Cyprus, now mulling over Plan B, reflects the lack of leadership by developed regions facing fiscal and debt mismanagement. Short-term fixes have been the “easy button," allowing governments and central banks to buy time until the next crisis surfaces. As the former EU head, Jean-Paul Juncker stated upon his retirement this year, “We know what we have to do, we just don’t know how to get re-elected if we do it.” That pretty much sums things up globally. Cyprus has now been given until Monday to either obey EU demands or decide to fall into bankruptcy, which could mean leaving the euro. The latter would be good for the country since being in the euro may be harmful to the country’s economy anyway.
China PMI rose (51.7 vs 50.4) causing stocks to advance there last night. The good news though was quickly undone by the poor German Mfg Index (46.5 vs 47.9), which put the German economy in a contraction. Toss in more poor news from Cyprus and the stage was set for market declines.
Meanwhile, overall U.S. economic data was good: Jobless Claims fell (336K vs 340K exp & prior revised higher to 334K); Flash PMI met expectations (54.9 vs 55 exp & prior 54.3); Existing Home Sales was even-steven (4.98M vs 5M exp & prior 4.94M); Philly Fed Survey was positive (2 vs -1.5 exp & prior -12.5); and, Leading Indicators held ground (.5% vs .6% exp & prior .5%).
Aside from the Cyprus shadow on markets, previous poor earnings reports from heavyweights FedEx (FDX) and Oracle (ORCL) lingered--FDX especially since its condition best reflects a declining global economic environment. Piling on Thursday, FBR Capital Markets also downgraded Cisco (CSCO) to "market underperform" from "market perform," lowering the stock over 4%.
Stocks fell sharply late in the trading session from a combination of weak eurozone data (IEV), Cyprus news, and tech stocks (XLK). Financials (XLF) continued to weaken fearing Cyprus contagion. In “risk off” fashion, bond (TLT) prices were higher, the dollar (UUP) was flat and gold (GLD) was higher.
Volume was about average by recent measures and breadth per the WSJ was negative.
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SPY 5 MINUTE
is a market breadth indicator that is based on the difference between
the number of advancing and declining issues on the NYSE. When readings
are +60/-60 markets are extended short-term.
The McClellan Summation Index
is a long-term version of the McClellan Oscillator. It is a market
breadth indicator, and interpretation is similar to that of the
McClellan Oscillator, except that it is more suited to major trends. I
believe readings of +1000/-1000 reveal markets as much extended.
The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge". Our own interpretation is highlighted in the chart above. The VIX measures the level of put option activity over a 30-day period. Greater buying of put options (protection) causes the index to rise.
It may be that a larger correction is in order given that some important global powers are struggling. Money printing by itself isn’t cure-all for what ails us.
Friday not much is happening beyond Cyprus tensions—how fun!
Let’s see what happens.