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Warning Signs of A Potential Sharp Correction To Come Next Week


EARNING SHOCK: Apple Analysts Are Cutting Estimates For Next Week’s Earnings

Here’s one reason Apple’s stock has been tanking lately.

Analysts are cutting back their estimates for fiscal fourth quarter (calendar third quarter) which Apple reports next week.

Philip Elmer DeWitt has a round up of three recent notes. Essentially, all three blame iPhone 5 supply issues for a worse than expected quarter.

The iPhone 5 has been sold out around the world since day one. It could be because Apple is struggling to make the phones, or it could be because it has been very aggressively rolling out the new phone around the world. Whatever the reason may be, analysts think Apple didn’t sell that many iPhone 5s in the last week of September.

One other reason analysts are cautious is the slowdown of PC sales, which they think will affect Mac sales.

 

Greek Troika Talks End Abruptly Following “Complete Disagreement”

What the Spanish rumor of a bailout lite (as a reminder, the full blown Spanish bailout has already been largely priced in, and today’s action is a very confused market pricing in a second, bailout-lite) giveth, Greece taketh away.

From ANA via From Bloomberg:

A second meeting between the heads of the EU-IMF troika mission in Athens and Greek Labour Minister Yiannis Vroutsis on Tuesday afternoon ended abruptly a few minutes ago, after the two sides hit deadlock for the second time in the same day.

 

Sources in the labour ministry cited “complete disagreement” between the two sides on the issue of three-year wage maturation periods. They said that the labour ministry had been prepared to continue the talks but the representatives of Greece’s creditors had departed.

** Greece To Run Out Of Cash By November 

 

The last time equity traders were this net-long, the S&P fell 22% in the next 11 days

We noted yesterday that NYSE short-interest dropped to a five-month low removing much of the kindling for a centrally-planned world of goal-seek’d equity wealth creation. So when we hear that sentiment is so bad, and everyone’s bearish – the simple fact is: they are not. To wit, the S&P 500 e-mini futures contract – the most liquid equity trading vehicle in the world – has pushed to its most net-long position since December 2008. The last time equity traders were this net-long, the S&P fell 22% in the next 11 days. The psychology may be different – from “surely it can’t drop any more” to the current “it can’t drop much because  Bernanke/Draghi has our back” – but the positioning is just as complacent this time.

 

S&P 500 e-mini futures net long (lower pane) positioning +12% is the most-long since Dec 08… The same kind of overly complacent-driven move would take the S&P down to 1110.

 

Critically the evidence is clear for how we rallied so hard off the Q4 2011 drop last year as the massive net short position was prime for squeezing… not now though.

 

and macro hedgies are as long equities as they have been in two years…

 

and its not just equities and futures, credit markets are the most long credit they have been since 2008…

 

Chart: Bloomberg

 

France ‘in danger of economic hurricane’

France is sliding into a grave economic crisis and risks a full-blown “hurricane” as investors flee rocketing tax rates, the country’s business federation has warned.

“The situation is very serious. Some business leaders are in a state of quasi-panic,” said Laurence Parisot, head of employers’ group MEDEF.

“The pace of bankruptcies has accelerated over the summer. We are seeing a general loss of confidence by investors. Large foreign investors are shunning France altogether. It’s becoming really dramatic.”

MEDEF, France’s equivalent of the CBI, said the threat has risen from “a storm warning to a hurricane warning”, adding that the Socialist government of François Hollande has yet to understand the “extreme gravity” of the crisis.

The immediate bone of contention is Article 6 of the new tax law, which raises the top rate of capital gains tax from 34.5pc to 62.2pc. This compares with 21pc in Spain, 26.4pc in Germany and 28pc in Britain.

“Let’s be clear, Article 6 is not acceptable, even if modified. We will not be complicit in a disastrous economic mistake,” Mrs Parisot told Le Figaro.

 

We Could Be Heading For A Market Shock If Spain Doesn’t Request Bailout Next Week

The International Monetary Fund has issued a veiled warning that Spanish bond spreads could surge to a record 7.5pc and push the country into a deeper crisis if premier Mariano Rajoy continues to drag his feet on a bail-out request.

The fund said sovereign debt woes were spilling into the broader Spanish economy, risking a “pernicious feedback loop” for private companies. The danger is another bout of capital flight combined with a “credit shock” as banks deleverage drastically to meet higher capital ratios.

Olivier Blanchard, the IMF’s chief economist, said Madrid was courting fate by trying to muddle through without a bail-out – and without the tough terms it would bring – now that borrowing costs had fallen on hopes of bond purchases by the European Central Bank.

Mr Blanchard said investors had most likely anticipated a rescue by the ECB and the European Stability Mechanism (ESM). “If so, we can’t be sure that yields will stay low for much longer,” he said.

The IMF said capital flight from Spain reached €296bn (£238bn) in the 12 months to June, or 27pc of GDP. It matches the intensity of “sudden stop” crises seen in emerging markets.

Banks in Spain, Italy, and the EMU fringe cannot easily make up the shortfall by turning to the ECB because they are short of usable collateral.

JUST-IN:  S&P downgrades 15 Spanish lenders

The US-based Standard & Poor’s rating agency has cut credit ratings of 15 Spanish banks including the country’s largest Banco Santander SA and Banco Bilbao Vizcaya Argentaria (BBVA), following the national rating cut last week.

“The sovereign downgrade has direct negative rating implications on those banks that we rated higher than the ‘BBB-’ long-term rating on Spain, and on all banks where we factored extraordinary government support into the ratings,” the S&P said in a statement.

JUST-IN: Spain Bailout Lite Rumor Rejected

First the Greek Troika fiasco, and now the only reason stocks had to ramp today, just got rejected:

  • SENIOR GERMAN LAWMAKER SAYS MEDIA REPORT ON SPAIN APPLYING FOR PRECAUTIONARY CREDIT LINE “OVER-INTERPRETED” HIS COMMENTS
  • SENIOR GERMAN LAWMAKER SAYS WAS NOT REFERRING TO SPAIN IN HIS COMMENTS TO BLOOMBERG

Watch Simon Potter the market completely ignore this rejection of the catalyst for today’s spike and continue levtiating higher as Liberty 33 continues doing what it does best: expanding credit multiples, even as it destroys cash flows.

China Inc. Waves a Red Flag on Economic Recovery 

Chinese corporate profits show no sign of a second-half recovery as analysts cut earnings estimates in September by the most in 2-1/2 years, a red flag for investors who expect the world’s second-biggest economy to start picking up soon

China will release its third-quarter gross domestic product data on Thursday.

Corporate profits still look lackluster at best. Inventories are slowly receding, but shipments remain weak, suggesting underlying demand remains subdued.

Marc Faber: Market Setting Up for ‘Serious Setback’

Global markets have been weakening technically and are poised to head sharply downward, “Gloom, Boom & Doom Report” editor Marc Faber told CNBC on late Tuesday.

On “Fast Money,” he stood by his call that stocks would fall 20 percent.

“Basically, I think QE3, which I think is unlimited, and bond purchases by the ECB bailout of countries have been largely discounted by the market, and the markets have been weaking technically, so I believe that we may have here quite a serious setback,” he said.

 

Faber discounted the role of government intervention as a way to improve economic conditions.

 

 

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  • Bill Lee

    Bring. It. On.