The Week Ahead 2/2/10


European sovereign debt remained a center of attention this week and in scenes reminiscent of the first phase of the credit crisis, contagion fears and confusion provided the catalyst for a major risk rethink. The week began on a positive note for the Euro Zone  with Greece’s stability plan receiving the necessary approvals from Brussels, but the good news was somewhat overshadowed by rumors of a Spanish downgrade at S&P and reports of €40B in previously unaccounted for Greek government debt. Both turned out to be false but the perception remained and credit default swaps were bid up aggressively on concerns that markets were just one headline away from serious damage, and for the bears, the news flow did not disappoint.

Maybe the market overreacted to Eurozone fears last week, maybe not, we’ll find out soon. The spread in CDS spreads is getting eerily reminiscent of the pre Lehman and Bear Stearns days. I’m not being apocalyptic, just stating fact. Just be careful this week.

Futures are down slightly at around 8:30 EST.

The financials were just crazy on Friday, breaking a key level of support going back to July, then reversing to close green. The jury is out on that sector too. It would surprise me if that was the bottom, but I’ve been surprised before.

Oil and materials are starting to look really cheap again unless another shoe does drop in Europe, then the dollar will continue higher and the sell off in those sectors will continue. Absent that scenario names like MEE, XME and UYM look interesting and could be plays here, but it really depends on Europe and the dollar.

We got stopped on JEF and SEED with Friday’s downdraft.

Tough call here, but I still think we need to retest Friday’s lows again at the very least. We may work higher for a bit first.

There are very few stocks that aren’t massively broken so charts are a very tough read here, time to follow momentum and sentiment as charts go to the back seat.

No names tonight, but I will update most likely tomorrow intra day.

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