With the S&P 500 firmly below my pivot point of 1070 at the open, I will be ending my 2 day trade with Direxion Small cap Bull 3x (TNA) and selling it at the open for a loss. Certainly the market may bounce after the opening gap down, but on the other hand it could also be a 'trend' day down where it drops all day - who knows. The bottom line is this was put on for a quarter end window dressing which usually happens in the days before the last day of the quarter (which will be tomorrow) - which has not happened. (the cynic out there should note how many market veterans now 'expect' the stock market to go up a few days before quarter end... free markets and all.)
Not only was the action Friday snooze inducing, yesterday's might have been even worse. Absolutely no life - much like the U.S. soccer team in the opening 15 minutes of every World Cup match. So we'll take a loss on this one, which is the opportunity cost of acting like a lemming; I should have noted that so many traders I scanned on the internets (sic) were all positioned for the same end of quarter manipulation it seemed unlikely to actually happen. I will also look to take in some of the long exposure on individual equities if they begin breaking support which seems likely in some cases.
Broken record alert - 2 ranges, 1040 to 1070 and 1070 to 1100. Today's premarket move will push the market firmly into the lower range sub range... on the plus side I get to break out my trusty 10 year old hat.
While S&P 1040 has held as support the last few iterations, I have never heard of a quadruple bottom so if we get there this time (which seems likely) I do NOT see it holding this time around.
I am not clear exactly why the futures are down so much specific to today - we have China down sharply overnight but part of that is a massive IPO that is going to suck in a lot of liquidity. Also some fears of slowdown Europe is China's main trading partner.
- China’s exports face “strong headwinds” in the second half of the year from policy tightening measures and the European debt crisis, reducing prospects of a rebound in the stock market, Citigroup Inc. said in a report obtained yesterday.
- The Shanghai Composite Index retreated 4.3% to 2,427.05 today, the biggest drop since May 17 and the lowest close in 14 months. Agricultural Bank of China's record-breaking initial public offering will draw money away from other stocks and depress prices overall. The IPO, which has separate listings in Hong Kong and Shanghai, is expected to raise $23.2 billion, making it the world's largest.
Please note this chart is delayed by 1 day but you can cleary see a close below 2500 marks a new leg down.
[click to enlarge]
Greece CDS spreads have blown out again but that was the case last week as well... some vague worries about bond auctions are also being mentioned.
- European investors were cautious ahead of bank repayments of euro442 billion in credits to the European Central bank later this week as well as debt auctions in France and Spain.
From this seat, the most worrying thing perhaps is that 10 years U.S. Treasuries are at the lowest level since 1962, barring the 'end of the world' scenario in latter 2008 and early 2009.
At best this points to expectations of lower economic activity ahead, and at worst it points to our long held call of we're Japan!, or more specifically a bout of deflation. Please note I have not predicted widspread deflation, nor inflation (the economy is experiencing both depending on what sector we are speaking) but in many pieces since 08 I have said tongue in cheek, based on policies undertaken, that surely we are not Japan despite following almost all the exact same 'solutions' (only bigger) they did. [Mar 4, 2010: U.S. Still Seems More Apt for Deflation than Inflation]
Insanity: doing the same thing over and over again and expecting different results - Albert Einstein.
That said, I have taken the out of the mainstream view that a bout of deflation is necessary for the bottom 2/3rds of Americans (private sector workers, not public) - as their cost of living has increased well in advance of their wage structure the past decade or two. [Aug 18, 2009: Bloomberg Opinion - Deflation Theory is Lemon We've Been Sold]