Marketview: Technocratic Regime Change CL, KO, UNP, MS, GS, FCX

I’m not a huge macro guy but I feel I have talk about the the headlines and themes for next week.  There are four key items which will dominate trading into the holiday weekend.  Euro-zone proposal jockeying, super committee grandstanding, FOMC minutes release, and the persistent negative investor sentiment.


This issue is way to convoluted for this post but it looks like Germany has indicated that it doesn’t care whether Greece or other periphery countries fail.  By not expanding the EFSF beyond the EUR440 billion (give or take), the Germans have signaled that there is zero political will to save these economies and the G20 plan is probably stillborn.  Hilariously, since EU laws don’t allow for the ECB to finance euro-zone government debt, the newest plan is to fudge the rules and have the ECB lend to the IMF who will lend directly to the periphery economies; essentially subverting a law that was setup to prevent that very thing from occurring.  Spain has elections next week which one can only assume will bring peace and tranquility to the markets.  Meanwhile, technocratic governments have been ratified in both Greece and Italy.  There are high hopes for these new governments and they will no doubt end in disappointment.

Super Committee

The deadline is Wednesday.  It’s a holiday.  The super committee isn’t going to get anything done, or they get so little done that it’s indeterminable.  The fact that this process is set up to conclude so close to a holiday makes me think that it’s engineered to fail while the country is too doped up on tryptophan to care.  The major market worry is that the committee does just enough to avoid the automatic deficit reduction provisions which means that the debt ceiling will be hit again in a couple of months.  This could trigger another crisis of confidence and another round of potential downgrades for US debt.  Which also means that I could lose another US credit rating related bet to my brother-in-law.

Fed Minutes

If Europe were not imploding and career politician were not plotting the technical default of the greatest economic power in the modern world, the FOMC minutes would be the big news of the week.  What has changed since the committee last met and will there be further easing in store?  Some people are think we’re looking at a monster jobs report next month.  One thing is certain, this market is addicted to stimulus and feels like it needs a shot in the arm right about now.

Negative Sentiment

If you’ve read this far you know that everything dominating the tape is horrendously negative.  The market has been confusing for bears and bulls alike.  The last bastion of hope for bulls was the Nasdaq 100 making a technical breakout in the face of horrible news (which would have been very bullish).  Bears should be loving the decline, but after being decapitated by the October rally they can’t really enjoy the latest swoon.  Everyone hates the market right now but none of the traditional sentiment metrics have reached critical levels.  Seasonality has been a bit of a let down so far after the monster squeeze in October.  The question every trader is wondering is whether this the sentiment is “bad enough” to be a contrary indicator after the emotional roller coaster investors have endured for the past quarter.  My feeling is that if traders and professionals are fed up with the market, what is the average investor feeling like?  Probably like throwing in the towel.

Winners: $PM, $MO, $CL, $PG, $KO, $TGT, $HD, $LOW, $UNP

Losers: $MS, $BK, $C, $GS, $FCX, $CVX, $BHI, $AA, $DOW

The risk-on risk-off trade is getting pretty nauseating at this point.  This week basic materials and industrial took a beating and stocks associated with the safety trade got bid up.  The bright spot for the bulls is the transports have not broken down yet.  This is a two-way market from the September lows to the October highs.  It’s is as messed up as I have ever seen it from a fundamental, macro, and sentiment perspective.  Not exactly the greatest time to be in the business of making bets in financial markets.  I’ve written this before, but I will state again that I don’t think the next true buying opportunity comes until the safety trade breaches the August lows and sees equal suffering with the rest of the market.  As long as there is a place to hide you can’t have a true long-term bottom.




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