Traders,
Friday was fairly quite we remain in this straddle area waiting to move higher or lower. What the catalyst will be to inject that volatility is uncertain at this time. We are still in a holding pattern as to economic and health reform and once we get a little more resolution we may be able to see a light at the end of the tunnel for better or for worse. For now - it is more waiting and seeing, which is frustrating if you are an investor. Keep an eye as we test the levels - this morning futures are looking stronger, look to see if resistance holds or if this is a break-out. |
| Consumer Spending
savings decline. |
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The futures are getting a little bounce this morning as the Commerce Department reports that consumer spending and personal income rose, both signs of a recovery. The increase in consumer spending is the 4th consecutive month, at .5% was more than anticipated (expectations of .4%) after the .3% increase in December. While personal income rose .1%, because the increase in spending was larger than the net gain on incomes, the savings rate fell 3.3%, the lowest level since Oct 2008. The main problem is the unemployment rate, which is putting pressure on personal income. People still need to spend (food, energy, clothes, etc.) - thus tapping credit to do so. Incomes are rising very modestly. The drop in savings rates indicates that the consumer is not deleveraging. The futures initially liked the news and is heading higher. http://www.bloomberg.com/apps/news?pid=20601087&sid=a_5OOlYteTYg&pos=2 |
| HSBC misses
debt still an issue. |
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The primary concern in Europe is sovereign debt (Greece), which has recently over-shadowed the fragile credit market conditions. HSBC, one of the world's largest banks, full-year net income missed estimates. Earnings came in at 5.83 billion, far less than the 7.76 billion expected. The primary problems remains the failed loan structure of the business. They recorded an accounting loss of 6.3 billion on the "fair value" of its long-term debt (which ironically had a 6.68 billion gain a year earlier).
The banking sector still seems to have serious issues with its liabilities and the quality of their debt. It currently seems more like an accounting shell game for now and until we see a serious deleveraging of those positions - continue to expect both difficulty with future credit lines and volatility in the liability reporting. This will probably create some pressure in the financial sector.
http://www.bloomberg.com/apps/news?pid=20601087&sid=ab86ksErqqPA&pos=3 |
| Futures Pre-market
Where's the action! |
| Futures are looking higher after the consumer spending numbers brought some relief that the recovery is not a myth. |
| Support / Resistance
Going higher or lower? |
INDU 10,000 / 10,500 (We may get a good push up to that resistance level again - but will it be enough to push through or just another head fake?)
NDX 1800 / 1850 (Again - a strong move higher- but don't call the break-out just yet.)
SPX 1100 (This is the sticky point in the SPX - 1115 is a resistance area - a good move through there could bring confirmation to the other indices.)
RUT 625-635 (This is the upper resistance range - if it breaks up we could have a strong move higher, watch the close for confirmation.)
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| Conclusion
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The market wants to go higher, but then we have these political or economic interruptions. Last week consumer confidence is down, but they are spending a little more. We want to climb higher, not on fundamental reality, but rather on optimism. We have a long way to go to correct some of the domestic economic problems, financial problems, and health care. The government wants to do it all quickly, and we expect it. However, maybe it is time to take our breath and do it right than to knee jerk into decisions. Buffet was asked this morning about health care, he said we need to address costs and that means starting over from scratch. The health care bill has turned into a political hot-potato that has less to do with reforming health care and more about Democrats vs. Republicans playing politics. It looks like it will just be another porker of a bill, loaded with ear-marks and special interest and will be more about covering MORE Americans and less to do with cutting costs. That is a road for disaster. Cut costs FIRST and THEN get people covered.
Now we wait for the next political bombshell to send this marking into another volatility spin.
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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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