Traders,
We had a good rally off the support area yesterday, however this morning futures are under pressure - thank Nouriel Roubini. Mr. Roubini is a well known economist who correctly predicted the credit crisis and thus earned the name Dr. Doom (which he detests). Then in 2009 he predicted the market would behave strongly with the robust stimulus, zero interest rates, and other government injections - however he warned that the rally is based on free flow of government injections and NOT fundamentals. This morning he was a guest on CNBC and he warned of Sovereign Risks and a second segment discussing Greece possible bailout. Steven Liesman (CNBC's economist - who I think blindly always believes the government numbers), certainly wants Mr. Roubini to be wrong (don't we all), but Roubini is a realist. He certainly has been both Bearish and Bullish, unlike Liesman he calls it like he sees them. Most politicians and some (like Liesman) would rather not discuss it or would rather continue to look at any signs of a recovery as positive regardless if it is just government stimulus. These people tend to take the surface number as gospel and really don't want to know the Hows and the Whys. That is why they get frustrated with Roubini as he points out that faults with the system. Both these videos are rather gloomy to watch going into the weekend, but rather than burying your head in the sand or wearing Liesman's Rose colored glasses - it might be worth being informed as to what Roubini is concerned about: Roubini - Sovereign Risks & Reality: http://www.cnbc.com/id/15840232?video=1411529237&play=1 |
| China Bank Reserves
raises reserves on global concern. |
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A jolt to the futures market came early this morning as China surprises with another rise in the level of reserves for banks - trying to keep their economy from overheating. They had just increased those reserves recently and many had expected another to come, but not as quickly as it did. An economist on Bloomberg said it was less about China's domestic growth concern, but rather it's concern of foreign trade as Greece and the EU look to have some debt issues. China is still heavily reliant on foreign trade and thus regardless how strong their domestic growth is, the exports are still the core driver of their economy. When the world economy slows, China's export slows, they certainly don't want to get ahead of themselves if the rest of the world is stalling.
It did come as a realization to the investment community that China is concerned enough to take action and that put investors on their heels this morning as we see pressure in the futures market.
Maybe we should listen to Roubini - it seems that China has similar concerns about the recovery.
http://www.cnbc.com/id/35362919
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| Retail Sales
better than expected...but... |
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The Commerce Department reported a sales increase of .5% after falling by a revised .1% in December. Forecasts were for .3% last month, compared with 4.7% in January last year. While these are very small fluctuations and increases (not even 1% yet) they do offer some signs that stability in consumer spending. The one negative in the report were auto sales, which were expected to rise (after rising in December) were flat. Some "cash for clunker" type programs have helped appliance sales. Core sales also increased - including electronics. Again - while it is positive, and revisions don't look bad, the margins of error in the revisions (+/- .5%) can wipe out any gains. It will not be until we see consumer spending in the 1% + range in which it gets into an area that growth is no longer questioned by revisions. The futures while under pressure did come off their lows as this showed some slivers of sunshine. http://www.cnbc.com/id/35364247 |
| Futures Pre-market
Where's the action! |
Futures saw pressure with China's concern about global growth and raised reserves again, the retail sales came in to help get futures off their lows. Expect a lower opening..
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| Support / Resistance
Going higher or lower? |
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Yesterday I said it was a buying opportunity, we may revisit those supports today. As I said - make sure that you have gamma to protect long deltas.
INDU 10,000 / 10,250 (We had a good rally, but we could revisit the support this morning. Make sure to have gamma and watch 10,000 as support if we do fall back.)
NDX 1750 / 1800 (A solid run up got us to 1775, futures looking lower - but keep an eye on 1750 as support)
SPX 1050 / 1100 (Would have been nice to see 1100 yesterday to get flat, unfortunately that didn't happen - futures look lower in the morning.)
RUT 600 (We got above 600 and it is important to hold that for broader base support.)
Again - it seems to me a relief rally, rather than a fundamental rally. Stay frosty at support areas.
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| Conclusion
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I remember most people giving very little lip-service when Iceland faced a 50% devaluation of their currency and defaulted. People said that was isolated and a few said it is the "canary in the coal mine". Now as Greece faces default, and Italy, Spain, Ireland are not far behind - these same people that gave little concern to Iceland are now pointing to Iceland as if it was a warning of what could happen. It's quite frustrating that many of these people would rather not look at the problems and continue to rely on the blind faith that the government will sort it out. But when government fails (even at the State level in this country) we need to take heed, the reason is simple - it is a FIAT currency. One thing that Leisman said in the video (see above Greece) that is correct - "one day you wake up and the bonds market just gives up" - that happened in Iceland and we see that happen on a micro scale in the corporate bond market as companies face insolvency.
The important point that Roubini makes is not about a crash or the world is going to come to an end - that important thing we NEED to realize is that there is a tipping point (a point of no return) that the government printing press over heats and they just can't print their way out of the problem anymore. That means the dollar begins to lose value as the governments continue to bailout states in the case of the U.S. or the IMF/ECB bails out countries in the EU. No doubt that Euro and the dollar are both facing future devaluation issues on sovereign debt.
Not to be gloomy, just trying to be a realist.
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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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