Memo to EU

“It was the last wish of the Icelandic economy that its ashes be spread over Europe.”   

 

I wish I could take credit for that gem.   

 

Flights are grounded once again in Europe as more ash from Iceland’s unpronounceable volcano drifts over the continent.  

 

Europe is providing a major downer for the stock market these days. It’s not the grounded flights, however. It’s debt problems with Greece (again), and potentially Spain, Italy, Portugal and Ireland.  

 

The news from Greece is not good this morning. Goldman Sachs is saying Greece is likely to cut or suspend debt payments for its bonds. The market is re-pricing Greek bonds for this possibility, which is why Greeks’ bonds have been falling for 6 straight days.   

 

Greece’s debt to GDP is over 13%, a far cry from the EU’s 3% debt to GDP rules. That’s pretty bad. But it’s the way that this whole situation has been handled that’s helping to push Greek bonds to a crushing 8.49% yield.   

 

As recently as April 7, Greek officials maintained that its debt was 12.7% of GDP. Now it’s 13.6%, and may rise higher. 

 

Then there’s the dysfunctional way the bailout plan was negotiated. The back and forth between Germany and demands for IMF involvement have not given investors confidence that the situation will be easily involved.   

 

What’s more, how will the EU respond if there are future problems with Spain or Portugal or another country?   

 

It’s a bit of a mess. But the phrase “for better or worse” applies to an economic union just as much as it does to a marriage. The EU needs to do whatever it has to present a cohesive solution for debt problems to the world.    

 

The latest round of earnings have not been so great. Verizon (NYSE:VZ) showed lower subscriber growth than expected. AT&T (NYSE:T) said essentially the same thing yesterday.   

 

Kimberly-Clark (NYSE:KMB), Baxter International (NYSE:BAX), Nokia (NYSE:NOK), Philip Morris (NYSE:MO), eBay (Nasdaq:EBAY) and Raytheon (NYSE:RTN) are among the companies that have posted disappointing earnings.  

 

And stocks that miss are getting creamed.   

 

The headline reads “New Jobless Claims Drop Sharply”. But a 24,000 drop to 456,000 doesn’t sound like a “sharp” drop to me. Still, claims peaked at 650,000 a week, so we’ve seen some improvement.   

 

In some ways, the tepid pace of improvement in employment is good news for interest rates.  

 

But for a little more color on the technical picture for the stock market, let’s turn to TradeMaster Daily Stock Alerts’ Jason Cimpl:   

 

I have seen clear selling in the market over the past few days. Additionally, this selling has come with great earnings results and behind one of the most amazing bull runs ever. The market wants to take a break, and the next consolidation will last longer and retrace deeper than the previous two.   

 

Technically, the evening star candlestick reversal pattern is still in play. This is a topping pattern and is highly reliable. I noticed one in January, which is how subscribers knew to get short towards the end of the month. The market is likely repeating itself, and institutions are using earnings volume as a means to get out of positions which will result in a pull-back.   

 

Secondly, fundamentally, every sector looks fairly valued. Earnings are destroying analyst estimates, but stock prices are barely reacting. Yes, Apple (Nasdaq: AAPL) and Atheros (Nasdaq: ATHR) have been exceptions, but look at the kind of growth these two companies needed to report just to move the stock price 6%. Then look at Google (Nasdaq: GOOG) which reported an amazing quarter, and shares are down 8%. The market is putting itself in a situation where it can only disappoint because the optimism is priced in.  

 

Still, the bears can’t celebrate yet. Until that group breaks a few support levels, the first of which is SPX 1188, all price action should be viewed as consolidation before new highs.   

 

Thanks Jason.   

 

Chuck K., one of Jason Cimpl’s readers, wrote the other day:   

 

Thanks for a great calls. CPE (100%)   & MIPI (stopped out at $4.29—187%)   

 

Yes, Jason has led his readers to some outstanding profits lately. And now, you can put him to the test. Send Jason a ticker symbol, and he’ll review your stock in a personalized charting video.   

 

Then, you can stick around and get 2 weeks of his market commentary, trading videos and trading recommendations for just $9.95.  

 

There’s no better way to “test drive” TradeMaster Daily Stock Alerts.   

 

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