The Breaking Point??

Another weak day on Friday with sorry consumer sentiment data. I didn't think that the consumer sentiment numbers really meant anything when it was improving a couple of months ago and I don't think it means much now. The market feels like it is moving towards a breakdown but volume was really really light on Friday. It seems to easy that it would do it tomorrow or play out like you would think it would but who knows. CIT is preparing for bankruptcy with the U.S. government saying it is small enough to fail. That may be the case but it appears like it would be the biggest bankruptcy since Lehman (in terms of importance and interconnectedness in the financial system). Also Llyods is supposedly preparing for a $21 billion dollar writedown which means losses are accelerating (or they couldn't keep up the game from Q1). Which leads to another big event this week. Bank earnings!!! Goldman Sachs reports Tuesday, I think JP Morgan Wednesday. Government Sachs should be awesome. They should blow away the numbers. JP Morgan means much more and the question with them and others will be how aggressive they are with loss provisions. Q1 was like the stressless government tests when it came to the banks estimates on loss provisions making the earnings appear good. It was a joke. The rest of the banking business should have done really well. Also, a big rally in debt during Q2 could have some substantial gains in trading revenue. They may use that opportunity to increase there loss provisions. So net net a push. Then the question becomes how the market reacts. I have been expecting good Q2 numbers and poor Q3 numbers. That may mean the market will ignore these Q2 numbers (already pricing it in over the last several months) and sell any spike on good numbers.

You also have June retail sales numbers coming out which should be awful. General Electric numbers on Friday and host of big blue chip tech stocks. This week could be a big breaking point in the markets. A break of 870 almost certainly will cause the markets to go down to 840. The key will be to see how the equities of companies react to earnings. Alcoa had better than expected numbers and sold off anyway. If Goldman does the same on Tuesday it will tell you all you need to know.