Traders,
We saw a solid rebound back to that 10,000 level in the INDU which is a giant psychological mark for many. It has been hard to have a conviction about direction this year - simply because as we saw in January it is not really about earnings, fundamentals, forecasts, or even technical's (all of which are traditional methods to determine directional sentiment). I say that because it only takes a threatening comment from the administration "looking for a fight", uncertainty in the Fed and monetary policy, and foreign Sovereign debt concerns that have been the driver causing knee jerk market reactions. Yesterday it only took speculation about "WHY" Trichet (head of the European Central Bank) cut his trip short in Australia and quickly headed back to Europe. As soon as the rumors entered into the market that he was coming back quickly to discuss a bailout package for Greece, the Euro rallied, the dollar fell, and the market rebounded. So my conviction is to expect volatility to persist in the market. Until we get a better gauge on Fed policy and Congressional legislation (taxes, regulation, etc.) we should expect to see more knee jerk moves up and down. http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a.ID2IIpmjHc |
| Trade Deficit
in the red! |
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December's trade deficit was announced and came it a lot more red than initially anticipated at -40.2 billion (expectations were for 36 billion). Higher imports and lower exports continues to put domestic economic pressure. Futures came off some and treasuries began to rally. Clearly - economic recovery is not as robust as expected.
When I hear politicians or even economist with rose colored glasses that the U.S. will increase exports (to even some extents become a net exporter), I can't help to wonder what kind of math they are doing. Of course we know why the politicians are saying it - it's about buying the vote - they need to promise jobs to win those votes. Anyone can do the math and see that in order to become a net exporter we either need to become a 3rd World Country that exports all their natural resources OR the country becomes the sweet shop for the rest of the world (that means massive deflation and depression to get there). Of course I almost forgot about the third option - starts with an "S" and I just can't get myself to say that without getting sick. |
| Sprint
a take over target? |
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With what seems like everyone and their mother getting into the cell phone space - it now doubt is getting crowded. Apple crushed the competition by carving out a massive slice of the pie with their iPhone. Sprint-Nextel continue to face an uphill battle, both on the carrier front and product line. Sprint posted a narrower loss, but revenue continues to contract. With a loss of almost a billion ($980 million or 34 cents a share) it beats last year's loss of $1.6 billion - but a loss is a loss and it is still massive. The revenue front is even a dimmer picture down to 7.87 billion from 8.43 billion. Sprint lost 504,000 postpaid subscribers (who pay monthly and committed to long-term contracts), while this too was better than expected (losses of 668,000 were expected), it is still a huge loss.
The company simply doesn't look to be growing any time soon and while it may see some short-term market moves - the longer-term picture doesn't seem bright. However, does this send up the acquisition flag? At this point I am sure that they are getting the once over from a few companies.
http://www.cnbc.com/id/35327415
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| Futures Pre-market
Where's the action! |
The futures were looking positive, but the trade deficit curb those gains back to unchanged. Expect a flat to slightly lower opening.
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| Support / Resistance
Going higher or lower? |
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INDU 10,000 (This is certainly a pivot point, it is both support/resistance. Don't expect the INDU to hang at these levels. Time to be long gamma and flat deltas.)
NDX 1750 (BIDU, while not an overweight in this index saw a massive gain overnight, however the index remains paused. 1700 or 1800 is in the cards for a quick move.)
SPX 1050 / 1100 (It would be nice to get back above the 1100 mark, but I am starting to wonder if that will be support if and when we get there. It seems like it could be more resistance.)
RUT 600 (This was support and a key support that broke. The question is if we get back above it - does it hold. For now it seems more of a pivot point. If you want to lean long, do it with gamma - so it will get you out of trouble quickly on the way down.)
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| Conclusion
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We may have some volatility today, Bernanke's Memo to outline Fed Exit strategy will be released today. Depending on how that reads we could hear lots of speculation and talk that may inject some late day volatility. Also the 10 year auction is at 1 pm today, while I have little concern about the capacity of the short-term paper, the 10 year paper has been seeing less interest of late and the Fed has been the clean-up hitter. I am eager to see what participation is like as well as the rate, and/or if the Fed plays their hand.
It looks like we are getting a good bounce (for now) off those late Jan. early Feb lows - however it looks like we may be more of a bounce than an extended rally of this recent low. I would be hesitant to get long too many deltas without hedging them. Expect the INDU to move violently away from 10,000 and more volatility to come.
Greece, Germany, ECB, and Trichet are the lead actors in the current world economic stage. How that plays out and any confidence or lack thereof - will be a big driver in the global markets.
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| Author |
| Michael Williams has 20 years experience as a institututional floor broker and options market maker. He is a partner in both Silexx Financial Systems (a trading software company) and Kinetic Strategic Group (a private investment firm). He co-authored the book "Fundamentals of the Options Market" a McGraw-Hill text and has lectured throughout the country on Options, Risk Management, and Volatility. | |
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