PIGS, JOBS and SOX Killed the Rally

by Dan July 13, 2011 9:18 am • Commentary

Yesterday’s market action was confusing at best as fears of a European debt contagion rattled global markets overnight, only to see our markets make back most of the losses suffered in the overnight session.  The rally off of the lows throughout the day was thwarted by Moody’s announcement that they cut Ireland’s debt rating to junk.

For once though it wasn’t just the perilous state of the PIGS that had us down, as a couple of earnings misses by NVLS and MCHP, and cautious comments by AMAT had the SOX and most tech names under-performing the broader market.  A look at the break-down in the charts of NVLS and MCHP may be slightly instructive about how tech may react to what will be generally downbeat outlooks for Q3.

[caption id="attachment_3212" align="aligncenter" width="300" caption="1 Yr NVLS chart provided by Bloomberg LP"][/caption]


[caption id="attachment_3213" align="aligncenter" width="300" caption="1 Yr MCHP chart provided byt Bloomberg LP"][/caption]


Both charts are interesting to me because they blew through all their moving averages on huge volume, and not only have they retraced their entire moves off of their June lows, but they are now approaching the lows for the year.

INTC makes me nervous here as the company raised Q2 guidance in April which spurred and almost 20% rally in the weeks following.  Expectations were very low heading into the print, but I think it will be hard to say the same thing as we approach their Q2 report on July 20th.  If they come in line and guide down for Q3 I think the stock will go back to 20.  TXN already told us last month at their mid quarter update that handsets were weak, ORCL told us that their hardware sales were weak, and everyone and their mother knows that consumer PC market stinks…..check back later this week as I will have a way to play for an INTC guide down.

As for the overall market I remain bearish and think that the budget battle here, the continuing debt crisis in Europe, weakening employment picture here and the lack of earnings visibility will keep a lid on the market until we get some resolution to some of those issues……I am looking to make tactical short term low premium bets to express these views, I want to do low risk, potentially high reward as I believe single names will generally realize greater movement over the next month or so than the broader indices.