Monday, May 7, 2012

Selloffs Don't Stop Earnings. Even socialists buy food and iPhones.


Regular readers of Trader Thoughts, my daily market commentary, should not be surprised at this morning’s reaction to developments since Thursday through the weekend. If you read TT, or followed Twitter and even Facebook you knew this result was inevitable. So Greece and France go from socialist to near communist/socialist. We wish them well. The Euro breached 1.30 going to 1.295 overnight. SPX futures are off their lows of 1342 by 1.0% at this moment (6:36 a.m.. ET). The 1340 level of the SPX is a 100% retracement off the March low of 1340. It is also a significant support level, which if broken brings 1328 into play and as usual not necessarily in a straight line. The 1340 level is also at a 3d deviation Bollinger band while the VIX will open at its top Bollinger. This week may well be pretty volatile as markets try to get a grip on the ramifications of these elections. Clearly the only thing that the market cares about is whether agreements now in place in Euroland will hold or will they have to be renegotiated. What does the market hate? Uncertainty... thus the longer the market is kept in the dark the weaker the market should be. Here’s the twist as headlines make their way across computer screens this week... does it all mean Greece will be thrown our or leave voluntarily from the EU? Who knows? But we do know this, if that were to happen the fact is that after the shock of it all an EU without Greece would be strengthened meaning a reversal of current sentiment. I’m watching gold in particular this morning as it should be dropping with a rising dollar but perhaps if the leftist governments lean on the ECB hard enough they, the ECB, could crank up the printing presses. The initial action today won’t be resolved today and maybe not even this week as headlines, both true and rumored, will move markets into the safety camp. .. another reason I’m watching gold’s reaction. Reaction market action such as this morning can be dangerous as computer generated buy and sell programs tend to be in control, so let’s be careful out there. Remember one thing as the market shakes out, try to separate those headlines and the market’s reaction vs. those headlines that affect earnings. A selloff on political news is one thing, a selloff on a currency shakeup does affect earnings, at least of international companies. Market moving headlines not immediately affecting earnings tend to bounce back quicker. Even socialists use iPhones and iPads. In the end, as always, it’s all about earnings and future earnings as I point out at Wall Street Pirate.