Overnight and In to the Open

Last night in my review of the day I showed the previous 3 times we've had strong reversal signals this year (like we have now) and mentioned how each of them had a 1 day/intraday break above the range they were all in and ...lamented (?) that we had not seen the same in the averages, it looks like our open will give us that and going by intraday volatility, there's a good chance this could be that little pivot that forms the reversal as we have seen in the past 3 major reversals this year and see about 80% of the time before all reversals. It doesn't so much matter how we open, it's how we close.

The main events overnight included the European Q2 GDP which came in at -0.2%, continuing the European double-dip recession. Beating expectations were:  Germany (+0.3 q/q), Austria (0.2%), Slovakia (+0.7%) and the Netherlands (0.2%.

However, the southern economies (and this is the north/south social and economic divide I have been talking about) came in ugly with a few surprises like Finland (-1.0%) which is a northern economy, this is contagion of the core; also Portugal (-1.2%),  Italy (-0.7%), Spain  (-0.4%) and Belgium GDP (-0.6%).

While German GDP beat (which will keep political pressure in Germany on Merkel not to let Germany slide as Finland is now starting to),another important data release, the German ZEW Poll came in with a 4th decline, this time at a horrible print of -25.5 on consensus of -19.3. 

Also released this morning was Spanish bank borrowing data from the ECB for the month of July which shocked bringing borrowing to 375 billion euros which is a $38 billion increase from June and an all time new record high.

Here's the trend for Spain and Italy, I think you can guess who's who.

Forget about sovereign debt, this should illustrate the depth of the problems for the EU's two final dominos.

We now have European GDP falling at -.2% and European Industrial production declining at 0.6, the trend for GDP for the rest of the year does not look encouraging, but overnight, the market was just relieved Germany didn't enter recession. However Germany was never going to be the country to take the EU down, it's the only thing holding it up; the countries in trouble like Italy, are posting horrible data like Italy's just released (yesterday) sovereign debt ballooning to $2.437 trillion. This is where the focus needs to be if you are thinking past 1 day of trade or an open. It's not just the debt, it's the trend in the metrics like Industrial production and others that shows things are getting worse not better. It's very much the way in which I describe the market in terms of strategic and tactical.

As for the US, QE hopes have been dashed again, remember this is the market where bad US data is good market news and good data is bad market news because the entire market's hopes rest on Central Bank QE3. Along those lines, US July retail sales posted the biggest beat to expectations, rising at 0.8% on expectations of a 0.3% increase, the highest estimate among analysts was +0.6% so this is a massive beat and as such, bad market news and gold is reflecting it as it gapped down today.

Just as I mentioned yesterday about Gold's near term action, it will be disappointing...

This increase in retail sales makes it harder for the F_E_D to conduct QE3 because of not only the stronger data, but inflation concerns as QE always stokes the flames of inflation.

Other US Data includes Small Business Optimism coming in at a 9 month low

Released On 8/14/2012 7:30:00 AM For July, 2012

Prior Consensus Consensus Range Actual level 91.4  91.3  89.0  to 92.5  91.2  Also we had the PPI with a small beat as food inflation is driving the Index higher.

Released On 8/14/2012 8:30:00 AM For Jul, 2012

	Prior	Consensus	Consensus Range	Actual
PPI - M/M change	0.1 %	0.2 %	-0.2 % to 0.6 %	0.3 %
PPI -Yr/Yr change	0.8 %			0.5 %
PPI less food & energy - M/M change	0.2 %	0.2 %	0.0 % to 0.2 %	0.4 %
PPI less food & energy - Yr/Yr change	2.6 %			2.5 %

As for ES and the opening indications, it always seems to change very dramatically on the US open...

ES with a pre-market negative divergence in to the open sending ES lower on the open.

Opening indications are coming, but this may give us the head-fake pivot we were missing in the averages as mentioned last night...

SPY opening above the resistance zone, the same as a head fake move which creates the pivot seen in the last 3 major reversals and the majority of all reversals.