No Solution in Europe Yet, Germany and France Walk Away From the Table

When push came to shove, Germany and France just didn’t quite see eye to eye and walked away from the table. Germany feels the private sector, the banks and institutional investors (pension funds etc.), should accept bigger losses. The French don’t want bigger losses for the private sector as their banks have bigger exposure to Greece. Either way, taxpayers will ultimately have to “recapitalize” the European banks in the form of bailouts.

Our markets didn’t like the news. With the exception of the NASDAQ being down all day due to Apple missing earnings estimates, the DOW and S&P were in positive territory until afternoon trading. When all was said and done, all 3 indices closed near their lows of the day… not a good sign.

Down Volume was in the low 80s on the NYSE and in the high 70s on the NASDAQ. Total volume was down on the NYSE, but up significantly on the NASDAQ. Therefore, it was a “distribution” day on the NASDAQ.

Amid stocks giving disappointing news on either earnings or forward guidance were American Express and EBay. The overall tone of this earnings season thus far is one of a slowdown and downward revisions going forward.

I stated in my newsletter yesterday that I purchased the ProShares Ultra NASDAQ 100 (QLD) because of the news of a big European bailout and expectations of good news from Apple. Once Apple disappointed, I stated I would reverse the trade (cover and move to cash) if the market showed weakness today.

That is exactly what I did. The NASDAQ opened down around -17 points, but then drifted higher in the morning as the overall market was gaining strength, and at one point was down only around -5 points. Then in early afternoon, selling on heavier volume began to enter the markets and I quickly covered (sold) my position in QLD. The NASDAQ finished down over -53 points, or -2% so it turned out to be the right move.

There are a lot of undercurrents for the weak markets. Inflation is coming in hot and company news is coming in weak. Mortgage applications were down -15% from last week. But the real wildcard is Europe. Until Europe formalizes a plan, the markets will continue to sell off.

In overnight trading (Wednesday 10:55 p.m. CST) all the Asian equity markets are in the red. Gold, silver, and oil are all in negative territory. The US dollar is flat against the Yen, but up against the Euro and Pound.

Our US equity futures are in the red. The DOW futures are down -6 points, the S&P futures are down .25 points, and the NASDAQ futures are down 1.50 points. On the brighter side, they have recovered from earlier levels.