Equities – Testing, testing the downside

Nikkei 225 (7.682)  Topix (768)  Dax (4.237)  FTSE 100 (4.118) Dow Jones (8.078)  S&P 500 (832) Nasdaq Comp (1.477)  

Equities continue to be the most interesting asset class with significant importance for the other classes as well. As suggested last week is the corporate earnings season the hurricane season for the stock markets. The combination of quarterly results, renewed volatility in the banking sector and swings in energy stocks gave a pretty wild result, overall negative.

The US stock remains extremely interesting for the rest of this month. Two times the US stock market tested the downside very seriously but it rebounded. I now watch 7.950 in Dow Jones and 800 in S&P 500 as important to break but it might be difficult this week for the below reasons.

Energy I believe will be less volatile this week after the fast rise in the oil price. Some banks show good swings today, but I could imagine the volatility fades out later in the week.

It leaves earnings but adds some fundamental data compared to last week. As we saw last week are not all companies just reporting bad news. Many negative corporate news are priced in, so like last week there might be some better earnings than expected to support the market. The 2009 earning outlooks will be very unclear but it seems that the market doesn’t react much on the forward looking comments – despite its where the trouble is…..

The US corporate earnings I watch are American Express Company, Caterpillar, McDonald’s Corporation and Texas Instruments on Monday. Tuesday its Bristol-Meyers Squibb, DuPont and Yahoo, Inc. On Wednesday it’s AT&T, on Thursday it’s Altria Group, Inc, Colgate-Palmolive, Ford Motor Company and finally on Friday ExxonMobil Corporation and Procter & Gamble Company – yes, a busy week….. J

Stocks also reacts on fundamentals these days where the US GDP number on Friday (exp. -5,0%) is more than important and the highlight of the week. That number easily could decide if US stocks will end the week in positive or negative territory.

One joker is short positions. I haven’t seen any statistic lately but judged on what I am hearing, it feels like investors are more short equities than prior.

The sum of some quarter results that are better than expected, but weak outlooks in a market with more short positions makes me believe that the US GDP number on Friday will decide if the week end up or down. I mainly see the upside this week.

The above view on the US market reflects my view on the global market as well, though with a few differences.

Monday’s close at 3 month low in Japan was surprising for me after the rebound end of last week in US. A clear sign of investors truly are worried about Japanese companies due to the global downturn. It’s fair, but I still claim that Japanese companies will profit the most from a Chinese rebound, but that’s for the long term view. Two macro economic numbers will have importance on Friday, the December jobless rate (exp. 4,1%) and December industrial production (exp. -9,0%).

Regarding UK shares I still see the domestic economic situation as so severe that it dominates everything in that market. Meaning any rebound will be short lived.

The German stock market will follow the US market in particular, though there are couple of things to watch. Two company result, Siemens AG on Tuesday and SAP AG on Wednesday. This month the IFO indicator (exp. 81,4) on Tuesday is important and the December unemployment data (exp. 7,7%) on Thursday is worth to watch as well.

I keep the targets as the downside will be tested again…..

Targets: Nikkei 225 6.683  Topix 697  DAX 3.906  FTSE 100 3.456  Dow Jones 6185  S&P 500 656 Nasdaq Comp 1191

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