Let’s Make A Deal-Sovereign Debt Edition

by Dan July 22, 2011 9:01 am • Commentary

If you are a politician in the U.S. or Europe then the pressure is on and it isn’t even re-election season yet.  European leaders “averted” Greece’s default with a massive $100 billion bailout, while our almost capable elected officials are fighting against the clock to push through a debt deal that will avert our own treasury’s default on our own debt.  Well, as you might imagine this will all get sorted and we will merely kick the can down the road.

As for the markets, they appear to be more geared at the moment to rally on good news associated with debt deals and exhibit muted sell-offs when the news seems mixed.  This sentiment has been aided by the backdrop of generally strong corporate earnings and guidance.  If earnings were coming in weak and visibility was bad for the second half of the year then investors would be more focused on the weak jobs picture and the July un-employment data due out Aug 5th would be treated like the day of reckoning (it still maybe, but for now it will take a backseat).

Don’t be fooled by the VIX below 18, single stocks are moving on earnings and not just in names like AAPL and GOOG, PEP was down yesterday 3.5% on a miss, CAT is trading down almost 5% on a miss this morning, and a whole host of tech names have had some massive moves on earnings misses this week…….RVBD -23% Wed, and just yesterday STX – 17%, PLXS -9% and FFIV -11%.  I guess the point here is don’t be lulled to think that stocks that you own won’t move even as the headline VIX is saying that we are in a low vol environment.

Next week will see earnings from some of our favorite high-fliers AMZN and NFLX and some of our favorite tech losers BRCM, JNPR and AKAM.  There will be opportunities.  We will take a closer look at all of them beforehand.

As for the market, the SPX is up almost 3% this week and approaching the psychologically important 1350 level.  I would expect a little consolidation before a debt ceiling deal is announced in the coming days…..But if the market continues higher we could see a little “sell the news” pullback.  A lot of good news is currently in the markets with the SPX up almost 7% ytd.

Technically 1300 to 1350 seems like a fairly tight range in the SPX, but a move through resistance (1350) or a break below support (1250) could be instructive as to near term direction.  But these technical levels could serve as guides to trade the ranges….. In fact, if anything this range bound trading has taught us, it’s don’t chase stocks. Let them come back to your price.

[caption id="attachment_3381" align="aligncenter" width="300" caption="1 Yr SPX chart provided by Bloomberg LP"][/caption]


Hopefully no fireworks today and things settle into a summer Friday lull so we can all head to the beach early!