10-19-2011
The Producers Price Index (PPI) came out hot indicating there is in fact inflation coming through the system. The markets began on a sour note yesterday and looked to be a follow through down day. We had a mixed bag of earnings. Even though a few banks had some good news, it was primarily due to accounting gains. Goldman Sachs actually had a loss.
Technology was also mixed. Yahoo’s profit came down but still beat estimates as did their revenue. Intel beat forecast and guided higher going forward. But Apple surprised everyone, including myself, by missing earnings and revenue expectations.
But buying entered the market as the European meetings went on throughout the day. Late yesterday afternoon with an hour left in trading, France and Germany are “ready to agree on a 2 trillion Euro rescue fund” according to the Guardian (London) as part of a “comprehensive plan” to solve the debt crisis. This comes as rating agency Moody’s warned it might review France’s AAA rating.
France’s sovereign debt yields have been rising quickly so Germany and France had to move quickly. The problem is Moody’s is reviewing France due to their rising cost of bailing out other Eurozone countries and its own banks.
Overall volume increased by double digits from Monday’s selloff on both exchanges. The NYSE qualified for a 90% Up Volume day, and Up Volume on the NASDAQ was in the mid 70s. The NASDAQ, has however, broken through its 2 month trading range and resistance (see charts). The DOW and S&P still have yet to break out of their trading range, but are fast approaching that level.
NASDAQ (Year to Date) Breaking Through Resistance on 10-18-2011
NASDAQ (2 Month Trading Range) Breaking thru Resistance on news of the $2 Trillon EU Bailout 10-18-2011
Make no mistake, this is due to stimulus and bailouts, not to economic strength which is reversing. Once the 2 trillion European bailout trial balloon was announced, the market began going higher into the close on increasing volume.
In response to the European bailout and because of my (incorrect) expectations of Apple beating estimates after the bell, I purchased the ProShares Ultra NASDAQ 100 (QLD) just before the close. I had a profit 10 minutes later at the close, but it went against me in afterhours trading.
It is a trade, nothing more. If we don’t have a positive, follow through day in the morning, I will quickly unwind this trade. Cash is still king due to the all uncertainty and I still hold a lot of cash.
In overnight trading (Tuesday 9:38 p.m. CST) the Asian equity markets are mixed. The US dollar is down against the Yen, and essentially flat against the Euro and Pound. Gold is in positive territory, but silver and oil are down.
Our US equity futures are also down. The DOW futures are down 37 points, the S&P futures are down 6.25 points, and the NASDAQ futures are down 21.75 points. If things hold overnight, I will likely be unwinding my trade quickly.
