This may be Super Tuesday for Republicans but it was not a super day in the markets.

Market Statistics

The Dow was not super today with a loss of more than 200 points. This was the first triple digit loss since December 28th and the first decline of more than 200 points since November 23rd. This was the longest winning streak without a triple digit loss since 2006.

The drivers for the decline, other than just needing a rest, were worries over Greece, lower growth in Europe and China and a surprise decline in GDP for Brazil.

Greece is back in the headlines on fears the private sector debt swap is not going to be approved. That would kill the second 130 billion euro bailout scheduled for March 20th. Greece needs 75% of the private sector debt to be tendered in the debt swap in order to enact the collective action clauses to force the remainder of debt owners to take the loss.

Greek officials were blanketing the news wires with threats of default should the debt swap not be approved. This is typical of this type of situation. They are trying to scare bond holders into tendering their bonds by threatening to pay them zero if the swap is not approved. The Greek Finance Minister said "Greece does not contemplate the availability of funds to make payments to private sector creditors that decline to participate in the debt swap." In another comment "the official sector (US, ECB, IMF) will not finance Greece's economic program and Greece will need to restructure its debt on different terms to those set out in the current invitation." That was a nuclear threat for a disorderly default if Greece failed to get the second bailout because of a failed debt swap.

European banks and large U.S. banks sold off on the worries over the potential for failure in the debt swap.

The worry over Greece for the last two years and the European sovereign debt problems in general have forced austerity all across Europe. That has forced economic weakness and it is growing. We saw lower than expected numbers from the U.K. and the EU over the last several days. There is a worry Europe will fall back into recession. The EU economy contracted by 0.3% in Q4.

China warned that growth would slow to 7.5% from prior estimates of 8.0%. While that is slow for China it is still above the 7.0% level needed to continue expanding employment and keep China's economic growth surge intact. This would be the lowest growth target since 2004.

Brazil reported GDP for 2011 at 2.7% that was slightly below estimates of 2.8%. You would have thought they said GPD fell by -2.7% from the impact on the markets. Most analysts expect the central bank to cut rates on Wednesday in order to stimulate growth. That growth is expected to rise to 3.3% to as much as 4.5% before the end of 2012.

U.S. factory orders for January declined -1.0% on Monday but that was better than the consensus estimate of -1.5%. It was the first decline in three months. However, January is not normally a strong month for factory orders. It was a negative headline for the market but it was not unexpected.

This flurry weak economic news finally overwhelmed the global markets and especially those in the USA. Even with the Dow down -1.6% today this was NOT a material event, it has been expected for weeks and it will be beneficial for future gains.

Today's economic news was insignificant. The weekly chain store sales snapshot showed a +1.3% rise in sales last week. This report is normally ignored because of the high volatility from week to week. It had no bearing on today's market.

The calendar for the rest of the week is very busy with employment reports and other events like the Apple announcement and the Greek debt swap.

Economic Calendar

The Apple announcement is scheduled for 10:AM Pacific time, 1:PM ET, and everyone is still expecting it to be an iPad 3 announcement. If the new iPad does have 4G LTE technology then expectations will immediately begin to anticipate LTE to be in the next version of the iPhone. This will be a major announcement. The stock dropped sharply at the open today to trade as low as $516 before rebounding to close at $530. From Thursday's high at $548 to this morning's low of $516 there was a -$32 drop. Does this mean the normal Apple volatility associated with major announcements has now passed? If you knew the answer to that question you could be a millionaire by Wednesday's close. If the answer is no then we could see Apple at $500 before the week is out. If the answer is yes then we could easily see new highs over $550.

Apple Chart

In stock news today Consol Energy (CNX) announced it will idle the Virginia Buchanan mine until demand increases and existing supplies decline. The problem is the warm winter weather that failed to deplete the thermal coal supplies stockpiled for the winter months. The same problem exists in natural gas supplies which could reach new highs ahead of the summer usage period.

Consol will reduce production by 295,000 tons per month as it reduces continuous mining operations to five days a week. Last month Consol said it would idle another unit in northern West Virginia.

Consol Chart

Online streaming music provider Pandora Media (P) said it experienced a surge in listeners but will continue posting losses the rest of the year. Earnings for the current quarter are expected to be a loss of 18 to 21-cents. Analysts were expecting a loss of only 2-cents. For the full year Pandora expects to lose 11 to 16-cents.

Pandora said Q4 revenue rose +71% and estimated revenue for all of 2012 at $410 to $420 million. That was in line with estimates of $418 million. Pandora shares fell about -15% after the news.

Pandora Chart

Cypress Semiconductor (CY) warned on Q1 earnings saying it now expects revenue of $180-$190 million, down from the $200-$210 million estimate in January. It now expects earnings of 8-11 cents compared to analyst estimates of 16 cents and $205.6 million. Despite the warning Cypress said bookings stabilized in January and improved over the last six months. "We continue to believe the current quarter will be the bottom for revenue and bookings." Shares dipped to $15 in afterhours trading but rebounded to unchanged.

Cypress Chart

Monster Worldwide (MWW) extended its gains another +11% after it confirmed it was hiring financial advisers to help it improve operations. On Monday Monster said it hired Stone Key Partners LLC and BofA Merrill Lynch to explore strategic alternatives. In plain language that means to hunt for a buyer. Monster missed earnings estimates for Q4 and said it was laying off 400 people.

Monster Chart

The dollar spiked again on the GDP announcement from Brazil and the worries over Greece. The dollar is always the safe port in a storm but once the Greek bailout is behind us I expect the Euro to recover. The strong spike in the dollar depressed commodities again.

Dollar Index Chart - 30 Min

Crude oil declined on the lower growth worries and the spike in the dollar. Lower growth equals lower demand. However, despite some heavy selling the bears were unable to push it much below the $105 support level. Overnight tonight it is holding right at $105.

Also pushing oil prices lower was news Iran has agreed to let IAEA inspectors visit the Parchin military complex, which was denied on the last visit. Iran is suspected of conducting tests on creating a housing and trigger for a nuclear weapon at Parchin. Conspiracy theorists would say Iran has now had time to clean up any evidence of those tests. Will the IAEA be allowed unrestricted access or only be allowed to see what Iran wants to show them in order to win a public relations victory? It will be interesting to see what the IAEA reports after it visits Parchin.

Gasoline prices declined for the first time in a month. Prices declined a penny to $3.76 per gallon. Enjoy it while it lasts. The EIA expects gas prices to average $3.92 this summer and they are normally low because they don't want to become a political pawn.

WTI Crude Chart

Brent Crude Chart

Gold also declined on the spike in the dollar and the expectations for industrial demand to decline thanks to the slowing global economy. This is temporary and it came to rest on the 200-day average. In theory it could return to the 300-day at $1600 and still retain its longer term uptrend.

Gold Chart

Silver Chart

In the weekend commentary I showed a Russell 2000 chart with the tag line, "Turn out the lights, the party is over." The Russell breakdown from the month long consolidation pattern was clearly a signal that fund manager sentiment had changed. It was the leading indicator for a potential decline in the broader markets. Obviously traders did not have the news events of this week but that just illustrates another point. "The market will always find an excuse when it is time to take profits."

I have said that many times. When the market can no longer make upward progress it will sometimes linger at lofty levels until traders find an excuse to sell. Those excuses this week were Greece, Europe, China, Brazil, payrolls, etc. All of those existed as problems the prior week but once the market began to decline the market reporters played pin the tail on the excuse and those were the ones that popped up.

Now that a long awaited decline has appeared the national pastime will be picking a bottom. The technicians were out in force today calling for a decline in the S&P to 1300, 1285, 1200 and even 1160. Get a life!

The market is down for two days and every bearish analyst is trying to make a name for themselves by guessing a bottom. Everyone has been saying for weeks we needed a -3% to -5% decline to equalize pressures and allow new buyers into the market for the next leg higher. The S&P declines -2.3% from the March 1st highs and suddenly we should expect a new bear market? Talk about jumping to conclusions.

The S&P came to a stop at 1340, which just happens to be decent support. Depending on the ADP Employment report Wednesday morning and the Apple news it could easily be a rebound point.

If the decline does continue I don't think we will see a move below 1300. That would be a -5.7% decline from the 1375 high and well within the realm of reason for a normal bout of profit taking. Personally I don't think we will see a decline that low. It may happen over the next month simply because of the lack of news to overcome the normally slow March period. I believe we will find a bottom well before that simply because so many people have been waiting on the sidelines for a buying opportunity. Most retail traders and quite a few money managers missed the dip in December or they were expecting to buy the normal January dip that never occurred.

Volume was 7.5 billion shares and a decent increase over the last week. More importantly down volume of 6.7 billion shares was roughly 10:1 over advancing volume of 669 million. Decliners beat advancers 5764 to 876. Those numbers normally signify a capitulation day but capitulation normally comes after a string of losing sessions not after only three sessions.

The volume imbalance is a key point. Decliners have been higher than advancers for three sessions and rising. It is possible today was a reversal day but I think there will be a watch and see attitude depending on the ADP report. If Apple's announcement is seen as bullish and the stock rockets higher the Nasdaq will follow and that could drag all the indexes back into the green. We just don't know if that will be enough to drag hesitant buyers off the sidelines before the Nonfarm Payrolls on Friday.

Major support at 1340 and 1310.

S&P Chart

The Dow may have posted its first 200 point loss since November 23rd and first triple digit loss in 2012 but came to a screeching halt at support at 12,750. This is exactly where you would have expected it to stop on a half-hearted bout of profit taking. If traders are not enticed to buy the dip we could easily see a drop to 12,600. I think it would take some additional bad news to break below that support level but the market always seems to over react to every situation. Fortunately the next two support levels are very easy to see and even a novice chart reader should have no trouble picking entry points for a bounce.

Support at 12,750, 12,600, 12,350.

Dow Chart

I jinxed the Nasdaq over the weekend when I pointed out the long unbroken uptrend since December. Fortunately the breakdown had a clear support target at 2900 and that is exactly where the drop stalled at 2900.58.

The Nasdaq direction is up to Apple. Whatever happens to Apple shares after their 1:PM announcement is going to determine the direction of the Nasdaq. This is not going to be a fundamental or technical move. It will be an Apple move as the only $500 billion market cap stock in the index.

Should 2900 break the next target would be 2795.

Nasdaq Chart

The Russell 2000 may have telegraphed the broader market decline but I am not sure it is going to do us the same favor to the upside. I suspect fund managers are going to be nervous about moving back into the small cap sector until they feel the broader market has finished taking profits. A spike by Apple is not likely to suddenly rebuild confidence in the market or the small caps.

The Russell has support at every 20 point level within reach. That is 780, 760 and 740. I would love to see 780 hold but I am not making any predictions. The Russell is already down over -5% from the 830 high on Feb-28th. The Russell is known for overreactions so a continued decline to 780 or lower is entirely possible.

We need to watch the Russell for signs of fund managers returning but I doubt it will be immediately obvious.

Russell 2000 Chart

Tuesday was a solid session of profit taking with a 10:1 volume imbalance. It is too bad there were not a couple more down days in the prior week so we could call it a capitulation day. That is still possible and I would be thrilled to see a solid rebound begin. I think it would be far too easy for a three day dip to erase three months of bullish imbalances but it is possible.

ADP and Apple will be the market movers for Wednesday so grab a cup of coffee and buckle your seatbelt. It could be a wild ride.

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Jim Brown

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