President Obama's day-after celebration turned ugly yesterday with a large market sell off with technical damage occurring. The sectors all responed as expected since more regulations, higher taxes, Obamacare and more bad-mouting of business will continue. Treasury yields dropped as traders seek safety and move out of stocks. With higher capital gains taxes on tap it is best to cash-out and take the hit this year instead of far higher rates in the near future. Draghi's comments on a weak Germany as well as AAPL dropping into a bear market added to the downbeat news. Further, video of the Greece riots are playing on television screens; firebombs, tear gas and water cannons do not instill investing confidence.
The BOE and ECB rate decisions are on tap shortly, the BOE at 7 AM EST, the ECB at 7:45 AM. Perhaps Draghi's comments yesterday hint at a rate cut today? The euro must be weakened, especially in light of a weaker Germany, to boost manufacturing and exports and help Europe grow out of the debt mess. If the ECB does not cut, the euro will likely move up which will help boost commodities and equities. If Draghi surprises traders with a cut, the euro will drop and so should equities markets. Thus, today's drama begins shortly. China is also beginning their 10-year transfer of power with the 18th Party Congress. The global circus has plenty of theatrics all occurring at the same time.
Both Moody’s and Fitch rating agencies say that the fiscal cliff must be resolved quickly and that possible downgrades of U.S. debt will occur without resolution. This dire warning brings back memories of July 2011 right before the August waterfall market crash. President Obama’s first day after his reelection results in a massive sell off on Wall Street with stocks losing billions of dollars of value. Serious technical damage occurs as markets experience the largest drop in one year. The 10-year yield drops to 1.63%. The SPX falls under 1400 and is down 34 points, a huge 2.4%, to 1395. The SPX bounces from the 10-month MA at 1388. The Dow Industrials plummet 313 points, -2.4%, to 12933, losing the 13K level. The Nasdaq drops 75 points, -2.5%, to 2937, losing the 3K level. The RUT is down 21 points, -2.6%, to 805. Note that the small caps and tech are down more than the broad market, a bearish signal moving forward.
International Trade and Jobless Claims are at 8:30 AM. Natty Gas inventories 10:30 AM. The 30-Year Bond Auction is 1 PM. The Mouse House reports earnings today, DIS. The retailers JWM and KSS are very important, especially JWM to gauge how the wealthy are spending. Overseas shipping and the Baltic Dry Index is always worth watching as well. Watch RTH 44.38, XLF 15.73, SOX 378.60 and NYA 8003. RTH is above 44.38 which helped the bulls avoid a crash profile yesterday. The bears need to drive the RTH under 44.38 and another strong downleg will occur that will test the important 10-month MA at 1388. JWM and KSS will obviously impact RTH. The XLF is below 15.73; the financials plummeting yesterday on worries over banking regulations with the Obama reelection. The bulls have to push XLF above 15.73 to mount a come-back market rally, if not, the bulls will have another long day ahead. For the SPX at 1395, the bulls are simply trying to stop the bleeding and can do that with keeping RTH elevated and bringing the XLF above 15.73. The bears need to push the SPX under 1388 which will create a strong downward market acceleration into the 1370's. A move thru 1390-1424 is sideways action today. The ECB will kick things off shortly with Act 1 of today's theatrics.
Note Added 11/8/12 at 8:16 AM: The ECB remains on hold so the 12/6/12 meeting will be targeted for a potential cut. The euro bounced a touch but no great shakes and overall remains weak at 1.2742. S&P futures are uninspired hanging around plus four. JPM receives positive news and bounces 2% pre-market, therefore, XLF will move higher, and it is knocking on the 15.73 door, which would verify a bull rally today. So focus on XLF 15.73 as the bell rings. Draghi will begin his press conference in a few minutes so his words may move the euro up or down, and the futures will move the same way. International Trade and Jobless Claims hit in a few minutes as well.
Note Added 11/8/12 at 8:46 AM: The economic data does not influence futures. Draghi's comments are hitting the wires. Interestingly, Draghi says he is ready to go with bond-buying, so he pulls out the money bazooka and sets it on the table. Draghi and Fed Chairman Bernanke have received stock market pops when they provide lip service and cheerleading about quantitative easing. However, the S&P's are actually drifting a point or two lower and the euro is weak. The Bernanke put at SPX 1435 has already failed. Yesterday, the Draghi put at 1403 failed. Now, the statements designed to pump markets are falling on deaf ears as well. Traders now realize that the two money emperors, Draghi and Bernanke, are not wearing any clothes (a reference to The Emperor's New Clothes by Hans Christian Anderson).
KS, am I right - did the CPC not spike to your targeted 1.21 yesterday?
ReplyDeleteYep, Weaver, the chart is on the list, Keystone is now only getting caught up with yesterday, and the ECB is within the hour. BOE in a couple minutes. Above CPC 1.20 you want to think about nibbling on some long positions, the markets can bounce today, which would send the CPC back down to make those trades work immediately, or, which is probably more likely, a rally may occur but the CPC may spike higher, 1.3 or maybe 1.4. So the idea would be to nibble on some new long positions now, you always want to scale in anyways, and let those positions simmer, then if CPC prints higher, 1.25, 1.3, you can nibble some more, and keep increasing the longs as the CPC spikes higher, then as you see, it will reverse quickly and then the long positions should work out. So today we find out if that single test of SPX 1388 support holds as a near term bottom, or not. The ECB rate decision is key, also economic data, also JWM and KSS which will impact RTH.
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