Half full glasses, clouds with no silver linings, and rhetoric from two elder financial statesmen (Soros and Faber) were apparently to blame for Wall Street woes on Tuesday. Gone was the optimistic view from last week that the bear market was finished, and in its place was the notion that it was nothing more than a bear market rally that gets sold into. Whatever the opinion, whatever the headline, and whatever the potential outcome, the markets are nothing more than the consensus of opinion of the participants contained therein; and right now that consensus is calling for a bout of selling in preparation for Alcoa to miss on its earnings numbers. Volume may increase once these numbers are out, and the impact cannot be underestimated, not in the actual number, but in the expectancy of the number from the skittish market participants.
Looking on the bright side of things, there could be a rebound in sentiment if Alcoa posts better than expected numbers, and that may by default move speculators out of Treasuries, into equities, and out of the dollar, say institutional trades at TheLFB.com. “This week has set the fundamentals in place for the dollar to get bought; financials are lower, oil is lower, gold is off, and risk aversion is in play. How fickle things have become, and how drastically reduced the attention span is, in these days of instant reward”.
“Sound-bites, 15 second attention spans, and fear of loss, are the things that are moving the markets right now. The fundamentals are the same as at any time over the last three months, some would say that we now have better clarity on where we have been, and therefore where we are going”, said TheLFB-Forex.com Trade Team members. “As such we need to pay attention to the volume flows and trade from there. The mutual funds can only sit on the sidelines for so long, and with the Treasury market looking as bloated now as equities did in the summer of 2007 it may be that equity markets will find support by default. If so, the dollar may soon find pressure to devalue, as per the Fed’s mandate”.
The financial sector added another 1.6% to the 3% lost in value on Monday, and once again hampered Wall street efforts to maintain a winning streak that went back five days. Without cash flowing into the XLF there will be no sustainable reversal of the last two days of selling, history tells us.
Earnings season in underway and the stock markets are proving once again that they are in a cycle of trade where they are dominating oil, gold, and the dollar. The links are undeniable at the moment, and it is hard to see the major forex pairs and oil moving too far from here, unless volume increases are seen that will enable potential upside moves to hold. Alcoa gets things moving in the after-market, and could impact where the Usd trades in the Asian session. Lower Alcoa equates to higher dollar, and vice versa.
On Tuesday afternoon the NYSE was looking at posting the second day of losses with on average 2% reversals from the opening prices. The DOW was on 7770 after an earlier loss of 200+ points (2.8%) while the S&P bottomed out at 815, lower by 2.5% at one stage in Tuesday trade, and the technology-heavy NASDAQ traded in afternoon mode around the 1560 area, after falling nearly 50 points (2.9%).