- No new news to drive buyers so the fade from the relief rally continues.
- Italy is now the worry of the day in the EU.
- China inflation still coming in hotter than expected.
- Stocks selling as anticipated, good stocks holding up thus far, but that is no reason to be complacent given the sharp selling.
- Alcoa reports great profits but investors are no that impressed.

MARKET SUMMARY

Investors may have stepped in Friday afternoon and bounced the indices off their lows, but on Monday whatever prompted them to do so did not appear to still be present. Indeed there were new ‘old’ worries weighing on investors to start the week.

Given Europe has supposedly taken care of Greece and Portugal, Italy was the new focus. Part of the PIIGS, but it seems no one remembers that one of the I’s is Italy. Thus when someone mentioned Italy over the weekend everyone was aghast and another round of European blues hit the market.

China continues the ‘too strong yet worried about a slowdown’ syndrome. June inflation was a bit hotter than expected at 4.6% year/year. China is in the process of trying to prevent inflation by slowing its economy and that should and often does frighten the crud out of investors. Central banks/governments have a bad habit of fighting inflation too long, well after they have killed the economy. We are watching the Shanghai stock market and it is struggling and could have topped. That often happens before the bankers figure out they have gone, again, too far. That is why every time you hear data from China about too much strength investors get nervous. With the rally in place and the selling Friday, they found it easy to be nervous and sell.

Moreover, earnings gets its ‘official’ start with Alcoa so better take some more air out of the prices before the results get underway.

Futures were lower, stocks sold on the open, and they never recovered. Never really attempted outside a late bounce that was more obligatory than anything else. NASDAQ sold 2%. SP500 -1.8%. DJ30 -1.2%. SP600 -2%. SOX -1.7%. Sound beatings across the board as the indices sold sharply though mostly held support, e.g. NASDAQ, DJ30, and SP600 all held the 10 day EMA. Big single day declines, but holding support at least for the session.

TUESDAY

Tough session that bloodied SP500 but still finds other indices and key sectors at near support. Never like the sharp selloffs as it shows the sellers are out en masse. The easy three day pullbacks are the best but in this volatile market it is not surprising they did not show up. The relief rally looks as if it is endangered and has to show it can survive.

That said there are still good looking stocks in position to move after a more reasonable test and we have nibbled at them the past two days. There is also AA and its earnings after hours that sent stock a bit lower despite strong results. Pretty much always happens but investors may (may) take heart about good earnings. Not holding my breath on that one.

Thus we are ready for some upside if they market can pull it off and hold up at near support and bounce. Just be patient on these. We have taken just partials thus far and until we see a sharp bounce that will continue IF they show the buys. If not we don’t chase them but instead get some of the downside. Also protect the upside positions as we were doing today.