Member LoginLost Password?
 

Anatomy of the Markets by Jeremy Klein 2/10/10 - 7/7/10

Copyright © 2010 TFG Trading Matrix, LLC Inc. All Rights Reserved.
Unauthorized reproduction of any content on this website is strictly prohibited, and all violators will be prosecuted to the maximum extent possible.

<< Oldest  < Older

Filtering out the Noise
Posted by Jeremy K. - Market Strategist on Jul 7th, 2010 7:19am

There is a lot of noise out there. Gargling sounds that are quite similar to the cacophony of the vuvuzelas emanating from South Africa during each of the 61 World Cup matches already completed. To be sure, we received a very modest miss from the ISM Non-manufacturing survey yesterday, but given that indicator’s short history, no one really noticed the third tier economic data. As always, we receive Jobless Claims on Thursday, but beyond that we sit in limbo ahead of what I consider to be the most important reporting period in at least the past several years.

Despite the uncertainty of the lack of material news ahead of companies giving us their numbers, one can filter through the mess of contradictory opinions and attempt to make sense of it all to position oneself appropriately for earnings season. Without question, traders have started to lay out some bets and align themselves in the bullish-bearish spectrum as evidenced by yesterday’s 25 handle range in the E-Minis. As I am currently one of the most sanguine market strategists on the Street, I fortunately saw more reasons for optimism based on Monday’s action. First, while the day session chart did not plot an outside reversal in the futures, it did achieve the technical pattern if one takes into consideration of the overnight trading as well. Although I have always maintained that I am wary of blasting the alarms when we stumble upon such a day, the previous two occurrences on June 21 and May 13 foreshadowed the most recent intermediate tops perfectly.

Next, while we received our daily dose of afternoon selling, at least one very large institutional manager found enough reason to launch a late day buy program to rip the market back up half the session range just minutes ahead of the Close. I would expect to continue to witness such action in the coming days as the Rolling Average NYSE Closing Tick sits deeply oversold at +55. Furthermore, with 175K new E-Mini contracts opened during last week’s deep 5.5% selloff, plenty of short covering explosions sit in the weeds. Finally, I look to something as simple as a technical bounce off Previous Settlement as a signal from those defenders of stocks to avow that they will not let the market finish with another red day, for enough is enough.

Of course, whether one thinks equities will rise or fall, this week’s action is all about jockeying for position, for earnings will tell the real story soon enough as Alcoa kicks things off next Monday night. Arguably, the most important market factoid to chew on from yesterday is another page gets ripped from the wall calendar without any material change in analyst’s estimates for numbers. If these expectations sit at or near these current levels by the dog days of August, then rest assured, stocks will be hotter than the current blazing temperatures outside with the bears desperately and unsuccessfully looking for a cool cave to hide in.

S&P 500 September E-Minis Key Technical Levels


Support: 1016.15, 1013.50, 1012.75/11.25, 1006.00, 1002.75, 1000.00, 991.00/90.00, 980.00/78.00
Resistance: 1024.25/25.50, 1035.50, 1038.50/39.00, 1042.00/44.00, 1047.25, 1055.75, 1062.75, 1066.50, 1071.00, 1078.50/80.00

[View Comments (0) / Add Comments]

Limping to the Finish Line
Posted by Jeremy K. - Market Strategist on Jul 6th, 2010 7:13am

So we have run the gauntlet of last week's data and have come out the other side with a clearer picture of the economy. It stinks. To be sure, the Jobs Report on Friday was not all that bad, but certainly, as evidenced by an absolute egg laid by Consumer Confidence, enough of us are out of work, drowning in a sea of debt, or are just reading the gloomy headlines from around the world. But have America's corporations been seeing the same news and feeling much of the same pain?

Sell side analysts do not think so, for their earnings estimates for the next 18 months have not even budged since we closed the book on last quarter's reporting season. We will know for sure soon after Alcoa kicks things off next Monday night. Fortunately, after the aluminum producer gives us their numbers, large cap technology firms and banking giants get to step up and offer their views of the past three months and their future expectations. Typically, unless the financial universe wobbles wildly on its axis, these behemoths blow the cover off the ball. It was the dying down of an April tailwind when they finished providing spectacular releases that allowed the bears to take firm control of the action by returning the focus to the problems of Europe and then the potential shocks to our economy.

Despite the deafening silence from the quietest pre-announcement season in recent memory and the resulting stubbornness from analysts refusing to adjust estimates even with the tepid economic environment, consensus among traders for optimistic Q2 earnings are more than muted. Consequently, while the standard in line report usually does not cut it, if companies on the whole meet expectations, then stocks should soar. Using Friday’s closing levels, the P/E for 2010 and 2011for the SPX sits at a mind blowing cheap 12.5x and 10.7x respectively such that even the most ardent gloom and doomers will have a tough time disagreeing assuming the current guidance going forward sticks.

And there once and for all is the rub. Are those estimates good ones? As equities continue to slide, the easy answer is no; however, given what we have heard so far from the bigger names who reported early on the periphery such as ORCL, FDX, and even RIMM, I remain optimistic that good news lies tantalizingly close on the horizon such that a terrific buying opportunity is upon us.

S&P 500 September E-Minis Key Technical Levels

Support: 1014.25, 1012.75/11.25, 1006.00, 1002.75, 1000.00, 991.00/90.00, 980.00/78.00
Resistance: 1029.00/30.00, 1032.50, 1039.00, 1042.00/44.00, 1047.25, 1055.75, 1062.75, 1066.50, 1071.00, 1078.50/80.00, 1081.75/83.75

[View Comments (0) / Add Comments]

"When in the Course of Human Events..."
Posted by Jeremy K. - Market Strategist on Jul 2nd, 2010 7:12am

234 years ago this Sunday, fifty odd men risked treason and their lives by standing up against tyranny brought on by an omnipotent imperialistic government in an effort to preserve their “inalienable rights” given to them at birth. Jefferson, Adams, Franklin, Hancock, and the rest of the boys risked it all to secure liberty for themselves, their children, and all other generations that followed. And as a result of their bravery, most of us who live in this greatest nation on the planet have a three day weekend upon us. Thank you Founding Fathers. I may not recall your efforts when wolfing down some good barbecue this weekend, but make no mistake, they are much appreciated.

Soon after the Revolutionary War concluded, America quickly fell into a deep recession and interest rates in the fledgling nation skyrocketed. Without question, the financial headaches for the mostly agrarian economy far exceeded anything we face today even if we do double dip. Through the adroitness of our first and greatest Secretary of the Treasury Alexander Hamilton who guided the federal government to gobble up all state debts accumulated during the war before reissuing the paper at much lower borrowing costs, the seeds for the greatest monetary empire were sowed.

It would seem based on the recent data, including yesterday’s poor ISM and Jobless Claims readings, that this economic juggernaut currently fails to fire on all cylinders. However, traders will forgive and forget all if this morning’s Employment Report knocks one out of the park. Of course, that begs the question of what a constructive release would entail; however, I will define it as any print on Private Payrolls that exceeds or gets within sniffing distance of the +110K consensus. Based on ADP’s dismal performance on Wednesday and last month’s shocking miss, expectations have been more than muted as evidenced by a limp attempt by stocks to rally hard yesterday despite an obvious underlying first of the month bid.

Because of the moving target of hundreds of thousands of temporary census jobs starting to disappear, I will not bother trying to throw my hat into the prognostication ring with my Quick and Dirty model, for my homebrewed back of the envelope analysis works off of Jobless Claims which in all likelihood will miss many of those recently laid off by the government. Besides, the headline Nonfarm Payrolls number will take a back seat to the Private Payrolls figure which the Q&D ignores. Fortunately, I believe equities will react quite favorably in most of the potential scenarios. Quite simply, if Private Payrolls meets or exceeds expectations, then led by the overnight futures markets, stocks will rocket higher most of the day. A print that misses consensus but sits above +80K will entice algorithms that instantaneously read the tape to short the E-Minis before getting squeezed by traders and fund managers letting out a big sigh of relief in avoiding a major disaster to rally stocks during the session. Anything between +50 and +80K ultimately will produce a yawner of a day, one good for viewing two crackerjack quarterfinals in the World Cup, while a release that skims above 0 or crashes with a negative print will cause more stress and panic selling among investors.

Beyond today, the playing field clears up almost completely with little scheduled fundamental data on the calendar next week. Starting after the Close on July 12, we commence the Q2 reporting season which, in my opinion, will have more importance than most others over the past ten years. If companies guide inline, then without question, money will be put to work in what will be perceived to be a very cheap market. Given the extremely quiet preannouncement season, I remain optimistic, and arguably so do many others who will feel more confident to step in and play from the long side with no threat of any challenging major economic releases on the horizon.

S&P 500 September E-Minis Key Technical Levels


Support: 1015.50, 1011.25, 1006.00, 1000.00, 991.00/90.00, 980.00/78.00
Resistance: 1028.00/30.00, 1039.00, 1042.00/44.00, 1047.25, 1055.75, 1062.75, 1066.50, 1071.00, 1078.50/80.00, 1081.75/83.75

[View Comments (0) / Add Comments]

Whitefish, MT
Posted by Jeremy K. - Market Strategist on Jul 1st, 2010 7:20am

As a child of two New York City public school teachers, I enjoyed many long summer vacation road trips. Before I had turned 9, I had already visited 41 states of this great nation. Less than two years ago, I drove 90 minutes north from my in-laws' Tulsa home and rung up Kansas at #46. Alaska tops the list of the remaining four, but I suppose I will touch down there on one of those cruises everyone inevitably takes in their 60's. Oregon represents an odd miss since I lived in Northern California for so many years, but with several close friends in Seattle only a few hours away, I will eventually make it there. I have already given up on North Dakota, for it is too far out of the way, and no matter how many times Bloomberg Television runs that silly tourism ad for the state, nothing excites me about it.

Montana rounds out my list, and among the final four, it has piqued my curiosity the most. While I once sat within spitting distance of Big Sky country on a visit to Yellowstone, the photos I have seen from our fourth biggest state have bordered on spectacular to make my visiting a bit of a small obsession. After witnessing the market trade once again opposite from my daily prediction, I needed a "take me away" kind of moment last night and took another look at Montana online. I found a small town called Whitefish, tucked away in the Northeast corner and buttressed against the Idaho and Canadian borders. The town of barely 5,000 sports not only a world class ski resort where one often comes down the mountain into the clouds below, but also boasts a top notch sushi joint called Wasabi. I was hooked and instantly was ready to depart from this often miserable business to pick up and move permanently to enjoy the fresh air while writing the great American novel.

Alas, I need to live in an area of good pizza and top shelf bagels as they compose a major food group for me. Thus, Montana remains on hold for now, so I must do what I can to keep slogging it out as I always have during the more difficult times of my market prognostications. That is, I will perform my analysis to lead me to a conclusion based on likely probability on direction and optimal risk-reward.

And that brings me to today. Despite redemption flow selling more than overwhelming any asset allocation buying yesterday afternoon providing a fitting coda to the worst quarter for stocks in the previous six, I have to remain bullish today as we turn the calendar to July, for the first of the month historically gives us a ramp thanks to fresh money that needs to go to work. Of course, the timing of the purchases can always be tricky, but one can feel confident that large fund managers click on their buy programs around 10:30 AM to avoid negative selection from any shakeout from the ISM release thirty minutes earlier. If this first of the month pattern plays out according to plan, then the grind higher should last most or even all of the session to offer a great opportunity to day trade or to start buying stock early if legging into overnight positions.

My longer term view remains stable as well. I keep scratching my head on why the $81+ and $95+ earnings numbers on the SPX for 2010 and 2011 stay stubbornly fixed by analysts, but by doing so, equities trade woefully cheap on those metrics. I recognize that these lofty figures represent pie in the sky predictions similar to recent economists’ consensus estimates such that tomorrow's BLS Private Payroll print has no chance of beating expectations. However, because of the bargain basement prices and a market deeply oversold, I am willing to endure a bit more pain. Of course, if things really get out of hand, I will book a lunch table for two next Thursday at Wasabi in Whitefish, MT. Care to join me?

S&P 500 September E-Minis Key Technical Levels
Support: 1023.00, 1021.00/20.00, 1016.00/15.00, 1000.00, 991.00/90.00, 980.00/78.00
Resistance: 1029.25, 1039.00, 1042.00/44.00, 1047.25, 1055.75, 1062.75, 1066.50, 1071.00, 1078.50/80.00, 1081.75/83.75

[View Comments (0) / Add Comments]

Told You So...
Posted by Jeremy K. - Market Strategist on Jun 30th, 2010 7:12am

I hate being the person who says I told you so, but I did mention yesterday that Consumer Confidence was a big number. Of course, I will sweep under the rug that I expected a constructive report to lift stocks higher. There’s nothing like getting egg on one’s face except possibly getting that egg smeared all over. I suppose that is what happened to me Tuesday as well as the past several trading sessions as the SPX has sold off over 8% during that timeframe. Similar to previous difficult moments when I have misread the market, I will reevaluate my conviction to see if something has been missed to alter the original view.
Certainly, the Conference Report’s release of the miserable sentiment data had no strings attached unlike the abysmal housing and jobs numbers which had dirty data because of the previously expired first time buyer housing credit and the presence of several hundred thousand temporary census workers respectively. At first glance, it now appears clear that the economy again sits on very shaky ground. Fortunately, we get another few cracks at righting the ship for the rest of the week starting with this morning’s ADP jobs estimate at 8:15 AM and the Chicago PMI after the Open. Curiously, analyst estimates for the data predict either no changes or even solid increases versus last month’s releases for all the various reports. In my opinion, numbers which meet these aggressive consensus figures will require a Herculean effort which will be hard to come by. If, however, the recovery does stand tall and print decently, then I would expect the market to launch aggressively.
So if our economic knees have buckled, then why on Earth do I continue to maintain a bullish stance? First, given month and quarter end predicted asset allocation flows, today should enjoy a solid bounce as fund managers with static class weightings will clearly need to shift dollars away from fixed income to fund purchases of equities. Given the modest returns yesterday in both treasuries and gold, both classic flight to quality securities that should have greatly benefitted from an over 3% selloff in the SPX, I suspect a massive shift started a day early. If we are to ride this wave, look for the market to grind up as early as lunchtime or as late as 3:30 PM.
First of the month buying usually comes on the heels of asset allocation, which hopefully will provide some breathing room off these current lows. Beyond Thursday, the nation’s Jobs Report will hold us hostage for some time as the economic calendar falls off pace with little more than Jobless Claims next week. Fortunately, Alcoa will kick off the reporting season on July 12. In my opinion, management teams across the country only need to supply us with inline numbers and guidance to provide a final backstop for equities. With 2011 earnings for the SPX still holding stubbornly at $95, then the blue chip index trades cheaply at approximately 11x. Slash that number over 10% to $85 and one can still easily find plenty of value at 12.2x. Unless companies cry uncle when releasing their results, with the Rolling Average NYSE Closing Tick falling back into deeply oversold territory thanks to this recent pass lower accomplished on only moderate volume, I remain confident that these levels continue to offer a solid buying opportunity.

S&P 500 September E-Minis Key Technical Levels
 

Support: 1035.25, 1032.75/30.25, 1026.00/25.00, 1021.00/20.00, 1015.00, 1000.00
 

Resistance: 1044.00, 1047.25, 1055.75, 1062.75, 1066.50, 1071.00, 1078.50/80.00, 1081.75/83.75

[View Comments (0) / Add Comments]

Pigtails and America's Birthday
Posted by Jeremy K. - Market Strategist on Jun 29th, 2010 7:21am

As I have mentioned previously, I have 3 beautiful little girls. I suppose geneticists would argue that I am responsible for the “girl” part while my wife supplied the beauty. Certainly their long flowing hair comes from their mom such that when they wear pigtails, they get whatever they want from me. My problem, however, is that unless they are swimming, they never want to put their hair up. Thus, years ago, I made up some farfetched story of how the government once wrote a law requiring all little girls to wear pigtails on America’s birthday. Amazingly, and lucky for me, each girl has fallen for the ruse year after year such that I have tons of pictures of each wearing the red, white, and blue with two floppy ponytails floating in the wind. To be sure, my oldest eventually figured it out, but to help extend the family tradition, she goes along with it all and helps me with her younger sisters.

While this year’s adorable photos and a welcome 3-day weekend sits squarely in our sights, the market has some work to do before releasing the hounds for some needed rest and relaxation. After yesterday’s session of nothingness, we get back to business this morning with the overnight futures markets suggesting a 1% giveback on the Open and the release of Consumer Confidence. Analysts may say I give the 10AM data point more play than it deserves, but I do feel it has much more predictive value than most other indicators. Historically, it tracks the equity markets well; however, stocks usually lead the economy by six months give or take and, thus, optimism among the masses will start picking up much faster than payrolls do. However, its tracking goes beyond simply moving up or down with the market, for despite an all time high in the SPX and DJIA in October, 2007, Consumer Confidence came nowhere near the elevated levels during Q1 of 2000. In addition, the worst crisis in 75 years produced an all time low in sentiment as the dataset tracks back to 1967. Consequently, with the indicator and its close relative released by the University of Michigan tracking higher despite stocks slipping nearly 15% from April, I remain sanguine for the overall recovery and look forward to another constructive print today.

After today’s release, we receive an avalanche of big time data for the rest of the week along with end of the quarter asset allocation and window dressing flows. Similar to the silence resulting from the end of last period’s spectacular numbers from large cap tech and financials precipitating a declining market, I believe the sounding of an all clear from these same early reporters in terms of economic strength regardless of the European shenanigans to entice investors to take their toes out of the water and jump into the pool with their two feet leading their way. Therefore, with this week’s slate of numbers failing miserably being the primary risk to marching higher in the immediate term, then getting long at these levels offers great opportunity and, ultimately, reward. Furthermore, if my suspicions of recent softness stemming from onetime events of an expiring $8,000 first time homeowner tax credit and the casting off of hundreds of thousands of temporary census workers are correct, then solid reports on the economic front could kick start stocks leaving behind anyone who fails to see value in these current prices.

S&P 500 September E-Minis Key Technical Levels

 
Support: 1055.00, 1050.00, 1047.25, 1039.00/36.75, 1031.00/30.00, 1026.00/25.00, 1021.00/20.00, 1015.00, 1000.00
Resistance: 1062.75, 1066.50, 1071.00, 1078.50/80.00, 1081.75/83.75, 1091.00, 1095.75, 1100.00

[View Comments (1) / Add Comments]

The Worst Day for the Next 1,461 Days
Posted by Jeremy K. - Market Strategist on Jun 28th, 2010 7:20am

Painful. Utter torture. As the final whistle blew signaling the end of the U.S match with Ghana which brought on the final curtain to the all too short, yet magical, run by the Yanks in the planet's biggest sporting event, I had a pit in my stomach, for there is no "wait until next year" in this quadrennial spectacle. For a soccer fan, nothing is worse than the day your country exits the World Cup. Ultimately, falling behind in nearly every game caught up with the team such that tired legs and frayed emotions, both well beyond rubbery, gave way to the younger, more sprightly, and arguably more talented Black Stars.

Despite it seeming all too convenient, I find a good deal of parallels between the current equity market and the recent run of the U.S. National Team which by most experts’ opinions modestly beat expectations. Every time stocks have enjoyed some momentum, the bears found a way to knock them lower frustrating most investors. Recently, however, the shorts have also stood on apparent weak legs as volumes have waned with the declining prices, and similar to the softer, more grind it out, choppy competition of World Cup group play, the news flow has come via a trickle such that neither side has had any definitive information to grab hold and use as an impetus to state their case.

But as the pretenders have departed to leave the contenders to fight it out in the knockout stage of the tournament, things now pick up for stocks as Q2 gives way to Q3. Beyond the typical month end window dressing and asset allocation flows, a slew of big time data will filter through the market. Consumer Confidence arrives tomorrow which will offer a good look into the psyche of the typical American and their future optimism or lack thereof. On the state of manufacturing, we will receive the Chicago PMI and the national level ISM while the ADP jobs estimate, claims, and the all important Nonfarm Payrolls will speak volumes on the nation's employment picture. An outlier in any of these releases can set the tone for equities for several days, yet any consistent pattern from the full set could very well break the backs of those betting the other side of the coin.

While the reaction to economic reports can often provide as much predictive value as a game of rock paper scissors, earnings which commence in less than two weeks will play truer. As a bull, I am optimistic that companies will speak positively as I again point to RIMM and ORCL remaining reticent on any lingering effects from Europe's headache as a foreshadowing to a constructive reporting period. If I am right, then any limp bearish attempt to sell the market will be punished in a similar manner received by my favorite sports team such that the former will disappear in shocking rapidity all too familiar with us U.S. soccer fans.

S&P 500 September E-Minis Key Technical Levels

 
Support: 1072.00/70.50, 1062.75, 1060.00, 1055.00, 1050.00, 1047.25, 1039.00/36.75, 1031.00/30.00, 1026.00/25.00


Resistance: 1079.50/79.75, 1081.75/83.75, 1091.00, 1095.75, 1100.00, 1109.75, 1112.50/14.50, 1119.50/20.00

[View Comments (2) / Add Comments]

What We Didn't Hear
Posted by Jeremy K. - Market Strategist on Jun 25th, 2010 7:19am

It started so well. The first tick in the market this week saw the Spooz trading at 1127.50 thanks to China’s promise to allow a bit freer trading of its currency behind the red curtain. This morning we sit a full 50 handles lower as much of the losses arose from the fear of a collapsing recovery as evidenced by poor numbers on the state of the housing market. Europe’s issues have also quietly crept into our consciousness as the Greek markets continue to weaken to suggest imminent bankruptcy regardless of the pledged EU and IMF backstop. Lack of transparency on the final version of financial reform has dragged on the banks. But should these worries continue to weigh on stocks?

Part of the problem stems from our living in a virtual no man’s land for news. The heart of the Q2 reporting season arrives in three weeks while material data clean of temporary census workers and the expiration of a first time home buyer $8,000 tax credit is difficult to find. Consequently, we continue to move quite violently in a 6% range in the SPX because neither bulls nor bears can steadfastly determine whether the economy can expand, even at a modest pace, with all the potential exogenous shocks, otherwise known as landmines, which float around us.

Fortunately, we did receive a bit of clarity last night as both RIMM’s and ORCL’s earnings supplied us with bits of valuable information in this otherwise vacuous sea of uncertainty. While the latter reported solidly, the former missed badly; however, neither of these large multinational corporations mentioned any slowness from the European fallout. In fact, beyond these two large cap tech companies, we have experienced the quietest preannouncement season in quite some time which has allowed the aggressive 2010 and 2011 EPS estimates for the SPX to stick. Thus, I remain optimistic that while Q2 may not finish as a resounding success as the previous two quarters, it will outperform expectations to bring the realization to most investors that equities trade very cheaply. I also believe that despite this week’s selling, others agree with me as the decline in the market continues to be accompanied by weak volumes amidst some late day purchases from larger fund managers as MOC imbalances have been skewed to the buy side and the Rolling Average NYSE Closing Tick slowly grinds higher.

Finally, I offer a quick word about the today which should trade as a summer Friday yawner save the fallout from the annual Russell Reconstitution which provides the most liquid tick of the entire year at 4:00 PM. For those who are unaware, the Russell indices, most notably the Russell 2000 and Russell 1000, do most of its rebalancing on the last Friday in June. The mother of all annual index trades involves over 3,000 stocks and creates volume alerts for hundreds of names as some individual tickers will trade many multiples above the average daily volume. While the overall market may not move any bit out of the ordinary, many individual stocks will trade wrong way thanks to the tremendous amount of speculative dollars chasing the rebalance. Consequently, check your local sell side broker-dealer for a list of all the names involved and the expected flow resulting from the money aligned to the various indices. Without question, many stocks will offer closing prices to buy, sell, or short that will make it seem that Christmas has arrived exactly six months early.

S&P 500 September E-Minis Key Technical Levels

 
Support: 1066.50/65.25, 1060.00, 1055.00, 1050.00, 1047.25, 1039.00/36.75, 1031.00/30.00, 1026.00/25.00
Resistance: 1075.75, 1081.75/83.75, 1091.00, 11095.75, 1100.00, 1109.75, 1112.50/14.50, 1119.50/20.00

[View Comments (1) / Add Comments]

Mr. Donovan's Example
Posted by Jeremy K. - Market Strategist on Jun 24th, 2010 7:22am

Well, I got the hero prediction thing mostly right yesterday. Landon Donovan's magical stoppage time goal brought elation across the country to put the Yanks into the Round of 16 with a clear path to the World Cup semifinals. Fed Chairman Big Ben Bernanke also smartly delivered without controversy the maintenance of the central bank's "extended period" stance on keeping short term rates effectively at 0%. Unfortunately, traders had a much more muted reaction to the FOMC release than the unadulterated joy most of us felt with Mr. Donovan putting a bulge in the old onion bag. Perhaps we all expected the status quo, but in the face of more prevalent miserable economic data, the Fed's publicly reiterating their intentions to remaining as accommodative as long as necessary should have brought a bit of welcome relief to investors.

The 2:15 PM statement did recognize that the recovery has stalled, but its opinion only matters in that weakness will prompt the central bank to do nothing to exacerbate already fragile markets which in theory should have provided a tailwind for stocks. To be sure, the data has offered little for optimism. However, one could argue that the expiration of the onetime tax credit massively front loaded home sales through April that more recent reports on the state of the housing market may be a bit convoluted in a similar manner that the hiring of the hundreds of thousands of temporary census workers has skewed the employment picture making its release much more difficult to interpret as well.

Of course the May 6 stock market plunge on the E-Mini error as well as subsequent follow through thanks to Europe going to the brink clearly has weighed on the psyche of the U.S. consumer, but we have yet to hear any major concerns coming from significant domestic companies about a material weakening of their businesses. We will know for sure in a few weeks as the Q2 reporting season commences, and if earnings continue to print positively, then equities currently trade woefully cheap. With apologies to this morning's Jobless Claims and Durable Goods releases, only May's Jobs report and the ISM offer any major fundamental importance between now and Alcoa's release such that one should take a peek at the technicals for near term direction.

Since the early Monday top, the SPX has dumped nearly 4.5%. Despite making a higher high on that pass up, this recent selloff has followed the pattern of lighter volumes for each downward move. When we first probed these levels last month, the E-Mini transactions spiked to near 6 million contracts. Much to the chagrin of the CME, this figure has dropped to near 2 million. In addition, the Rolling Average NYSE Closing Tick has increased to +118, its highest level since May 18. While this indicator still sits in somewhat oversold territory, its climb implies that large institutional funds have slowed the pace of their sales and have even started to pick away from the long side. Consequently, while it may feel uncomfortable to hold firm in one's bullish conviction, yesterday's late heroics from US National Team provides the all important lesson that the greatest rewards often come during the darkest hour.

S&P 500 September E-Minis Key Technical Levels

Support: 1080.25, 1077.00, 1074.25, 1071.75/70.25, 1067.50, 1047.25, 1039.00/36.75

Resistance: 1091.00, 11095.75, 1097.75, 1100.00, 1109.75, 1112.50/14.50, 1119.50/20.00, 1127.50/30.25

[View Comments (0) / Add Comments]

Today's Heroes: Landon Donovan & Ben Bernanke
Posted by Jeremy K. - Market Strategist on Jun 23rd, 2010 7:15am

Today is the big one. In a do or die situation, the Stars and Stripes take on dogged Algeria in the World Cup for a right to advance to the Round of 16. Forget about the Malian ref stealing a supposed win against Slovenia, this one will be about who wants it more. As it is with any big time moment in sports, you want your stars to show up and take over. Landon Donovan, America’s greatest talent, will take it upon himself today and announce to the World that he is such a player and will lift the Boys to one of the most important victories in our national team’s history.

Another opportunity today that begs for a hero comes at 2:15 PM as the FOMC provides us with their June rate decision. Stating the obvious, traders only will focus on the text and whether the Fed changes their “extended period” language which has found its way into every statement since the March, 2009 meeting. In reality, whether the central bank alters its phrasing or not is irrelevant for they have made themselves inert by “painting themselves in a corner.” However, these two magical words have taken such prominence that a switch to something as innocuous as “for a long time” would be akin to a rate hike under a more normal monetary policy environment.

Fortunately, I believe that just as Mr. Donovan will do on the pitch in South Africa for the Yanks this morning, Big Ben Bernanke will step up and bail out stocks once again by maintaining the status quo. To be sure, other members of the FOMC have joined Kansas City Fed President Hoenig in grumbling about how rates need to rise sooner than later. However, since the last release a full eight weeks ago, much has happened in the macro universe, and very little of it is good. Despite an upbeat Beige Book, the domestic economic data has printed mixed at best with May’s Jobs Report acting as a fat thumb in the eye. More importantly, Europe teetered on the brink of collapse and certainly has stabilized only modestly such that the risk of contagion to our markets remains high. That has led the SPX to reside 8% lower from where it stood since the last Fed release. While some members (Bullard) believe that regardless of the situation in Europe the central bank needs to prepare for the commencement of a tightening cycle, others (Evans and Lockhart) think the opposite. In the end it does not matter for the Fed is a fascist organization led by Chairman Bernanke who always, in an effort to assuage his tragic flaw of wanting popularity, leans more dovishly.

For completeness, a loose consensus among economists has maintained that the “extended period” language will disappear 3-4 meetings prior to the first hike. With the fed funds futures market predicting that initial tightening will come in March, 2011, that guideline would suggest a change in the text to arrive either at this year’s September or November meeting. Ironically, the bears 3% victory the past two days may have sealed their doom for the immediate future by reminding us all that equities remain fragile and therefore a more hardened stance from the FOMC will do some real damage. Consequently, if I am correct in my thesis, then I would expect stocks to receive a nice shot in the arm. Luckily, I do not believe the market will make a massive spike up as an immediate reaction to the press release, but instead, after the initial choppiness subsides, will grind steadily higher to allow managers plenty of opportunity to pick away at the long side.

While I normally do not advocate doing so, I find it reasonable for some to start legging into purchases prior to the 2:15PM announcement for today’s critical World Cup match will suck volatility out of equities like a black hole. Potentially, I would wait until the second half as the New Home Sales release will certainly draw attention thanks to yesterday’s miserable Existing Home Sales report which followed up last week’s equally poor Housing Starts data. Since volume has failed to accompany the selloff Monday and Tuesday, one should feel comfort that any slide ahead of the FOMC is highly unlikely. Then it will be time for Big Ben to take over and lead us to victory. Go USA!

S&P 500 September E-Minis Key Technical Levels
 

Support: 1090.75/89.50, 1084.25, 1074.25, 1071.75/70.25, 1067.50, 1047.25

 

Resistance: 1100.00, 1109.75, 1112.75/14.50, 1119.50/20.00, 1127.50/30.25, 1142.75/43.75, 1156.25, 1167.50

[View Comments (0) / Add Comments]
<< Oldest  < Older