Posted 08:30 CST Equity Index Update Tuesday May 30, 2006 The index markets produced decent gains on shallow volume during Friday's pre-holiday session. Institutional activity was bordering on non-existent after 10:00cst. This morning, the indices are called to open lower with the SPM trading at 1277, down -5.75 on the session. European markets are lower by nearly -1% across the board, in addition these markets had moderate declines in Monday's session, during our holiday. Further issues this morning stem from Chicago Fed President Moskow discussing inflation on CNBC this morning. He took the stance that inflation is at the high end of the FED's comfort zone. This comment puts two events this week on everybody's radar screen. The first event will be tomorrow's release of the FOMC minutes, followed by Friday's employment report. In between we will get readings from the ISM, so keep a close eye on the prices paid index. As far as the equity market is concerned, the data flow this week will be critical in moving forward. Clearly, if inflation figures remain on the strong side, the markets could be in for some difficult trading. In addition, we are here at month end over the next two sessions...typically, particularly in a month that has been sharply one direction, the markets will move with that direction into the final trading session for that period. All told... the indices will need some good news on the inflation front this week to help build on the recent two day updraft. In other events this morning...Treasury Secretary Snow is being replaced by Henry Paulson from Goldman Sachs...in addition Kinder Morgan is offering to take itself public at a premium of nearly 20% to Friday's close...this could be very strong news for the entire energy sector. Given the significant weight of these issues in the indices, it could in fact spark higher pricing from our opening levels. Good trading to all, Brad
Posted 07:20 CST Equity Index Update Monday June 19, 2006 The index markets gave back a significant portion of their outsized gains from Thursday's rally. The early tone was set from St. Louis Fed President Poole's hawkish tones on the inflation front. Accordingly, buyers never really materialized and prices drifted lower...however, there was net little damage in the SPX and DJIA as bids are beginning to underpin these issues ahead of the end of a painful Q2. The selling in the NDX and Russell 2000 was more aggressive, with both indices giving back essentially 50% of their gains from Thursday. Could this be an indicator of things to come in the last two weeks of this quarter? Long large caps, short small caps? European markets are higher, particularly the DAX as Siemens and Nokia have agreed to a merger. Siemens is up around +8% and Nokia around +4%...this merger has placed a solid bid across the Eurozone indices and has helped push the U.S. overnight market to its sessions highs. Currently, the SPU is trading at 1265.50, up 5.50 on the session. Keep a close eye on this opening...normally if the bid is based on "fluff" - in this case the Euro merger news - then we should see an early test of the opening higher gap with a trade towards the unchanged level. This week should provide lighter volume ahead of next week's fireworks. We have little in the way of economic and earnings data to spark a move during the upcoming 5 sessions, however, next week brings earnings, the FOMC meeting and the end of Q2. Suffice it to say that the volume will flow during those events...in the meantime, keep the powder dry. Good trading to all, Brad
Posted 08:35 CST Equity Index Update Thursday June 22, 2006 The index markets rallied sharply through the late morning into early afternoon trading hours yesterday, however, late session selling produced some questions as to the move's durability. On the plus side, a strong move higher in commodity related issues helped underpin a bid in the midcap and small cap issues, two indices that have been suffering during this trading decline. That being said, neither the Midcap 400 or the Russell 2000 could push into positive territory for the week...seemingly there continues to be a liquidation of these issues at higher levels ahead of next week's ending of Q2. The beneficiaries, so far, of this selling seems to be the DJIA and SPX. The DJIA took our its recent bounce highs from last Thursday on yesterday's close as money continues to flow into these issues. The key question is this : is it enough to stop the downside bleeding? Or is it simply a case of minor rotation that will have no lasting impact on the trade? This morning the indices are called to open lower as early buying in Europe has evaporated...keep a close eye on the Russell and Midcap indices today as they should provide the most interesting trade due to the end of the quarter and Russell rebalancing over the next week. Good trading to all, Brad
Posted 07:50 CST Equity Index Update Wednesday July 5, 2006 The index markets continued to build upon the Bernanke led rally from last Thursday's FOMC statement during Monday's abbreviated trading session. Volume flows were very light with the 4th of July holiday keeping most players away from their screens. The ISM survey was the one key piece of economic news for the session. The headline rate came in on the low side of expectations at 53.8, however, the jump in new orders to 57.9 offset the potential weakness of the report. In the release, it is interesting to note the ISM chair's view of the report, "Manufacturing growth continued in June, and although the rate of growth slowed slightly, renewed strength in June's New Orders Index provides encouragement for the third quarter. The sector is benefiting from the weaker dollar and business investment...our members generally see their business in a continued growth mode." The index markets now stand slightly above their respective 50% retracement levels from their 2006 highs to our June trading lows. This week will bring the employment report, while next week brings the beginning of earnings season and more economic releases. Considering the FOMC language is - in my opinion - a relatively worthless task for any trader. The key is understanding how the marketplace will respond to any subtle change in the language. After Thursday's release, many major participants produced notes saying the FED was done, however, the bond market never really bought into that theory and currently resides just a bit lower in yields than it was on Thursday before the FOMC announcement. Equities, the dollar and certain metals have had the sharpest directional moves since the release...the question is pretty simple, was Thursday's FOMC statement a trigger that leads to a sustained one way street in these markets? Or are we smack in the middle of a suckers rally that will get awfully painful once the buying subsides? This last statement reminds me of a quote that George Soros said once in regards to speculation - and I am paraphrasing here - "the trick to successful speculation is to ride the false trend and get off before everybody else." Good trading to all, Brad
Posted 08:25 CST Equity Index Update Friday July 7, 2006 The index markets received the news the bulls were looking for this morning with the employment reading coming in at +121k verus consensus estimates of +175,000. Initially, the SPU surged to 1290, up +7.00 from the close, however, a closer inspection of the report started to get players a bit nervous as the average hourly earnings component moved sharply above expectations to +3.9% year over year. As the index began to dip from the initial post-report trading highs, individual equity related news had a negative impact on the trade. First, JPM upgraded shares of MMM, however, a few minutes later MMM cut their earnings forecast sharply for the near term...the stock is called to open -4.00. Confused? In my opinion, this reading is about as bad a scenario as one could have dreamed up. The reason is simple, slowing job creation with inflationary pressures being felt in the actual labor arena. The actual report is not that bad, but, the report continues the confusion that is gripping the equity market. That confusion is what is a sharp negative for equities. Essentially it boils down to this...why add to longs at the current index levels? We have had a sharp bounce off the June lows and earnings season - as well as all the negative surprises (see MMM) - are waiting. In other words, you need to have some CLEAR economic reports to drive the buyers back into the game at these levels. This report failed to accomplish that task. At its core, the current trading environment is being moved by anticipatory decisions. Those that bought near or around the June lows are plenty happy and see no reason to lever in at these levels. In contrast, those that are short or looking to add to shorts view this report as another opportunity to sell at a reasonable zone. Why? Because there is no clarity from a report that most were hoping would provide some. Remember this...when it comes to speculating, you have to focus on what the market is focusing on at the current time. As I pointed out in yesterday's update - and I may be proven incorrect on this scenario - I felt lower pricing was in store for the indices over the next couple of weeks. The reasons are multiple, but, it really boils down to a 50% bounce from the 2006 lows and the belief that no employment reading would work for the market given the current environment. I still hold to this view. Good trading to all, Brad
Posted 07:40 CST Equity Index Update Thursday July 20, 2006 Mr. Bernanke silenced critics with dovish testimony and forecasts of a perfect soft landing for the U.S. economy in the future...of course, what was he going to say? That the FED has raised too aggressively, the housing market is tumbling and a recession is in the cards? Skepticism aside, yesterday's testimony on the hill was the tonic this market needed in the near term. However, the question on every trader's mind is can we sustain the current bid? It doesn't take a genius to look at a chart of the SPX from June 28th to June 29th and see that the index rallied from 1237 to 1273. The past two sessions, the SPX has carried higher by a similar amount in point terms, from 1225 to 1260. Strangely enough, this market continues to act like old bear markets, in which the rallies are vicious and filled with short covering and cries that a bottom has formed. I suspect, it is far too early to call this current downdraft (since the May highs) over...of course that does not mean that the sell side should be the only play for the trader. Keep in mind, we are in a volatile trading range since the initial down leg of this move, which in the SPX equates to 1245. A subsequent bounce took the market to 1290, before the low of the move was made in June at 1219, back to 1280 then down to 1225. Essentially, we are trading in a range of nearly 6%...these are fertile grounds for the short term trader, whether day trading or swing style trading. The action surrounding yesterday's close in the futures was interesting to say the least as heavy selling hit the ND futures after the earnings report from QCOM, INTC and EBAY. In fact, the futures actually closed at the same level as the cash market, a discount of nearly 10 points. However, after the close AAPL reported better than expected earnings and is called to open nearly +7.00 today. That has helped the futures regain footing, currently the NDfutures are trading at 1504.50, +13.75 on the session. As I have been discussing the past couple of sessions, I continue to think that this earnings season will allow good entry for a longer term spread trade of long NDX/short SPX...today could be a critical session in the action for this trade in the near term. If the NDX fails to hold this opening bid and settles near the UNCH level, it would be a sharp negative moving forward in this marketplace. Tomorrow will bring option expiration, accordingly one should be prepared for a potential "one way street" during today's session. The odds seem to be placed on another bout of buying if that scenario were to play out today. Keep in mind, that during expiration weeks, much of the institutional activity that is directional in nature takes place after 10:00cst. Prior to that time frame, I suspect we will be involved with some choppy downward early action. However, I would caution against getting to involved with forecasting a sharp move...simply put, yesterday's move was the sharp one. Keep it close to the vest...until the market shows you what to do. Good trading to all, Brad
Posted 08:25 CST Equity Index Update Monday July 24, 2006 The index markets suffered another bout of selling during Friday's expiration as the Russell 2000, MidCap 400 and NDX led the way lower. All told, the session was highlighted by aggressive early selling that pushed the indices sharply from their respective opening levels. Much of this early selling seemed tied into option expiration, particularly in the small amid midcap indices. The remainder of the day was spent in a back and forth range type of trade, however, the indices all settled at or near their session lows on the closing bell. Two critical issue/index indicators for the overall index market (save the NDX) have been the OIH and CRX. It is worth repeating - as I am running the risk of sounding like a broken record - that the correlation between these two issues and the Russell 2000, Midcap 400 and SPX has been nothing short of astounding the past several months. With the OIH settling at critical support of 130, it is no wonder that the indices settled at their respective daily lows. The key question, in terms of forecasting, is whether or not the selling is done in the near term? Certainly, the indices are hanging in around yearly lows (in certain cases), the FED seems to be getting a bit better in telling the market what it wants to hear and the war premium has all but been taken out of the Gold and Oil markets. So, why are we not rallying the indices? Is there something more structural that the market is telling us? Or is the market lulling everybody to sleep before another rally? Questions, questions and more questions. I will point this much out...the past few months, we have made lows in the indices during or around each month's expiration period, followed with a decent trading rally through the first week of the next month. In addition, at least as far as technology is concerned, last week market the height of the earnings parade. While the NDX did not exactly make it through unscathed, it did not have the frightening drop that many had feared or expected with such poor results. I continue to add minor units to a long NDX/ short SPX trade during this decline. Today's action will be squarely focused on whether or not the marketplace can hold the opening bid, with the SPU called to open +6.00 at 1250.75. If we fail, expect more selling to come in at lower levels as traders, particularly momentum players, will view it as a sign of weakness. Good trading to all, Brad
Posted 08:10 CST Equity Index Update Tuesday August 8, 2006 FOMC DAY... The index markets continue to trade cautiously ahead of today's crucial FED announcement on interest rates and its policy intentions moving forward. The majority of the buyside continues to rant about current inflation readings being lagging in nature as they invoke the long dream of a soft landing a la the mid-1990's. In addition, the value players continue to discuss a market that has become "cheap" and a must buy in the current environment. Meanwhile, on the bearish side of the equation are the players that continue to see a weakening economy (2.5% GDP), a sliding dollar, a collapsing housing market and inflation on the rise - today's Unit Labor Cost report for example. Which side is right? Obviously only time will tell...but, from a trading perspective the markets continue to hang near their upper ends of respective trading ranges. The key question is what are players looking for from this announcement that will drive the market one way or the other? I suspect that our beloved chair, Mr. Bernanke, will not disappoint in this request. From a speculating perspective, today makes a lot of sense to sit back and analyze the direction of the next leg of the index trade. Think of today as the setup for the remainder of the month. Tread carefully and do not become too opinionated during a need based afternoon trade. Look at the bigger picture of the trade...and that bigger picture will be played out the remainder of August. Good trading to all, Brad