(By Rich Bieglmeier) It's sort of hard to take Monday's selloff too seriously. The indexes put up such weak volume that it almost looks as if the computers went stop hunting. Skittish investors, who are worried about preserving profits or limiting losses, may have stop loss orders right under the surface. Wall Street takes equities down hard on light volume to gobble up cheap stock before the rebound
Despite the deep red day, our step up outlook could remain intact, except the latest pivot point will be a little lower than we thought. A close under 12,400 for the Dow, 2,810 for the NASDAQ, and 1,310 for the S&P 500, then we got troubles.
However, we do see one point of concern; the NASDAQ appears to have broken the trend line connecting bottoms. It's not so clear on the Dow or S&P charts. It could mean the indexes may move lower to their 200-day moving averages, or just setting a new, bottom bar to connect the dots. Investors will know for sure soon enough.
Tuesday is the lightest day of the week in terms of big, influential economic reports. The most important of which will be consumer confidence at 10 am Eastern; although, iStock believes the results will show the folks becoming more pessimistic as the job market tightens up.
Of course, the Euro soap opera will drag on with the other EU nations, President Obama and George Soros all pointing the finger at Germany's Angela Merkel – it's all her fault. And Monday's correction was Frau Merkel's fault too, according to internet chatter. She essentially said Germany will stick to its laws prohibiting Eurobonds, and stocks bled.
Like all things EU, the language will soften, and you'll read a headline shortly that reads something like Stocks Rally as Europe Worries Ease.
Two other uncertainties helped dragged stocks down to start the week, a rising dollar and growing doubt about second quarter earnings. iStock warned our readers a few weeks ago that a strong dollar would impact the profits of international companies.
The San Francisco Chronicle reports "Earnings pessimism is reaching levels last seen during the global financial crisis of 2008 and 2009, based on company guidance. Fifty-nine corporations issued profit projections that trailed analyst estimates during the 20 days through June 22, or 3.1 times the number of those that exceeded them. The ratio has been greater than 3 for eight straight days, the longest stretch in three years. It was at least that high the majority of the time between October 2008 and April 2009, climbing to 11.5 in December 2008, the data show."
A dollar that continues higher and profits that get double whammied by an economic slowdown and the stronger greenback could be a deadly, toxic mix for bulls. However, by the time Q2 earnings hit full swing, the FOMC will be meeting again. Horrible earnings and a continuation of the economic slide would all but assure QE3 to start August, and that carrot should keep stocks semi-afloat.