Over 100 people were killed by car bombs in Baghdad at about 3:30 this morning.
That got Europe off in a foul mood this morning and poor earnings guidance from MMM didn't help, nor did poor Industrial Production numbers out of Germany or new fears that Dubai World will cause massive losses (Nakheel lost $3.65Bn in it's first half report). Then Moody’s Investors Service said today deteriorating public finances in the U.S. and U.K. may “test the Aaa boundaries” while Fitch Ratings downgraded Greece’s credit grade to BBB+. Ben Bernanke told the Washington Economic Club yesterday that the U.S. economy faces “formidable headwinds” but, on the bright side Japan’s government backed a stimulus package worth 7.2 trillion yen ($81 billion).
Before we know it, futures are off 100 points at 7:30. Hopefully we don't break below 10,320 at the open as we covered our long DIA puts to that spot, more worried about a bounce up than a market move in our generally bearish direction. We had a very nice day yesterday with our $100K Virtual Portfolio already making it's target $1,000 for the week so locking in the gains seemed prudent but maybe we could have been greedier…
“Central banks and governments around the world are totally right in saying that the recovery is still very weak,” Philippe Gijsels, a senior structured product strategist at Fortis Global Markets in Brussels, said in an interview with Bloomberg Television. “Going into 2010 I would be extremely surprised if we do not see a serious hiccup somewhere.” German industrial output unexpectedly fell for the first time in three months in October, led by a drop in production of energy and investment goods such as machinery. Output decreased 1.8 percent from September, when it advanced 3.1 percent, the Economy Ministry in Berlin said today. Economists forecast a 1 percent gain, off by 280%, according to the median of 38 estimates by "expert" economists in a Bloomberg survey.
Moody's fingers the U.S. and U.K. among top-rated sovereign borrowers, saying they must prove they can reduce their bulging deficits or risk a downgrade to their AAA credit ratings. Under its most pessimistic scenario, the U.S. could lose its rating in 2013 if economic growth lags, interest rates rise and the government fails to shrink the deficit or recover its loans to the financial sector.
Our 25% lines held yesterday, other than the NYSE, and this morning we should get a proper test of Dow 10,250, S&P 1,100, Nasdaq 2,187, NYSE 7,200 and Russell 600 and we'll be happy if they hold and DEEPLY concerned if they don't as it's a long way down (5%) to our retrace target levels at Dow 9,840, S&P 1,056, Nasdaq 2,100, NYSE 6,720 and Russell 576. For the morning, I already commented in Member Chat that I expect the Russell to hold 600 and the S&P to hold 1,100 at the open as long as Retail Sales aren't worse than expected. Sadly, they were...
ICSC Store Sales were out at 7:45 and show a 1.3% drop from the previous week. This week ended on 12/5 and included the Sunday of Thanksgiving (29th) but not Black Friday (27th) and sales are up 2.6% from last year, which also included the Sunday of Thanksgiving so a fair comparison overall. It's a little disappointing after Black Friday gave us a +3.1% week last week as tapering off so soon is a bad sign. Another bad sign is people cutting back on McNuggets and MCD announced this morning that US same-store sales fell 0.6% last month. Even more surprising, sales in Asia, the Middle East and Africa declined 1 percent. This was, of course, much worse than expert analysts had predicted.
Asia was off about a point today and Europe is off closer to 2% ahead of the US open, where the futures are down 1% but we did get a nice bottom flush at 8:30 and we should have a little upward momentum into the open but we're not going to be impressed at all if even one of our lower levels (the 25% lines on our charts) is broken. Congress will hear testimony on the foreclosure crisis beginning at 10 am and that should keep a damper on the buying.
We're still short Commercial Real Estate (SRS at $8) and NY developer Tishman Speyer defaulted on a loan yesterday that was used to buy some of the Chicago towers that Blackstone Group flipped after its $39B buyout of Equity Office Properties in 2007. Privately held Tishman and partner BlackRock are also under pressure from rent disputes at its $5.4B NYC Stuy Town property. Notice how they work together with a bad loan bailed out by another bad loan - that way the banks and CRE's can keep reporting to you how great everything looks – unitl the music finally stops and people need to find chairs anyway. Zero Hedge has a very informative building-by-building look at the next shoes to drop.
Let's watch our levels and continue to be very careful out there!