Sunday, September 4, 2011

Market Thoughts for week of Sep 5

Buckle up and hold on to your seats, next holiday-shortened week will be a wild one. From central bank meetings, to econodata, to European votes, to president's speech, it will be loaded with enough information for market to take the cue from for the rest of September. Next week market may even decide where it goes the rest of the year.

We begin with hurry up and wait on Monday - Labor Day. Exchanges in US and Canada will be closed. US Stock Index Futures trade until 11:30 am edt, and reopen at 6 pm. Enjoy extra day off. Believe me, you will need that rest. No significant developments, except Eurozone econodata: retail sales, Svc PMI, and investor confidence. Can't be anything but disappointment there.

On Tuesday adults come back from summer vacation. This is the day we start getting big money positioning for the rest of the year. SPX is down 6.6% YTD. Funds which underperformed will be looking to gain their lead on a possible rally into the end of the year. I do not want to be too bearish due to this fact (on SPX technicals later in the post).
The day's fun literally begins 30 minutes into it, when  RBA decides on rates. I expect nothing, and language can't be anything but dovish. Australia is not immune to world economic mess. Following that is Eurozone revised GDP, recession is imminent there I bet. Shortly after, we will see how Germany's factory orders are faring, I say they cratered.  In the morning we get US Svc ISM, better stay above 50.

Wednesday's fun begins the same way. Right after midnight BOJ decides on rates, or lack thereof :) Watch that meeting closely for major Yen announcement. Wait a little before going to sleep, we may see some fireworks. New prime min, new fin min, new beginning number umpteen. Lack of political continuity in that country is mind boggling. BOJ may just become the govt for a while.
Day continues in Germany with industrial production. Second negative number in a row will send DAX to its knees, better be above 0%. More important event in that country later in the day will be the decision on legality of EFSF by constitutional court of Germany. Better be Ja with no major restrictions, or world stock markets are going to hell for a while. Canada picks up in the morning with BOC rate decision. BOC holds, and holds, and waits for US to recover. It isn't coming, eh... Fun continues with Beige Book in the afternoon. I am going to go out on the limb, and predict at least half of US regions contracting. With nailing a negative NFP (0 is close enough), I may be on a hot streak. Fedspeak of the day comes courtesy of Mr. Evans. The gentleman's speech will begin with the words "I told you so!"

Thursday is the most important day of next week (if German court does not steal the spot on Wed). ECB rate decision and Trichet presser are starting the day. I am looking for definite end to the rate hikes, and perhaps a hint of a cut, if not an outright cut. Trichet will sound apologetic, accommodating, and less confused, I bet. What is there to be confused about now? Recession, sir, recession. US claims are out then as well. The President's speech comes way after US cash market close, but futures will trade at that time. Shorts may cover just in case. The day concludes in Asia - Chinese inflation and production data out then. Their CPI is extremely important for decision on further tightening by PBOC.

On Friday I think we are so exhausted that we may just meander. Some econodata out of Europe, Canada, and US, but nothing earth-shattering.

This brings me to SPX technicals. I am a bear, have been for a while, but do not want to be a hunter-became-hunted. It is important to note that should SPX stay above 1100 longer and higher, it is a shorty's nightmare to continue to hold the short. So many will decide to cover, and longs will sniff the rally fast, they will pile on sending SPX to 1250. At that point all those under water for the year will sell, and so we have a range in place perhaps - between 1200 and 1250 to continue into Q3 earnings. Support levels on the downside are: 1170, 1160, 1150, 1120, 1101. Resistance levels on the upside are: 1190, 1200, 1208, 1220, 1230. We have a trendline to hold about 20 points below here, should 1170 fail. That t/l from 1101 low, coming in around 1150 - 60 currently, could just become a base for yet another short-term leg up into 1250. Like I said, I am a long-term bear, but have become a short-term bull. My outlook is that after the year-end choppy hiatus, we are back where we started the year - at 1250ish, but in January we start the retest and eventually a break of lows below 1100. I am so sorry to sound so bearish, but the beginning of 2012 is not going to be good at all. We may join Europe and find out that we are in recession then. But let's just get through the next week first :)

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