Mid Fall Fall

Markets fell like autumnal leaves late yesterday. Why so? Well Dick Bove downgraded WFC but I can’t believe that was the reason. A contributing factor for sure but Bove doesn’t have the may west record (you may remember a certain Lehman upgrade to buy a few weeks before bankruptcy). He also appeared pretty upbeat on WFC in his CNBC interview yesterday…which is odd. Maybe he didn’t have time to go through the whole report but then he probably shouldn’t be on TV making comments without the full information.

Anyway, what else contributed? Well Walmart warned of a tough holiday season ahead and the Fed’s the Beige Book was released. Although reports of gains in economic activity generally outnumbered falls, the references to improvement were generally qualified and small. Worry for the market too was that reports on consumer spending were mixed with the weakest sector being CRE.

There was big volume in the S&P futures yesterday with ESZ9 trading 600k contracts in the last 45 mins. That’s a quarter of a yesterday’s volume, c1/3 of an average day’s and about $33bn. vs on average...The sell off continued as Ebay lowered Q4 forecasts despite beating at EPS and in Asia as Chinese GDP came in slightly below ests (8.9 vs 9% cons) and the previously “leaked” IP number, while it beat, at 13.9 vs consensus of 13.2, was below the 14.3 whisper.

The dollar broke 75 on the DXY and crude raced away, clearly worrying the market about the continuing oil price ascent putting the brakes on a recovery.

What does seem to be happening in the last few days is a selling of the news. Now this suggests a lack of buying momentum, the question is, how long does this last as we have been here before. But with companies beating (80% have beaten at EPS, we’ve even had some revs beats too), we’d expect to see the markets push on. It hasn’t really been the case, and this isn’t being helped by some of the downgrades to Q4s that we’ve seen, eg Manpower, Ebay. In Europe, we’ve had CS report strong figures today and fall. DBK were strong although poor quality and fell badly yesterday…and again today. With the weaker PPI and housing starts on Tuesday, lower ABC consumer confidence yesterday and China’s strong numbers not quite being strong enough, we’ve seen investors left with the profit taking option looking quite attractive. If you’re going to play momentum on the short side here however, tight stops are a must, unless you’re willing to dismiss the 15 other market headfakes (remember the old “this is it we’re definitely going lower”) and believe this time it really is different.