As Greece edge closer to selective default and banks in U.K. and Italy comes under closer scrutiny, the confidence shown by the bulls after President Obama’s gloomy debt speech yesterday vanished. The internal divergences finally caught up to the market and the slowing economy caught traders by surprise.
The action today was truly ugly with terrible breadth, heavier volume, and closing below the 50-day moving average. That said, we are much oversold on several matrix and the bulls should muster a bounce especially if we can get some more panic put buying early in the day tomorrow. Perhaps another debt deal rumor?
With the weekend fast approaching and if there is no deal on the horizon, I would be hard pressed to find buyers of stocks and treasury into the weekend. In addition, CME Group is raising margin requirements for Treasury in an attempt to dampen potential volatility. If there are no deals soon, the first oversold bounce may fail quickly as the dip buyers at the close today lock in profits.
On the NASDAQ, which had held up admirably as the DOW and S&P came under pressure the pass two days, is entering a seasonally soft 3rd quarter. From last night’s earnings, we have JNPR and AKAM both signaling a weak networking environment and ARMH mentioning that 4th quarter revenue may be soft due to macro concerns. ARMH owns the processing space in the red hot smart phone and tablet space and their royalty are collected in arrear from the quarter before. So they are signaling potential soft demand going into the traditional 3rd quarter build up period. For some anecdotal evidence, my friend at the electronic parts supplier said the hiring plan did not materialize and things have slowed down. If the NASDAQ can’t find its footing soon, it may have some catch down side and could hold back other indices.