Now It Gets Interesting

Daily State of the Markets 
Monday Morning – June 20, 2011

Publishing Note: I will be vacationing in Europe with my wife and daughter for the better part of the next two and one-half weeks. However, given that the time zones across the pond are favourable for working and sightseeing, I will be watching the markets in earnest and publishing “Daily State” reports when the opportunity arises.

Good Morning. The vast majority of the time, the stock market tends to respond to news inputs in the short-term while moving to and fro within the primary trend. However, there are times, such as we are seeing now, when the primary trend is in question. And thus, how the market reacts to the news is oftentimes more important than the news itself. Friday’s market was a good example of this idea. Traders were treated to what appeared to be good news out of Germany and France and yet the bulls couldn’t seem to do much with it.

While the Dow and S&P did manage to finish with green on the screen, the same can’t be said for the NASDAQ. And in short, “the action” was disconcerting to those who might have expected to see an oversold rally get legs in response to Germany backing down from its stance of the mandatory restructuring of Greek debt (something that rating agencies have said would almost surely trigger a credit event).

Sure, one can certainly argue that traders may have been afraid of the potential for “headline risk” over the weekend. After all, we had the European finance ministers beginning a two-day meeting in Luxembourg on Sunday. In addition, there was the start of the confidence debate in Greece where PM Papandreou will be attempting to secure a vote of confidence for his newly reshuffled government. In short, the key here is Papandreou needs this confidence vote in order to push through the new reforms that the EU/ECB/IMF are insisting on before they release another euro to the basically bankrupt country. But without the vote of confidence, Greece will need to form a new government, which could take time and possibly create default in the process.

Because of the uncertainty of what could happen in Europe, it wasn’t exactly surprising to see traders cash in a few chips before heading home for the weekend. As it turns out, this was probably a wise move because as of this morning the vote on Greece’s government has not taken place and the European finance ministers decided to delay a decision on providing Greece with the paltry sum of €12 billion in emergency loans so that the beleaguered country can get past the debt rollovers due in mid-July. However, given that Greece didn’t meet any of the requirements from the first big batch of cash provided to them and the riots that are taking place in Athens, the finance ministers want to make darn sure Greece is going to put the new austerity requirements in place before turning over any more cash.

Getting back to the title of this morning’s missive, this is where things get interesting. You see, it would appear that we’ve got a vacuum of time on hands before the important questions facing today’s markets can be answered. If I’m not mistaken, the vote of confidence in Greece should take place before Wednesday’s open here in the States. But assuming a positive outcome for Papandreou, he then must push through measures that are creating unrest in his country. Next, the European finance ministers said yesterday that they are going to wait until “early July” to decide on whether Greece gets the emergency loans or not (they have said the loans are very likely to be made, IF Greece does what is needed). And then here at home, we have a fairly large hole in the economic calendar until Thursday with a Fed meeting on Tuesday and Wednesday.

So, without any real news to drive the action, I’m of the mind that the market may show its true colours between now and Wednesday afternoon. For me, the question at hand is if the nearly two-month old correction and a -7% decline is enough to discount the negatives and the uncertainty. If so, then I’d expect to see the indices waffle sideways for a while awaiting a positive catalyst from either Mr. Bernanke or some news out of Europe. However, if the big funds have moved into a de-risking mode, we might see the indices work lower and take out the March lows.

In sum, I’m of the mind that while there may not be much news to deal with over the next couple of days, the action in the market may be interesting.

Turning to this morning… The decision by the European finance ministers to delay providing Greece with an emergency loan until the eleventh hour has put a damper on the market’s mood in the early going as European markets are down 1% across the board and the U.S. futures are pointing to a weak(ish) open.

On the Economic front… We don’t have any economic data to review before the bell.

Thought for the day… Remember, you’ve got to be in it in order to win it…

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell…

  • Major Foreign Markets: Australia: -0.85% Shanghai: -0.76% Hong Kong: -0.44% Japan: +0.03% France: -1.34% Germany: -1.15% London: -0.94%
  • Australia: -0.85%
  • Shanghai: -0.76%
  • Hong Kong: -0.44%
  • Japan: +0.03%
  • France: -1.34%
  • Germany: -1.15%
  • London: -0.94%
  • Crude Oil Futures: -$0.89 to $92.12
  • Gold: -$3.30 to $1535.80
  • Dollar: lower against the Yen and Pound, higher vs. Euro
  • 10-Year Bond Yield: Currently trading at 2.922%
  • Stocks Futures Ahead of Open in U.S. (relative to fair value): S&P 500: -4.45 Dow Jones Industrial Average: +37 NASDAQ Composite: -6.5
  • S&P 500: -4.45
  • Dow Jones Industrial Average: +37
  • NASDAQ Composite: -6.5

Wall Street Research Summary


  • Whole Foods (WFMI) – BMO Capital
  • Royal Caribbean (RCL) – Mentioned positively at Credit Suisse
  • Netgear (NTGR) – Deutsche Bank
  • Ashland (ASH) – Deutsche Bank
  • Patriot Coal (PCX) – Goldman Sachs
  • Peabody Energy (BTU) – Goldman Sachs
  • CONSOL Energy (CNX) – Goldman Sachs
  • Biogen Idec (BIIB) – ISI Group
  • Texas Roadhouse (TXRH) – Morgan Stanley
  • Oracle (ORCL) – Mentioned positively at Oppenheimer
  • Molycorp (MCP) – Piper Jaffray


  • Oshkosh (OSK) – Benchmark
  • Research In Motion (RIMM) – Bernstein
  • HSN Inc (HSNI) – Citi
  • Liberty Media Interactive (LINTA) – Citi
  • Graham Packaging (GRM) – Citi
  • Sky works (SWKS) – Deutsche Bank
  • Walter Energy (WLT) – Goldman Sachs
  • PF Chang’s (PFCB) – Morgan Stanley

Long positions in stocks mentioned: none

For more of Mr. Moenning’s thoughts and research, visit


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