Added: Jul 18, 2008
From: ThomsonFinancial
Duration: 2:54
Squawkbox market analysis with Danielle Morellino from Thomson ReutersTranscript:Welcome to the Thomson Squawk Box Market Minute. I'm Danielle Morellino.Stock futures turned higher Friday morning, pointing to upside potential following Citigroup's strong earnings that diluted the disappointments from Merrill and Google overnight, as the S&P nears a critical resistance point near 1270 that it needs to rise above to keep the good times going.In yet another sign that the negative sentiment that's shifting to the upside in the banking sector, Citigroup beat by 17 cents on the heels of beats by JP Morgan and Wells Fargo.Yet the recent bounce in financials has much to do with sentiment. There is still no strong evidence that the financial or mortgage crises is over. Some banks are merely doing a better job than others adjusting to the tighter credit environment.Big financial writedowns continue. Citi, for instance, posted a $7.2 bln in pre-tax writedowns in securities and banking. And financial giant Merrill continues to struggle, posting a much wider-than-expected loss, and selling assets to raise capital. It debt was downgraded by Moody's, and the group issued concerns about MER's subprime portfolios. Merrill's Thain on the conference call said he expects problems with mortgage insurers such as MBIA to last for "years and years".The futures were at 1260 at last check this morning, and may challenge the 1270 area on the S&P today, where we have been saying the bounce needs to rise above to continue. Even though we pointed to a half-dozen or more reasons earlier this week why we'd expect a bounce, we continue to have doubts that the recent rally is something more constructive than that, based on longer-term sentiment indicators that didn't reach extremes, as well as shorter-term ones that simply stayed oversold too long to be the be-all, end all bottom.Most major U.S. indices moved out of their downtrends based on yesterday's rally. All groups are now consolidating, with the exception of the Nasdaq 100, which remains in a downtrend. By sector, we lost many downtrends in individual sectors, although there were no new uptrends; the strong groups are still biotech, drugs, health care and medical devices, all of which are less dependent on financials and the consumer economy than most groups.One potential positive catalyst for stocks in coming weeks is crude oil, which broke a steep 5-month uptrend Thursday, with the front-month contract settling below $130 a barrel. Such pullbacks in recent months have only precipitated fresh breakouts to all-time highs. But this one is different; it sunk below not only the trendline, but the first minor retracement level near $133, which suggests that downside to $116, and potentially $109. If we do get that kind of a break, stocks have a much better chance above 1270.
Channel: News
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