Yesterday seemed like we would of rallied and retraced some of Monday’s sell off, but the second half of the day saw weakness return and while the NDX and SPX remained higher, the INDU gave up ground. Just like at the resistance level the previous week, the market is trying to figure out our future. The Oracle news coupled with the Durable Goods order jumping initially gave the market some hope.
So we maybe at a push-pull area in these support levels as we were at the resistance levels. Really, it will be the perception, hope, and optimism that will get this market off the mat again and return back to its upward momentum. Bernanke’s testimony, bond auctions, and weekly government data will continue to inject short-term jolts up and down into the market place.
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Initial Jobless claims rise!
After what seemed to be “green shoots” in the jobs market as the jobless claims seem to be diminishing and actually seeing the month-over-month and those that remain on unemployment drop or flatten, today’s initial jobless claims sent a jolt into the market as it rose by 15,000 to 627,000 in the week ending June 20th and the number of people that remain on unemployment gained by 29,000 to 6.74 million. Economist average was 600,000 and that it would decline not rise.
On analyst mentioned this morning that some of that is additional fallout from the auto sector and not necessary reflective of the national average and this could be just a one week anomaly. We can only “hope.”
The news did snap the futures gain in the pre-market and showing a lower opening by a few points.
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Short Interest Rises for the first time since March
We heard last week about more companies selling their own shares to raise money, insiders selling their shares, and now short interest in the S&P 500 has risen the first time since March rally. The general sentiment from a measurement of short-interest is expecting some retracement. Short Interest in the S&P 500 rose to 9.8 billion shares as of June 15th (a gain of 1% from a week earlier). A sector that is seeing a rise in short-interest is Health Care – as the fight begins to heat up in Washington and everyone is wondering how the new National Health Care will be delivered. One item that I hear over and over is that margins for Health Care facilitators is going to be squeezed regardless of the outcome. Now investors are making that bet and taking more Bearish positions in that sector.
There is also a general concern after the market made a huge rally from March’s lows. It was certainly momentum rather than fundamental, but the “green shoot” talk is injecting hope that fundamentals will return to keep the momentum along.
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Treasury Auctions
I have never seen more traders and professionals who do NOT trade Treasury Bonds pay close attention to the auctions. The pay close attention to how much the Federal Reserve is buying and the price/rate. The market is watching as it is trying to determine future inflation risk and also credit risk. The secondary market is becoming very thin and thus the primary auction is getting all the attention. The auctions amounts are huge (with a total of 3.5 trillion needed to be sold), but in this global economy and concerned optimism is seeing the amount of bidders is thin and we watch in hope that their depth is big enough to take down 100s of billions. The 5 year and 10 year have sold off (yield rising) and sitting in the 2.70 and 3.70 areas respectively.
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Futures Pre-market
The futures are off after the initial jobless claims unexpectedly were up, erasing gains in the futures. Expect a drop in the opening.
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Support / Resistance
We saw some of the indices get up and above those key levels, do they hold?
INDU 8250 / 8500 (The INDU had rallied and then sold off into the close to finish at the 8300 area – futures are pointing to a 8250 opening.)
NDX 1425 / 1450 (We were above the 1450 area for most of the session to close just slightly below it.)
SPX 900 (We closed above 900, but are looking down at the opening at 895, watch the close.)
RUT 500 (We made a good run, but not enough – we closed just below at 495 and now looking at a 490 opening.)
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Conclusion
We are certainly in a limbo area and I think that hidden volatility is ramping, sure the VIX is below 30, but the statistical volatility could see a jump, but that doesn’t mean down, we could just as easily see a big rally. The signs are pointing to some market pressure (see rise in short-interest) – but perception and momentum has ruled the day for the last few months, all eyes will now be on Bernanke and the Fed bringing confidence back to the markets.
We might not be seeing inflation yet, but no doubt the variables that can increase it are building. Additionally the light volume is also creating some concern and injecting some intraday volatility.
Stay Frosty.
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