Before the Open (Jul 8)

Good morning. Happy Wednesday.
The Asian/Pacific markets closed down across-the-board. China and Hong Kong lost fell almost 6%, Japan and Taiwan about 3%, Singapore, Australia, India and South Korea more than 1%. Europe is currently mostly up. London, France, Austria, Italy, Belgium and Portugal are up more than 1%; Germany, Netherlands, Switzerland, Finland and Spain are also doing well. Russia and Egypt are down more than 2%; Turkey is also weak. Futures here in the States point towards a relatively big gap down open for the cash market.
Podcast with Brandon at Trading Story
The dollar is down. Oil is up a small amount; copper is down. Gold is up, silver is down. Bonds are up.
Yesterday before the open I talked about being ready for a rally…that because the market responded moderately well to the negative news from Europe, it was likely the bears were temporarily tapped out. That’s exactly what we got. After weakness early, a bottom was put in place, and the market rallied furiously the rest of the day. The S&P moved almost 40 off its low and closed with a moderate gain. The large caps did the best; the Nas and small caps lagged. Volume was heavy, but the internals were only so-so.
In a quiet world where influential news was absent, there would be high odds yesterday’s momentum would carry through for another day or so. I wouldn’t predict new highs, but higher prices would be in the cards. But news isn’t absent. Besides Greece, which should be resolved – one way or another – this weekend. Besides Puerto Rico’s debt problems. China is the elephant in the room. The Chinese market is not just pulling back, it’s crashing. Today it dropped almost 6%. That would be a big move for an individual stock, but for an entire market is almost unheard of. A 6% SPX drop would entail the S&P 500 falling over 300 points. To put things in perspective, during the Flash Crash, the S&P dropped 100. Imagine 300! That’s what’s taking place in China. Over half of Chinese stocks have suspended trading. I guess that’s their attempt to slow the selling. It’s not going to work. Too much leverage is in play.
I’m not going to predict many 40-point SPX days, but volatility will certainly remain elevated and big moves in both directions could play out. As I’ve said many times, this is perfect for day trading, but far from ideal for a swing trader. Be conservative if you don’t like the environment.
Stock headlines from barchart.com…
Navistar (NAV -1.53%) was downgraded to ‘Hold’ from ‘Buy’ at BB&T.
Harley-Davidson (HOG +0.37%) was downgraded to ‘Sector Perform’ from ‘Outperform’ at RBC Capital.
Reuters reported that JPMorgan Chase (JPM -0.79%) agreed to pay at least $125 million to settle probes that the bank sought to improperly collect and sell consumer credit card data.
W. R. Berkley (WRB +1.80%) was upgraded to ‘Buy’ from ‘Neutral’ at Goldman Sachs.
Advance Auto Parts (AAP +0.07%) will replace Family Dollar (FDO +0.05%) in the S&P 500 as of the close of trading today.
St. Jude Medical (STJ +1.38%) was upgraded to ‘Outperform’ from ‘Market Perform’ at Wells Fargo.
Dick’s Sporting Goods (DKS +0.13%) was upgraded to ‘Outperform’ from ‘In-Line’ at Imperial Capital.
Rolls-Royce (RYCEY -5.32%) was downgraded to ‘Neutral’ from ‘Outperform’ at Exane BNP Paribas.
Pearson (PSO -0.16%) was downgraded to ‘Sell’ from ‘Hold’ at Berenberg.
Tourbillon reported a 14.9% passive stake in Green Plains Partners (GPP +1.39%) .
Vanda Pharmaceuticals (VNDA -1.91%) announced that the European Commission approved its Hetlioz drug for the treatment of Non-24-Hour Sleep-Wake Disorder in totally blind adults in the European Union.
Novartis’ (NVS +0.56%) Entresto drug was approved by FDA for treatment of heart failure.
Gilder, Gagnon, Howe & Co. reported a 13.18% passive stake in Papa Murphy’s (FRSH +3.15%).
Earnings and Economic Numbers from seekingalpha.com…
Today’s economic calendar:
7:00 MBA Mortgage Applications
10:30 EIA Petroleum Inventories
1:00 PM Results of $21B, 10-Year Bond Auction
2:00 PM FOMC minutes
3:00 PM Consumer Credit
Notable earnings before today’s open: MSM
Notable earnings after today’s close: AA, WDFC
Other…
today’s upgrades/downgrades from briefing.com
this week’s Earnings
this week’s Economic Numbers