- On, off, and on again Greece referendum leaves market down hard for second session as outside influences continue to override end of year trends.
- China PMI less than expected, adding to the day’s angst, but at least it was still expanding.
- US ISM, as with China, lower than expected but hanging on to expansion.
- Markets are voting against the sovereign fixes.
- It is not just overseas: President, Congress, agencies push new financial transaction tax, $100 flight departure tax, and yes even more regulations.
- Stock indices back down to the top of the August/October range.
- Down but some areas showing good intraday recoveries and relative strength.

Sketchy deal to begin and Greece now wants to vote on it.

The indices were down hard once more, and it was for basically the same reason. Monday there were worries about whether the European deal would work. On Tuesday there were issues about whether it would even get a chance to work because the Greek Prime Minister said he would put the matter up for vote with his people. I can understand why he would want to do that and why the people would like to have their say, but it did not do much good for the financial markets. The markets thought the deal was a done deal, however shaky and sketchy it was.

If we were looking for any new money to hit the market on the first day of November, that would not be the case. It could be that a lot of the funds pension funds in particular were ready to take some gain off the table because their fiscal year ended on October 31st. Whatever the reason, there was another sharp downside move. Looking at an intraday chart of the SPY, the futures were down sharply once I had the stomach to start watching them. They started to bounce toward the open, but there was a downside open for the day. Futures did recover as they moved toward the opening bell, but after an initial rise, stocks sold off again. They bounced up and down for the rest of the session. Why? It was the on-off-on-again referendum.

Initially they said they had to have a referendum of the Greek people, and that contributed in pushing the market lower. Then there was the headline in the early afternoon that said the referendum was “dead.” The market tried to bounce back on that news. Then the Prime Minister’s office said that the deal was a deal and they would stick with it. The market tailed right back down after an attempt to bounce. It was never an attempt to rally; I want to be clear on that. Stocks plummeted on the open, and they bounced in a range. It was just a question of whether they would close down 2% or 3% on the day. They ended up basically splitting the difference.

SP500, -2.79%; NASDAQ, -2.89%; Dow, -2.48%; SP600, -3.49%; SOX, -3.22%.

It was a big downside day, yet again, with the Dow dropping over five points in two sessions. Volatility, my goodness. As I often say, volatility is a sign of a change in weather. We had a nice run to the upside, no doubt. We just got stymied here. I have talked about this before. We see the July and August selloff, and that was because a Europe semi-meltdown was being built into prices. Then there was the lateral move while they tried to figure out if that would really be the case. Then there was the October rally when it looked like that was not going to be the case there was going to be a deal and everyone would be happy. Now we are back to not having a deal.

A wild card? I will talk about some of those soon. I have already said before that the President is writing executive orders and other things to try to get things going the way he thinks they should be going. At the same time, Congress and the debt panel are trying to stop things, I guess? I do not know. It all depends on your point of view. That leaves the Fed open. We have the QE2 rally. We have the withdrawal of QE2 which left the market directionless. It did not know where to go, but it did not really sell off. Then we got the Europe crisis that forced it down. Now we are back in limbo with SP500 and NASDAQ sitting right on top of the August to October trading range. Once again the indices find themselves there after it looked as if they made a solid break to the upside.

There was plenty of news on the day. The question is what news was driving the events? The scheduled report was the ISM Index. It came in at 50.8 when 52.1 was expected. At least it was not below 50; that was something of a help to the market. At least it was not contracting. China was also an issue. Its PMI came in, and we were pretty much the same. It was lower than expected but still positive. But that was viewed as a downer for the market, and it contributed to a lot of the morning angst. Of course the Greek referendum it was primary motivator for the day.

There were other issues, too. Italy and Spain were trying to sell bonds the other day, and then today bond rates exploded higher again. Their stock markets fell over 6%. These are huge, huge losses. There was heavy buying by the ECB’s Market Program. That is basically Quantitative Easing European style. It did not keep rates down, however. There was heavy buying, as I understand, but they could not keep rates down. There are real problems in Europe. Where have we heard that before? This is not something that will just go away. We see it all the time. People feel better about it in October and the market rallies, but they felt bad about it in July and August. Where is it going to go next? Looking at the past two days, it looks like it will go lower, right? It might.

There are some positives here. I do not want to be a pollyanna about the whole thing, but there are stocks that are still holding up. They recovered nicely after the gap lower. There is some backbone in the market, and it was enough to hold the indices at the top of the August through October range. Maybe this will be the end of the selling and it can start back to the upside. As always, the market will just have to show us what it will do. Again, it helps that some stocks were holding up quite decently and showing some good relative strength when a lot of the market was really under pressure.

WEDNESDAY

It is the jobs report week. Friday we will see the unemployment report. We will get the warm-ups on Wednesday. Challenger Job Cuts fell over 200% before, but we have had a lot of announcements. We had some big companies, banks, and others saying they will have to cut 4-5K people. ADP Employment Change is expected to improve.

We also have inventories and, of course, a Fed rate decision. This will be important. This is a sleeper because the Fed may give us some idea about QE3. Remember, the President is out there writing mortgage rules and wanting to put taxes on air fares etc. You have members of Congress wanting to write some new rules. You have the agencies writing new rules. It may all be a coordinated plan where the Fed steps up and says, “By the way, we will do some QE3.”

The tragedy of that is no matter how many taxes they increase and how much revenue they want to raise, we could gave away the entire wealth of everyone in the country and every company in the country, and we still could not begin to pay our debts. Of course that is the definition of bankruptcy, but that is another story altogether.

It is not a revenue issue. I know people hear that all the time and kind of glaze over. But we will never be able to tax our way out of this. We have to cut spending and grow at the same time. That is how you raise revenues, but we have a problem with that. As I said before, they do not want to look at history and figure out how we have gotten out of these kinds of troubles before (of course it has never been this bad). The only history they worry about is how they can get elected versus what will really get this country going. But, again, I digress.

What do we do about Friday? What indeed. SCSS looks very nice. That is just one of the patterns that look nice, but it is an important pattern because it represents many that are out there. Many stocks still look good heading toward the end of the year. That is what we want to be able to play. We are down for two days, back down to the top of the range. But a lot of stocks are not out. While the market overall tumbled hard, they are just testing. Indeed, the indices are as well.

If we can just hold. If those good intraday recoveries in retail and other stocks can continue, and the money continues to flow back their way, then we have that tradeable move back to the upside. We already have some positions that are in a good place. We did not want to get out of a lot of them. Some of them gapped down and were no good, so we had to get rid of them. But a lot of them are holding on. I see others in good shape. If they make the moves, we want to participate in those moves and capture that rally.

That goes back to the point I made earlier. Do not get in the position where you throw your hands up and say it cannot be done. If you say that, it certainly cannot be done. But there are great patterns out there. You have the indices holding over that August to October range. Even in this bad news you should watch, be patient, and be ready. When they show that the money is coming back that way again, it very well could if new money hits the market then we could have a tradable range to the upside. Even with all of this bad news, we can still get a bounce to the upside and a seasonal trend and pattern comes in. We have taken the blow. The indices are back at the top of the old range. Good stocks are holding good patterns. If they move up from there, even in this storm of crapola that has hit, that is very positive for that seasonal year-end move. We will want to take advantage of that.