The market did sing along with Europe which had seen a rebound, but renewed concern about “Green Shoots” as well as possible earnings are going to look like – with Alcoa kicking off the season tonight. The talk of a possible second stimulus this year has also cause some currency concerns. Europe again held after the rally yesterday and isn’t losing ground, but Asia did – our markets sit paused to make a move with futures being flat in the pre-market.
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Strong or Weak Dollar?
China it is said desires a strong dollar (ironically) because their exports are priced in dollars, they hold over $1 trillion in U.S. reserves, and many commodity imports are priced in dollars (which can thus drive the price down.) China was fairly upset with the U.S. (and Fed) as the policies are geared toward inflation and a weak dollar (to try and kick start the economy). Inflation comes in many forms and the U.S. is running on all cylinders in that direction. As we know (and as I have repeated often) China has been saber rattling about a new reserve currency as a wake-up call that U.S. policies are hurting China.
This morning on CNBC, Jim Rickards, explains this in excellent detail – about the Dollar, Treasury Bonds, and China’s role. This is a short and excellent explanation of what has transpired and the current situation:
http://www.cnbc.com/id/15840232?video=1175132958&play=1
Yuan Deposes Dollar on China Borders (interesting follow-up story):
http://www.bloomberg.com/apps/news?pid=20601109&sid=aqA9QhRSNeqM
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Earning Season begins
This has been significant concern about earnings season as it kicks off today. The combination of a massive rally – which is creating higher P/E ratios in this market, the weak dollar, credit issues, and commodity volatility is definitely going to inject some volatility and possible down side concerns.
Alcoa kicks it off today after the close and there is an expectation for Alcoa to report a loss based on lower aluminum prices that have not rebounded. The company has done some serious restructuring to operate in a leaner capacity and now we will find out shortly if cost cutting helped increased margins on possibly low to flat revenue.
http://www.bloomberg.com/apps/news?pid=20601087&sid=adbB.XXs9Xxw
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Futures Pre-market
The futures are flat but above fair value. After a few days of selling off – traders are paused as earning seasons approaches and cautious.
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Support / Resistance
INDU 8000 / 8500 (The 8250 line was crossed and there was no rebound into the close. 8000 is the next support area and unless we can get some push up above the 8250 area to close above it – then 8000 is a pretty real area.)
NDX 1400! (The NDX slide faster and harder than the other indices – of course with more volatility. It is just above 1400 and the question on the trader’s mind is does 1400 have legs to stand on. Futures pointing to higher opening.)
SPX 880 / 900 (880 was an area that several traders were talking about as a zone of support we are right at it. Futures looking for a flat to slightly higher opening. Watch 880 into the close, below that there is not much to hang your hat on.)
RUT 475 / 500 (The RUT has been more thick and not nearly as volatile it can move down to the 475 is the rest of the indices drop. 450 is the way below market. Futures are looking at a slightly higher opening.)
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Conclusion
The media and consumers have been living off of hope and optimism – the talk of “Green Shoots” – the rally in the market - all as a gauge that a recovery is in place. However the stock market doesn’t care or even know about the economy. And the stock market is not necessarily the best gauge of economic recovery – since it is based on perception of value.
At the end of the day it is the data and the data, while pointing to a slow down, is certainly not pointing to a recovery. Right now it seems that everyone is holding their breath to see how earnings pan out. Good earnings could spur more “green shoot” talk and give the market back the legs it needs to continue higher. If they look bad or forward guidance looks bad a revisit to the lows is certainly not out of the question.
Stay frosty and hedged those long equity positions.
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