Sunday, August 14, 2011

Market Thoughts for Week of August 15

It has been a crazy week. After a brief interruption and decision to regroup, I am ready to battle on a completely different level. My day-trading hat is gone for good. My swing-trading and position-trading hats are still on. I am letting the machines have their spotlight during the day. They are unable to mess with what I will do now. I quite frankly got tired of being a fly on elephant's back.

We are going to have a very interesting week. It will once again be dominated by Europe. This time ECB will not matter, it is up to two main countries of Eurozone to bail out Spain and Italy. Traders will be waiting for headlines out of Paris on Tuesday, yours truly included. I bet many traders are going to have their fingers on the sell button. I do want to see what comes out of there first though. But I am not putting too much hope on this meeting in terms of major decisions.
Also a very important parliament session is coming up in Netherlands on EFSF/ESM funding increase. If it fails - God help Europe. I have a funny question about ESM: Spain and Italy combined are 30% contributors to the bailout fund. How the heck is this fund viable if they themselves need a bailout? I smell a rat...

We will have more Econodata to digest. The most important for me will be German Preliminary GDP, and US Mfg Data. If German growth disappoints, especially after flat French GDP, then they will have a serious problem in Europe (not that they don't already). If Empire State, Philly FED, and US industrial production disappoint, then we will have a serious problem in US. I do not have to tell you how the week will end, should these two largest economies' problems take center stage. World-wide recession fears will be flying around again. Folks, in recession almost nothing does well on stock market.

Bunch of retail earnings coming up in US. I will watch retail for stock market direction in 2nd half of the year. Back to school through Christmas is a crucial period for them. After the stock market correction, combined with Washington circus, is anyone in shopping mood? Funny enough, sometimes people go shopping when they are depressed. UoM consumer sentiment was the lowest I can remember, but retail sales were good in July. Retailers reported well last week and all projected 3rd quarter on track or above. With consumer spending being 70% of GDP, it is the only reason we are not in recession yet. Weekly chain store sales will be my main indicator to watch, besides monthly retail sales figures. I will keep you updated here...

Technical picture on SPX will matter greatly. Oversold conditions are producing a nice bounce for longs to reduce exposure and shorts to enter at higher levels. People will be coming and going, it will be a total confusion fest. I will keep my stops wide due to HFT intra-day shenanigans. We have to learn how to live with them. SEC probe should start soon. I am hoping they take their madness out on HFT, after Madoff fiasco. Speaking of SEC, they said that they are not considering a short selling ban in US. I praise their decision. This said, after European short selling ban, their traders took a supersonic flight across the pond (I loved those Concordes) and beat our financials senseless on Friday. And this is with Dow up 125. Can you say unintended consequences?

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