After hours last night, Moody's downgraded 5 Spanish regions "driven by the deterioration in their liquidity positions, as evidenced by their very limited cash reserves … and their significant reliance on short-term credit lines."
While Asia shrugged it off and finished more or less flat, Europe is freaking out – about that and the continued terrible earnings reports that are hammering the point home that the economy is certainly worse than it was last year. Why then, are the markets up over 10% from last year – well, since there's no easy answer to that – down they go!
It's over an hour to the open but let's call it Dow 13,200, S&P 1,416, Nasdaq 2,980, NYSE 8,250 and Russell 810 and, as you can see from our Big Chart – we're barely holding our Must Hold levels with the Nasdaq crashing us below and we can't even blame AAPL today, which is holding up pretty well so far at $630 – after putting up a $15 gain yesterday (2%).
As we expected yesterday morning, the Nasdaq held 3,000 like a champ and rallied 20 points off that line into the close before dropping back a few but today will be harder with the Nas gapping well below 3K – painting a terrible technical picture before most people have a chance to make their first trade.
This morning is worse with 13 out of 52 reporting companies missing earnings (not all in yet) and a whopping 11 giving negative guidance (ARG, CPLA, CNC, DD, GNTX, IIVI, ITW, LRY, ST, XRS, MMM and TECH).
Guiding up were PLD, R and WHR. This is not encouraging – it means that, for the average person owning stocks and listening to conference calls – there's an 11:3 chance they are hearing bad news with a bad outlook.
This is the backdrop for today's Fed meeting, which goes on tomorrow as well and ends in a statement to be released at 2:15. Even as I write this – the Euro failed to hold $1.30 and the Dollar punched over 80 and oil failed to hold $87 and gasoline is dropping to $2.58 so no fun in the Futures this morning. Europe is finally together, dropping 1.6% across the board – just as our futures are down 1.2% across the board now as the Euro tests $1.296 and the Dollar hits 80.10, which is up from 79.50 yesterday, accounting for 0.75 of the drop (2/3).
We're still looking at the sell-off as a buying opportunity until/unless we fail those Must Hold lines and I will point out that UPS's domestic package business is up 1.2%, which offset most of the decline in Europe – underlining what we expect this earnings season – that the companies that do International business are hurting across the board and, unfortunately, these are the guys who tend to report early.
Not to worry though, as the rich continue to get richer. COH reports an 8% jump in US sales but that's nothing compared to International, which is up 15% and led by China. Going the other way is ordinary electronics at RSH, which is down 15% on release of their earnings and XRX underscores the weakness in the office spaces with a 12% decline in net profit that is sending their stock down another 5%. back to the year's low's around $6.50.
Before we get too bearish today, we'll have to wait for a possible decision from the EU Court of Justice, where they are hearing a suit today brought by a member of the Irish Parliament on whether or not the ESM is constitutionally valid. Silly as it seems, could be a nice relief rally if the court hands down a quick decision in the ESM's favor. We hear from the Richmond Fed at 10am but the best chance for a market save today rests with AAPL, who roll out the IPad Mini at 1pm – we need to see AAPL pop over $640 to get the Nasdaq back on track and we'll be watching that 3,000 line closely.