Sunday, July 18, 2010

Europes Tipping Point?

Well, this market remains one to hate whether your making money or losing money. In my opinion Friday should have been Thursday. Classic tipping point where the bad economic news all week just built and built and built until finally the last piece of economic news, the consumer sentiment, just pushed the market over the edge. Thursday was where the real meat of the bad economic news occurred but was blurred with the BP news that the oil well was capped and the Goldman Sachs news that they had settled with the SEC with basically a slap on the wrist.

Friday was nice but there was several things I didn't like. The VIX never elevated. Was this complacency or a sign that the market isn't ready to go down? Also, volume was lighter than alot of down days especially considering it was an options expiration day. From a bears perspective, what I did really like was the market closed below 1070.

Tomorrow is a key day. If you would have asked me Friday I would have guessed that the market was a correction of the overbought nature and the market still has some juice left in it before the final roll over from the economy slowing. This Saturday through a wildcard into it though.

This from Reuters is potentially huge news.

The IMF and EU suspended on Saturday a review of Hungary's funding program, set up in 2008 to save the country from financial meltdown, saying it must take tough action to meet targets for cutting its budget deficit.

Suspension of talks means Hungary will not have access to remaining funds in its $25.1 billion loan package, created by the International Monetary Fund and European Union and which it now uses as financial safety net, until the review is concluded.

Negotiations with the lenders had been expected to finish early next week. Analysts said the forint currency could fall sharply when financial markets reopen Monday due to uncertainty over the international safety net for Hungary, which has financed itself from the markets since last year.

Is this Europes Lehman? This could be a massive catalyst for a blow up in Europe or the market may ignore it. It really shouldn't be the catalyst but the question is if it ruptures the tipping point. Just the consumer sentiment number was probably the least important economic number of the week, once again it was just the final push that sent the market over the edge? Is this it for Europe? I really have no idea. It also may not happen first thing tomorrow if it does happen. It could be slightly delayed. Things to watch for? Watch the CDS of European countries. Watch the Euro. Watch the markets (both government bond and equity) of the periphery countries (i.e. Spain).

Like I said, it probably shouldn't be the tipping point but it could be.

If the market really has turned over, tomorrow into Tuesday is very important. You should probably see some awesome earnings numbers out this week. Microsoft being one of them. It just depends whether the market is looking forward and the macro hurricanes on the horizon or the rear view mirror with the earnings from last quarter. As a bear I don't want to see the market get back above 1075 which isn't that far away.

No comments: