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European Woes Catch Up With The Market

by In The Money | February 4, 2010, 10:09 am

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Yesterday, a colleague and I were talking about the sharp rise in credit default swaps (CDS) in Europe, specifically Greece and Spain. I noted that it didn't seem to be hitting our markets yet, but likely would at some point. Well, it seems that point is today, as the worries over sovereign debt are overshadowing positive earnings reports from the likes of Visa (V) and Cisco (CSCO), as well as some solid same-store sales reports among retailers.

The weakness in Europe is boosting the dollar to a five-month high, and further pressuring commodities. Oil is lower near $75, while gold is really tumbling below $1080.

Among the sector ETFs, all 10 are lower, led by energy (-2.9%) and financials (-2.6%), as well as industries like gold miners (-4.7%), steel (-4.75%), and agribusiness (-3.0%). Emerging markets are also weak (-3.25%).

In economic news, factory orders were solid (+1.0%) for December, but initial jobless claims for the week came in a little higher than expected.

European stocks are obviously lower, despite the ECB and Bank of England holding interest rates steady. Asian markets were also lower.

The 10-year yield is lower to 3.63%, and the VIX is spiking +13.3% higher to 24.50.

Trading comment: I have been saying to keep some powder dry, and today's action validates that thesis. I would make notes of those companies that have reported strong earnings but whose stocks have not benefited. I think when the market stabilizes, those stocks will be good bounce candidates.

In the meantime, we will need to continue to monitor things we didn't use to have to worry about, like the possibility of European nations falling further into debt trouble, as well as Dubai which was never really resolved. I would expect bearish sentiment to continue to rise in this environment, which from a contrarian standpoint is a precursor to a market bottom.

long V, MOO

	About In The Money inthemoneystocks.com
InTheMoneyStocks.Com is a research and consulting company focused on mathematical proprietary techniques along with a key understanding of price, pattern and time. Through understanding geometry and other technical analysis methods, InTheMoneyStocks.Com prides itself on avoiding Wall Street hype while calling major and minor moves in the DOW, NASDAQ and S&P, commodities, currencies and stocks. Recent Articles: Happy Anniversary, Mr. Market - Mar 9, 2010 Monday Morning Musings: Healthy Digestion Ahead? - Mar 8, 2010 Traders Leaned The Wrong Way Ahead of Jobs Repor... - Mar 5, 2010 Market Wrap: Nasdaq Leads Late-Day Push - Mar 4, 2010 Greece Decides To Take Its Medicine - Mar 3, 2010 Stock Action Positive, Albeit On Light Volume - Mar 2, 2010

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	Random Market Definition
Multiple Discriminant Analysis A statistical technique used to evaluate financial decisions that proposes a set of alternatives, such as different shares of stock in a portfolio. An analyst takes multiple factors into account, such as different financial ratios, when choosing between stocks in order to design an efficient portfolio.

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