Market Overview

Notes From The Street: 'A SEA Of RED'


The following is an excerpt from Kenny Polcari's morning note. The full note, which includes a recipe for Linguine with Artichokes and Pancetta, can be found here. He's on Twitter @KennyPolcari

January 14, 2015

And the pressure is on......mkts continue to come under pressure - yesterday was another interesting day..........The DOW rocketed higher right out of the gate only to stall out when it rallied some 280 points.  It then swung from +280 to -145 – or a 425 point swing by mid-afternoon.  The S&P had an intraday move of 49 pts from peak to trough...... OH yes....volatility is back!    Why?  What all of a sudden caused that turnaround?  There wasn’t any new news, or at least any NEW NEGATIVE news – so what gives?  Keep in mind - none of this is new ground breaking news.....

So - throw it all on the table - shine the light on it....

Well - Let's start with The World Bank.........they lowered the global growth outlook - from 3.4% to 3% -  saying that the stronger US economy and weaker oil prices will not offset the difficulties in  the Eurozone and emerging mkts...

The ECB is still undecided (although the European Court of Justice has theoretically approved a QE type of program),  Eurozone struggling with deflation, Greece is preparing for elections, UK inflation numbers are softening,   China to ONLY grow at 7.1%, Japan in neutral, Brazil to grow at 1%,  Russia in deep s**T as their economy is expected to shrink by 2.9% due to lower oil prices and the sanctions imposed by the West,  even Kazakhstan made the headlines as an oil exporting nation suffering from the plunge in oil prices, copper and other industrial metals under pressure, .....Here at home - our economy supposedly in overdrive and  earnings season has just begun - financials (JPM & WFC) to report this morning....,  and just an hour ago Italian President Giorgio Napolitano offers up his resignation - do you get the picture? 

***JPM just reported earnings of $1.19 vs expectation of $1.31....and BOOM - the stock trades down $1.50 (2.5%)  to $57.45 - breaking its 200 DMA at 58.36.....Futures drop another point on this news..... JPM continues to be all over the tape - bouncing between $57.45 and $58.10ish...

So then if the mkt knew all of this macro info – we must look at the technical's….and it seems to many of us – that the mkt has suffered a technical break – can’t find support at the 50 DMA (2039) – all while dealing with these broad macro issues that have not resolved themselves so   – taken together – it is no wonder that the mkt can’t find near term stability in a world of instability. 

As detailed in my note from yesterday – 2039 was a KEY level for S&P Futures – it represents the 50 DMA and we have been seeing the mkt tease this level over the past 2 weeks – only to fail to find real support.  Yesterday - I said that if it failed once again - then  expect the mkt to test the 100 DMA at 1995/2000 and it looks like we will do this morning. 

Global mkts in a sea of red....US futures are down 9 pts trading at 2006 in early pre-mkt trading... The path of least resistance is down for now.....

Everyone is trying to make oil the culprit…… Oil is not the sole culprit here…..Yes - Oil continues to bounce around also unable to find a bottom – especially as almost every strategist/analyst on the street has something to say about where it's going, what effect lower prices are having on the economy, how much everyone should be pumping, who should stop pumping,  who should keep pumping,  what countries are getting hurt, what countries are celebrating, who wants to teach Vladimir a lesson, who wants to bankrupt the US shale producers..... blah, blah, blah…..No wonder the mkt can’t find peace – there is way too much noise!  And so it goes…..

CNBC guest Tom Kloza ( chief oil analyst) points out that there is something like $120 billion of ‘found money’ in the hands of consumers (never mind the money saved for industry)  as a result of lower energy prices forecast for 2015 alone!  HELLO????  DING DONG…..ANYONE HOME….!!!   $120,000,000,000. (120 with 9 zeros)

And where do you think that money will end up?  New clothes, new cars, new kitchens and baths, new appliances, vacations, new landscaping, new roofs, new houses,  investments, 401K retirement plans, IRA’s  so that means autos, retailers, transports, airlines, consumer durables, consumer non-durables, technology, industrials, financials are all beneficiaries of this ‘tax break’ that we are now enjoying…..

Yeah – ok so the energy companies are getting hit over the head – OH BOY     - are we gonna go there?   Do you remember when they were hitting us over the head?  I’m just sayin……give me a break already!

So …guess what?  As noted in prior notes - the mkt is not for the faint of heart - when the herd mentality heats up - the computers kick into high gear - unable to process the emotion - working only off of strict mathematical moves are more exaggerated and violent.   For the long term investor - days like this require patience - not irrational decision making.....

Eco data today includes mortgage applications - and they showed a stunning increase of 49%.......Next up - Retail sales at 8:30 am.....On the earnings front - expect the chatter to be all about the financials as analysts try to speculate on the others after we learned of the issues confronted by JPM.....

Look at the JPM chart - the stock is already down 10% from January 1st......  This is not by accident - the move was in anticipation of weaker numbers - so be careful.....

Sea of RED around the world.....Japan -1.14%, Hong Kong -0.43%, China -0.40%, ASX -0.95%, FTSE -1.75%, CAC 40 - 0.37%, DAX - 0.3%, EUROSTOXX -0.24%, SPAIN -0.24% and  ITALY -0.04%

Take Good Care


"The market commentary is the opinion of the author and is based on decades of industry and market experience; however no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of O’Neil Securities, Incorporated or its affiliates”

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Posted-In: Previews Trading Ideas


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