Intraday Market Update
Overnight futures traded in a tight range with no significant moves ahead of quadruple witching options expiration, wherein futures and options on both stocks and indexes expire. Trading has been relatively quiet with no major earnings or economic data on the schedule. The S&P 500 has been trading in a 7 point range, hitting lows near 1,114 early then bouncing up to 1,121, and now heading back towards the morning lows in early afternoon trading. All of the major indexes are teetering between positive and negative territory and are about breakeven.
Institutional managers appear to be propping up the market so their June 30 quarterly statements do not alarm their clients. The lack of participation, as evidenced by the anemic volume of late, questions the validity of the +7.5% rally in the S&P 500 since the June 8 lows last week. The has traders focusing on news out of Europe and Asia today.
In China, the Shanghai Composite lost -1.84% (a new 52-week low) on the heels of cautious comments regarding the country's future growth by the World Bank as well as a PBoC adviser. PBoC advisor Xia Bin warned the economy is likely to slow in the second half of the year and urged further measures to discourage speculation in the real estate market such as a home transaction tax. Meanwhile the World Bank said that growth in China, the world's third largest economy, is probably going to ease a bit from the very rapid pace in Q1 but that its still a very healthy rate of growth. The World Bank is forecasting China's growth at 9.5% in 2010 and 8.5% in 2011, while their forecast for the global economy is 3.2% in 2010 and 3.3% in 2011. However, in an effort to hedge their view the World Bank said that the run-up in debt in countries using the euro "could turn into a real and contagious debt crisis" that threatens still fragile economic recoveries in Europe and the US, adding the risks to their own growth projections were large. Although many analysts have discarded a slowing economy in China, many others believe that as China's growth slows it will impact the global economy. I tend to agree with the latter.
In Europe, chatter continues about the bank stress tests and the final day off the European Union summit. The stress tests are scheduled to be released next month and will assess the ability of European banks to survive more difficult economic conditions, starting with the 25 largest banks and then trickling down to smaller institutions. The EUR/USD currency pair is holding onto recent gains (just below the 124.00 handle) since its June 7 low near the 118.00 handle. Gold continues to hit new all time highs and silver is above $19.00 for the first time in about a month.
Meanwhile, the WSJ published commentary from former Fed Chairman Alan Greenspan this morning. He noted that the perception of substantial borrowing capacity in the US is mistaken and that the US and other developed countries need to alter their fiscal policies. He said that an "incremental change" in reducing debt will not be sufficient and that the US is saddled with 3 decades of it, adding that the US needs a "serious response" to the "pending crises" analogous to Greece. The only thing I have to say about this is what was he thinking as our Federal Reserve Chairman from 1987 until 2006?
In equities, CVS and Walgreens have settled their differences and signed a new Pharmacy Benefit Manager (PBM) network agreement. On June 7th Walgreens ended participation in CVS's PBM plans, citing that CVS's terms did not fit within their needs. Shares of WAG and CVS are up +3%. ESRX was seen as a primary beneficiary of the fall out between CVX and WAG. As a result of the news ESRX gapped lower this morning and is down -1%.
NOTE: ESRX is a new long play in the OI newsletter (released last night). Our target to enter long positions was hit this morning when the stock traded down to $51.90. ESRX is holding up well and is above our entry price. The stock bounced off of its 20-day SMA and there is a lot of support underneath. I'm comfortable with the position and will make some adjustments this weekend.
QCOM said it is facing a new antitrust investigation by the European Commission, just months after they withdrew a previous four year antitrust probe. The new complaint is based on allegations from UK wireless chip maker Icera and Dow Jones is reporting the issue appears to be related to how QCOM links patents from other companies to its own patent offering as a means of increasing its sales. Shares are about breakeven.
Core Sector List:
Overall reading: 10 sectors advancing, 6 sectors declining
Strongest Sectors: Gold Miners, Oil Services, Oil
Weakest Sectors: Home Construction, Pharmaceuticals, Healthcare
S&P 500 - Daily and 30-minute Intraday Charts:
Dow Jones - Daily and 30-minute Intraday Charts:
NASDAQ - Daily and 30-minute Intraday Charts:
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