Financials Implode Earnings Season

Well, that glass may not even be 10% full.....analysts just can't keep up with all the earnings cuts and dampened outlooks.....So far this season, they have cut earnings estimates on the S&P 500 by a record 83%.

Financials are leading the way down today, which means that the rosey-eyed bulls are finally getting a dose of real fundamentals. It also means that Fast Money and speculative fund managers are actually not going to drive Energy stocks to the market lead, which has been their insane practice since the end of last year.

State Street is leading the way down for U.S. Financials with a gigantic 43% drop pre-market on a bad earnings outlook. European Financials are having a terrible time as well. Many Financial companies overseas are reporting bad results and forecasting a continuation of bad results. In addition, many investors are extremely worried about the nationalization (socialization) of European banks, which is moving one more step towards reality now.

The concern on the Street is that the global recession is deepening. Energy speculators couldn't stay completely away from the game, so Oil is down in the $33's now, although the March contract is not reflecting it today since this is the first day as the front month. I can't believe I'm actually typing this, but then again, I've learned to believe anything when it comes to speculators.....Oil could actually hit the upper $20's again.....granted it's on a historically bad recession and not on a boost in supply, but here we are, approaching that area again.

The fear in the Financial system appears to be getting in deep with the Banks again because they actually gapped up the Ten-Year Yield ($TNX) this morning instead of gapping it down with the market. The LIBOR is holding at a low, and the Ted Spread actually narrowed a little. So the long end of the Yield Curve got a little steeper today and the short end stayed flat to down. Banks just don't appear to be having a very good time right now.....Many Banks gave the illusion that the system woes had settled down in December, but it appears that there is still a big dose of the willies going around as they give us the "bad news" this Earnings Season.

Today will probably be a pretty volatile day. This week will probably be a pretty volatile week. And that's after I warned that volatility would increase last week.

Remember, the market is right in the middle of the Beardicat Zone. However, last Friday, when things went goofy and squishy on the gap, I knew there was the potential for trouble brewing. That's why I blew out my SPY calls for only a .06 cent gain. I know that a Hammer on big volume usually means a swing bottom, but there are nice bottoms and there are fussy bottoms. And this bottom is going to be fussy, which means that the odds of holding are a toss of the coin. We could see the Dow at 8,000 again just as fast as we might see the Dow at 8,350. In other words, trading the next couple of days is going to be a short swing and I'm outta there if I do anything at all. I'm only interested in the short stuff the next few days, and I'm only interested in the clearest signals, otherwise I'm not a player.....

Here is a chart of the Dow this morning:
(click on image to enlarge)

You can see that the Morning Star last week just got too fussy, hence the selling of the SPY calls. Right now, the Dow could drop to 8,000 just as easily as jump to 8,350. I'm not going to try and outguess the daily charts, but the drop to 8,000 looks a little more likely right now. And if we get 8,000 then the two-day wiggle last week becomes a variation of a Falling Three Methods, and then the market is at risk for a drop to 7,750.....

We shall see.....