Olympia Capital Markets Group - Morning Note

Olympia Capital Markets Group - Morning Note by Jeffrey Girsky

Global equity markets traded lower overnight on persistent fears about the euro-zone sovereign debt situation. However, they have since rebounded and U.S. futures currently point to a flat open for the major averages... Asian markets dropped overnight, led by a 1.1% decline in Japan as stocks went ex. dividend ahead of the end of the fiscal first half (Sept). While they did not provide much support, reports indicate the BOJ will discuss taking further steps to ease monetary policy at its Oct. 4-5 meeting.

The market is focusing on Europe this morning, however. Reports circulating overnight discussed the upcoming decision by Moody's on Spain's debt rating, as the agency said on June 30 that it would complete a review on the country within three months. There were also renewed worries about the overall cost to Ireland of bailing out nationalized Anglo Irish Bank. European equity markets opened lower and U.S. futures and the euro sold off from unchanged levels on the reports.

However, they rebounded from 5:30 to 6:00 a.m. ET. Many are attributing the move to speculation that European central banks are buying troubled debt. Spain also conducted two successful bill auctions this morning, though at slightly higher yields, and Fitch said that Ireland may avoid further downgrades if the country comes out with a credible cost plan for Anglo. The euro also received support from a ECB senior official saying a number of non-standard support measures will expire in the fourth quarter and not be renewed.

Key earnings/guidance since the prior session's close:
-Walgreens (NYSE: WAG) beat by a nickel in Q4 (Aug) on revenue of $16.9 bln, in-line with expectations. Shares of WAG are indicated 5% higher premarket.

Technical Perspective: Although the S&P 500 (and most averages) established fresh multi-month highs yesterday, the move lacked momentum and volume, with the index closing on the low. Given the lack of a breakout confirmation from the Russell 2000, along with the potential negative divergences (new high index/no new high RSI), how the market performs Tuesday could provide an important near-term read on the health of the September surge. Initial support for the S&P is at 1139 and 1136 (retracements of Thursday-Monday rally), with first level resistance at 1146/1147.

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