTWA [Weighing the Week Ahead], I predicted that attention to earnings reports would once again dominate the news. This was an accurate call. Earnings stories, both good and bad, were daily highlights. Our featured chart on dollar weakness as more important than geopolitics was especially accurate. More on earnings in the account of the week below.
We would all like to know the direction of the market in advance. Good luck with that! Second best is planning what to look for and how to react. That is the purpose of considering possible themes for the week ahead. You can try it at home.
This Week’s Theme
Earnings season has developed a bipolar theme: Strength in some popular momentum names and weakness in stocks sensitive to the dollar. The market has provided a daily verdict on earnings reports. For many there is also an important economic message. Observers are asking:
What is the message of the market?
…and for some… Will the Fed be listening?
The earnings message draws several different viewpoints, including some noted last week.
- A weak economy has finally taken a toll on corporate profits, especially in some sectors.
- Stock market leadership has narrowed dramatically. Frank Zorilla illustrates with the chart below. He is open-minded about how this divergence could resolve, including a possible broad rally.
Stockbee has a very similar take on this important theme, including the potential for a rally.
- The strong dollar has hurt exports and profit margins of many large companies. It is showing up dramatically in energy stocks.
- Commodity price declines have accompanied the earnings
by Sabrient - July 27th, 2015 7:42 pm
Reminder: Sabrient is available to chat with Members, comments are found below each post.
Courtesy of Sabrient Systems and Gradient Analytics
In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable trading ideas, including a sector rotation strategy using ETFs and an enhanced version using top-ranked stocks from the top-ranked sectors.
Corporate earnings reports have been mixed at best, interspersed with the occasional spectacular report — primarily from mega-caps like Google (GOOGL), Facebook (FB), or Amazon (AMZN). Some of the bulls have taken their chips off the table until after Labor Day, while others have merely scaled back to scalping some trades. Either way, stocks appear destined to thrash about for the rest of the summer.
Earnings season is off and running, and yes, some of the reports have been startlingly strong. Beyond the blowout numbers from mega-caps like Google, Facebook, and Amazon, we have heard the occasional terrific report from firms like Sabrient-favorite Valeant Pharmaceuticals (VRX). On the flip side, IBM (IBM), United Technologies (UTX) and Verizon (VZ) have disappointed. In any case, leadership has been narrowing, and market breadth is about the worst in the past 15 years.
Healthcare has been by far the best performing sector again this year, but Financials are starting to perk up. And looking forward, there is optimism that banks will do well in an environment of rising rates and a steepening yield curve.
Of course, given the strength of the US dollar, commodities across the board are in glut mode, with much weeping and gnashing of teeth in the Energy and Basic Materials sectors. Nevertheless, refiners of petroleum products are doing quite well, thank you, and enjoying strong operating margins. The “crack spread,” i.e., the difference between the cost paid for crude oil versus the price received for refined product has been very attractive. Sabrient favorites in the space include Tesoro (TSO), Valero Energy (VLO), and Marathon Petroleum (MPC).
by ilene - July 27th, 2015 6:35 pm
By John Mauldin
“I am sure the euro will oblige us to introduce a new set of economic policy instruments. It is politically impossible to propose that now. But some day there will be a crisis and new instruments will be created.”
– Romano Prodi, EU Commission president, December 2001
Prodi and the other leaders who forged the euro knew what they were doing. They knew a crisis would develop, as Milton Friedman and many others had predicted. It is not conceivable that these very astute men didn’t realize that creating a monetary union without a fiscal union would bring about an existential crisis. They accepted that eventuality as the price of European unity. But now the payment is coming due, and it is far larger than they probably anticipated.
Time, as the old saying goes, is money. There are lots of ways that equation can work out. We had an interesting example last week. Europe and the eurozone pulled back from the brink by once again figuring out how to postpone the inevitable moment when all and sundry will have to recognize that Greece cannot pay the debt that it owes. In essence they have borrowed time by allowing Greece to borrow more money. Money, I should add, that, like all the other Greek debt, will not be repaid.
I’ve probably got some 40 articles and 100 pages of commentary on Greece and the eurozone from all sides of the political spectrum in my research stack, and it would be very easy to make this a long letter. But it’s a pleasant summer weekend, and I’m in the mood to write a shorter letter, for which many of my readers may be grateful. Rather than wander deep into the weeds looking at financial indications, however, we are going to explore what I think is a very significant nonfinancial factor that will impact the future of Europe. If it was just money, then Prodi would be right – they could just create new economic policy instruments, whatever the heck those might be. But what we’ve been seeing…
by phil - July 27th, 2015 7:51 am
I told you so barely covers it on this one!
China failed to provide the anticipated additional stimulus over the weekend or today and the Shanghai Composite quickly gave up half of the gains they made over the past two weeks of MASSIVE stimulus and rule changes that STILL have many stocks halted and this time no one was allowed to cover with short sales. This morning, in fact, barely one in 100 stocks that were trading in Shanghai were not in the red with MOST of the index closing limit down. THAT, my friends, is a catastrophe!
As I noted on Friday, China's PMI showed CONTRACTION for the second month in a row DESPITE the MASSIVE stimulus – the only thing that would have been strange about today would have been a rise in the Chinese indexes. This morning, rather than new stimulus, China reported (surprise!) that Industrial Profits had fallen 0.3%. That's WITH the Government tossing Trillions at the market and WITH the CLAIM of 7% GDP growth.
You'll hear a lot of nonsense in the MSM but what's really spooking investors in China today is that you can no longer reconcile the country's fake economic data with the fake (but not as fake) Corporate Profits. We discussed some of this nonsense, here, here, here and here – if you'd like to get up to speed.
China consumes 40% of the World's coal, copper and steel and essentially acts as America's factory floor, making goods inexpensively, often in conditions that would not be tolerated in US factories. To some extent, those lax regulations are now restricting China's growth as the air is unbreathable and the water is undrinkable to the point where it's affecting the fertility rate of their population.
As noted by Morgan Stanley earlier this month, "Forget about all the shoes, toys and other exports. China may soon have another thing to offer the world: a recession." China accounted for 38 percent of the global growth last year, up from 23 percent in 2010, according to Morgan Stanley. It’s the world’s largest importer of copper, aluminum and cotton, and the biggest…
by ilene - July 27th, 2015 4:23 am
Bloomberg video: Herald Van Der Linde, head of equity strategy at HSBC, discusses Chinese equities and the Shanghai Composite's 8.5% smackdown. Other Asian and European markets are down in sympathy. (Source: Bloomberg)
Courtesy of Mish.
The crash in Chinese stocks continued today following a respite last week.
Shares on the Shanghai index plunged 8.48%, the Biggest One-Day Plunge Since February 2007.
The CSI300 index of the largest listed companies in Shanghai and Shenzhen fell 8.6 percent, to 3,818.73, while the Shanghai Composite Index SSEC lost 8.5 percent, to 3,725.56 points.
The drops were the biggest since Feb. 27, 2007.
It wasn't immediately clear what caused such a sharp tumble in the afternoon session. At midday, the two indexes were down about 2.5 percent.
"The recent rebound had been swift and strong, so there's need for a technical correction," said Yang Hai, strategist at Kaiiyuan Securities.
It should be immediately clear stocks are in a bubble, so there is no need to search for a "reason" for the plunge.
If anything, one might wonder why the stocks rose to such absurd valuations in the first place.
$SSEC Shanghai Index
Stock rose from about 2300 in November to 5178 in June. That was an advance of 125% or so in about seven months. Today's decline is shown by the second blue arrow.
Since the plunge in June, China stepped in to directly buy stocks, prohibit short selling, halted trading on half the companies, and prohibited large shareholders from selling any shares for six months.
Expectation of such moral-hazard maneuvers coupled with cheap money is exactly what fuels bubble activity in the first place.
Amusingly, margin buying is still at or near record levels.
Mike "Mish" Shedlock