Traders,
Yesterday’s action was interesting – we tested very short-term supports and held with a slight rally. The supports I speak of are 8400 INDU, 900 SPX, and 500 RUT. The RUT did close below it – and it looked for a while mid-day we would have a break to the downside, but a late rally kept them above those levels. It is key short-term in that a break below could create a spike in volatility and a short-term vacuum to the downside.
Yesterday’s action was interesting – we tested very short-term supports and held with a slight rally. The supports I speak of are 8400 INDU, 900 SPX, and 500 RUT. The RUT did close below it – and it looked for a while mid-day we would have a break to the downside, but a late rally kept them above those levels. It is key short-term in that a break below could create a spike in volatility and a short-term vacuum to the downside.
This morning it looks like the futures pre-market are giving it another run to and/or through those supports. Watch closely and stay frosty.
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INTEL fined 1.5 billion by the EU?
Ok – this totally doesn’t make sense. I saw the interview with the INTEL general council – and he too is a little confused. The EU is fining INTEL because they have hurt the consumers. What is interesting is that it is NOT competitive practices or a threat to a EU chip company – but rather that they have in some way hurt customers by charging high prices and/or not offering rebates. If one looks at chip prices over the last 5 years they have come down dramatically – across the board between 50-60%. The general council for INTEL said they offer the same rebates in every country and they don’t have a demographic pricing policy. While this is the largest fine by the EU and certainly will be appealed – it is a salvo over the bow of protectionism. The fine if collected goes to the coffers of the enforcement agency – and it is not determined who gets the money. The suite was also not brought by consumers, but INTEL’s (note American) rival – AMD. It certainly would of made more sense if it was a EU company that was concerned about competitive practices.
Talk is already beginning as this could be a warning shot to the Obama administration – which has already made advances towards protectionism type policies, revisit of NAFTA and CAFTA, as well as other trade relations. Concern abroad is if the US starts hunkering down, raising tariffs, protecting domestic companies, and creates an unfair and uncompetitive environment – the EU will play the same game. Whether it was the EU's intention or not - the trade policies are now in play.
As the economy downturn continues and companies fight for fewer consumer dollars – we could see more political games playing on both sides of the pond. It certainly is not a good sign.
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The global slowdown is here….
A NYT story reflects how bad the global slowdown is, after the news of the trade deficit widening for the first time in 8 months yesterday. Regardless of stock market performance or consumer confidence, the simple fact is that consumers are NOT consuming as they did. They have less access to credit, loss of jobs, equity lines tapped, and house values underwater.
Sometimes a picture is worth a thousand words – and the parking lot of over 700 cargo ships floating in the Straits of Malacca (just outside of Singapore) is a shocking reality that goods are not moving. http://www.nytimes.com/2009/05/13/business/global/13ship.html?_r=1&src=twrThe global slow-down is here and looks to be around for a while. We may see a bottom soon, but it would seem a recovery is a farther ways off. Retail sales “unexpectedly” dropped this morning, but it was unexpected only for those that believed in “green shoots.”
I had an interesting conversation yesterday, which ironically was echoed this morning on CNBC; has the spread between market performance and economic reality widen? By all accounts it certainly has. Traditionally the market (as a whole) swings up and down with the economy on economic perception of growth or contraction. Up until recently the market was selling off as we faced recession, implosion of the housing market, banks, and auto-makers. Some would argue (and possibly correctly) that it was too much and too fast.
Then something happened – the market began to rally – not on economic reality that the economy is recovering or we avoided a recession or the banks didn’t need money – but on Optimistic Perception. Obama has done a fantastic job keeping optimism and faith alive. It is valuable quality of a leader, but maybe he has sold the “green shoots” too much. The Economist had an article about too much optimism and its danger.
http://www.economist.com/finance/displaystory.cfm?story_id=13611292
What became more alarming, which no one really seems to talk about is how the banks went from hemorrhaging to making record profits in the first quarter. It seemed to be magic, but as we look behind the curtain it is soon realized that it is not close to being reality. And interesting breakdown of that can be read here – and it is rather alarming - A Summary of Q1 Bank Earnings: World, You Just Got Hustled
What does this mean? Getting back to the conversation I had yesterday – the spread between market conditions and economic conditions has significantly widened – the difference between the balance sheet and the stock price you could say. That means that as always the mean will revert, but how. The fork in the road is this – the market either comes back (a retracement) to economic reality or the economic reality improves immensely to meet the market price. This could happen slowly or quickly. Of course they could come and meet together.
What we do know is that the market moves in a hyper fashion relative to economic reality. The economy will take months to see improvements or worsening, while the stock market in a blink of the eye can soar to new heights or quickly drop to lows.
The conclusion of this disparity between market values and economic condition was that hidden volatility is ramping, regardless of what the VIX of VXN reflects. It always seems the VIX lags after the statistical volatility, like the person trying to buy hurricane insurance in the middle of hurricane season.
These are the times to take a step back and reflect on the economic reality – green shoots and all. We don’t have the consumer credit freed up and while unemployment numbers may show signs of slowing done – the other side of the coin is that no new jobs are being created. Until we see consumers spending, jobs created, and credit freed – it looks like a very slow to little growth ahead and that means at some point the market will meet the reality of economic growth – rather than ripping to new highs or to new lows.
Be happy for gains in long equities and now is the time to thinking about hedging those positions again. When it comes – it comes fast and when you least expect it.
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Futures Pre-market
Future were down in the early session and the retail numbers coming in lower is sending them down further. The spreads are in – expect pressure on the market to the downside.
______________________________________
Support / Resistance
INDU 8400!!! (We close above it – but if we break and don’t get the rally we could be heading back for 8000. Watch the close again.)
NDX 1350 / 1400 (We slide yesterday and futures are pointing lower. 1350 is a support area – short term.)
SPX 900!!! (Again – like with the INDU we rallied at the close to get above it – futures point to a break – do we close above it?)
RUT 500!!! (We closed below 500 – and now look lower – it will be about the close. This is a key area.)
==========================
Gold 900+ ( dollar looking weaker)
Silver 14+
Oil 60? (We made a good run – still above 55 – but with a slowdown – how will that play out. Oil is a push-me-pull-you with dollar price vs. demand.)
___________________________________________
Conclusion
Market comes down to meet economic conditions or economic conditions rally to meet market values? Who knows – but we did make a rather massive leap up in the face of the current economy. The INTEL salvo was rather alarming and shocking – it will be interesting to see how U.S. policy and politics play into this – you can beat that it will. The trade wars could be on the horizon and that means we all suffer. Inflation talk is starting to make the rounds. It’s time to hedge up long equity positions again !
This morning, one of my friends and partners had a baby girl, Sienna Bautista at 3:20am (ET). It seems like everything comes in 3s, my friend Kitric just had a child and so did Amy. Great news, healthy babies, and fantastic parents.
What became more alarming, which no one really seems to talk about is how the banks went from hemorrhaging to making record profits in the first quarter. It seemed to be magic, but as we look behind the curtain it is soon realized that it is not close to being reality. And interesting breakdown of that can be read here – and it is rather alarming - A Summary of Q1 Bank Earnings: World, You Just Got Hustled
What does this mean? Getting back to the conversation I had yesterday – the spread between market conditions and economic conditions has significantly widened – the difference between the balance sheet and the stock price you could say. That means that as always the mean will revert, but how. The fork in the road is this – the market either comes back (a retracement) to economic reality or the economic reality improves immensely to meet the market price. This could happen slowly or quickly. Of course they could come and meet together.
What we do know is that the market moves in a hyper fashion relative to economic reality. The economy will take months to see improvements or worsening, while the stock market in a blink of the eye can soar to new heights or quickly drop to lows.
The conclusion of this disparity between market values and economic condition was that hidden volatility is ramping, regardless of what the VIX of VXN reflects. It always seems the VIX lags after the statistical volatility, like the person trying to buy hurricane insurance in the middle of hurricane season.
These are the times to take a step back and reflect on the economic reality – green shoots and all. We don’t have the consumer credit freed up and while unemployment numbers may show signs of slowing done – the other side of the coin is that no new jobs are being created. Until we see consumers spending, jobs created, and credit freed – it looks like a very slow to little growth ahead and that means at some point the market will meet the reality of economic growth – rather than ripping to new highs or to new lows.Be happy for gains in long equities and now is the time to thinking about hedging those positions again. When it comes – it comes fast and when you least expect it.
_______________________________________
Futures Pre-market
Future were down in the early session and the retail numbers coming in lower is sending them down further. The spreads are in – expect pressure on the market to the downside.
______________________________________
Support / Resistance
INDU 8400!!! (We close above it – but if we break and don’t get the rally we could be heading back for 8000. Watch the close again.)
NDX 1350 / 1400 (We slide yesterday and futures are pointing lower. 1350 is a support area – short term.)
SPX 900!!! (Again – like with the INDU we rallied at the close to get above it – futures point to a break – do we close above it?)
RUT 500!!! (We closed below 500 – and now look lower – it will be about the close. This is a key area.)
==========================
Gold 900+ ( dollar looking weaker)
Silver 14+
Oil 60? (We made a good run – still above 55 – but with a slowdown – how will that play out. Oil is a push-me-pull-you with dollar price vs. demand.)
___________________________________________
Conclusion
Market comes down to meet economic conditions or economic conditions rally to meet market values? Who knows – but we did make a rather massive leap up in the face of the current economy. The INTEL salvo was rather alarming and shocking – it will be interesting to see how U.S. policy and politics play into this – you can beat that it will. The trade wars could be on the horizon and that means we all suffer. Inflation talk is starting to make the rounds. It’s time to hedge up long equity positions again !
This morning, one of my friends and partners had a baby girl, Sienna Bautista at 3:20am (ET). It seems like everything comes in 3s, my friend Kitric just had a child and so did Amy. Great news, healthy babies, and fantastic parents.
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