EmailIt is too soon to tell on this Halloween morning if the opening indication for the equity market is either a trick or a treat for short sellers. The way things stand at the closing bell will tell the tale, but at the moment the cash market is indicated to start the day about 1.2% lower.
The expected decline comes on the heels of a very good week -- and an historic month -- for the equity market. In the last four weeks alone, the S&P 500 has risen 13.6%. Some profit taking can be, and should be, expected.
There are some headlines this morning, however, that are making it easier to take some money off the table.
There are reports that the expanded EFSF/SPIV plan has not been an easy sell to China and Japan. That has raised concerns about implementation risk.
Similarly, concerns about the effectiveness of the rescue plan, which is still short on key details for market participants, are manifesting themselves in European bond markets and in Italy in particular.
The yield on the Italian 10-year note has jumped to 6.10%. That yield stood at 5.85% prior to the framework of the eurozone rescue plan being announced last Thursday.
At the same time, there is speculation this morning that MF Global (MF) is on the verge of filing for bankruptcy protection. While this is not deemed to be a systemic issue, it is attention-grabbing nonetheless given that the firm's exposure to sovereign debt in Europe is believed to have led to its downfall.
Granted the speculation about MF was in the market on Friday, but it is still one of those headlines that fits into the negative fabric and is feeding a bearish bias this morning.
In other developments, Japan's Ministry of Finance intervened to stem the yen's strength by selling a large, but unspecified amount of yen. That action and a general sense of risk aversion has bolstered the dollar, which is up 3.0% against the yen.
This week is due to be an eventful week for a number of reasons, Halloween being the least of them.
The Federal Reserve has a two-day FOMC meeting that will culminate with an updated policy directive and press conference on Wednesday; the ECB will make an interest rate decision on Thursday with new president Mario Draghi at the helm; G20 leaders will convene in Cannes on Thursday and Friday; more than 100 S&P 500 companies will be posting their earnings results; and the October employment report will be released on Friday.
The confluence of these influential items points to a market that will be operating in a day-to-day mode this week, so one should expect continued volatility.
--Patrick J. O'Hare, Briefing.com
Patrick J. O'Hare is Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial, please email researchsales@briefing.com.
