Now batting… the United States economy… So far we have had 3 high profile economic data points this week, and so far we’re 0 for 3. Not only that, the prints have all been so abysmal, that let’s just say we have gone down looking each time. This morning, we play a doubleheader with the Chicago PMI and Existing Home Sales at 9:45 AM and 10:00 AM respectively. While I never throw my hat in the ring in predicting data, save my Quick and Dirty model for estimating Nonfarm Payrolls, I find it hard to believe that given what we have seen this week that Existing Home Sales will print an improvement this month over last which the consensus currently predicts. Similarly, the expected small downtick in the Chicago PMI seems awfully optimistic such that the economy certainly has the chance take the collar for the week. Regardless of all the snow we have had all over the country this month that might skew some of the data, obviously, this is a troubling trend.
Yet, the S&P 500 is only down about 50bps for the week with only the jaw dropping Consumer Confidence number exhibiting any legs on the day of the release. What gives? Certainly, I have espoused the belief that stocks will continue rising on its way to a high for the year based on solid fundamentals and even better market internals. To be sure, this week’s set of numbers has shaken the recovery story a bit, but similar to stocks, an economy does not move upwards in a straight line. I offer up the Alan Greenspan “soft patch” from the late summer and early fall of 2004 which saw a burst of weak reports before rallying back in a few months time. Back then, we had already commenced a tightening, albeit far too slow, cycle. Currently, the FOMC has no thoughts whatsoever of removing accommodation in the near term as Chairman Bernanke told us so while visiting some old friends on the Hill this week. On the technical side, the SPX has hit its low in the morning 11 out of the last 12 trading days with 9 of those coming before 10:30 AM, clearly a sign of solid large institutional buying as the big boys need a full day to allow the market to absorb their size more appropriately.
Today, however, is the last day of the month, usually a domain for large asset allocation rebalancing. That is, portfolios that have fixed asset percentage holdings may have to compensate for the relative change in prices between stocks and bonds. With the SPX up modestly and the long end of the Treasury curve off moderately, potentially a manager may need to buy bonds and fund those purchases by selling some of his equity positions. If that is the order of the day, then look for weakness to show up late. Historically, the sell programs seem to be clicked on at around 1PM, but more recently the allocators have showed their hands as late as 3:40. Regardless, despite my belief that stocks should continue to trend upward on a longer term basis, today, with an assist from likely weak economic data, too many strong headwinds will keep equities from having a constructive session.
S&P 500 E-Minis Key Technical Levels
Support: 1095.00 1090.00, 1084.50, 1079.50, 1065.00, 1060.00, 1057.50
Resistance: 1107.50, 1111.00/11.75, 1120.00, 1125.00, 1130.00, 1138.50
Recent Comments