MARKET WRAP UP 06/09/10
After hitting a late morning high of 1077, the S&P 500 fell apart into the close to finish off 0.59%, at 1055. As I have noted in my previous posts, the raw emotions of many traders come to the forefront when we see price action like this. The punishing downtrend that we have seen for weeks on end causes many traders to hope that they can buy stocks at the exact bottom, and make a huge score. When we finally see a relief rally, it is usually fast and furious, as shorts are squeezed, and bulls pound their chests in victory. However, when the rally falls apart quickly, the tables turn yet again, and the bulls find themselves quickly underwater on their new long inventory, and the bears scramble to reinitiate shorts.
Of course, all of these emotions are not constructive. While it is tempting to think of trading as a test of one’s intestinal fortitude, it is important to remember that we are engaging in a complex mental exercise here. Any aggression that you show as a trader should be in a very well thought out and controlled manner. Leave the street fighting to others.
As the updated and annotated daily chart of the S&P 500 illustrates below, we continue to chop and flop around our key 1040-1050 zone. As I have noted before regarding key reference points, the longer that the market spends at these levels, the more likely it is that the support will fail. What you are looking for are buyers stepping up with conviction, and greedy shorts paying the price for pushing their bets too far. From the action that we saw today, that kind of bullish scenario has yet to materialize. In order for me to get involved again on the long side, I am going to need to see that happen.
Thus, keeping a heavy cash position and an open mind are still the best ideas that I have. Note that taking a pass on trading in this type of environment has the added bonus of viewing the action in an objective way. Having a healthy frame of mind and a healthy confidence level are essential in all forms of gambling. Make no mistake, trading IS gambling, as we are betting on outcomes that have yet to be determined. Instead of denying that fact, a better strategy would be to embrace sound gambling concepts. A market like this will punish you for overtrading, fighting the trend, and any lack of discipline whatsoever. Novice traders will likely learn those lessons the hard way. Many other traders, however, have enough experience to the point where they think they are untouchable as far as bearing the brunt of the market’s force. They think they can manage their way out of any corner, no matter what they did to put themselves there. In short, they allow their emotions, hubris, and machismo to overtake them, and they are essentially outthinking themselves.
You don’t make that same mistake.
What we lack here is a real catalyst to drive us up
the rally in march 09 began with Vikram Pandits surprise memo that citi was making money. it continued on the backs of BAC, WFC, and other banks reporting that they were profitable as well.
the rally in July 09 began with big earnings and big guidance from Intel and Gannet and that monster short-squeeze day when I was stuck in the Tampa airport.
A definitive catalyst to shift the mood would knock the market out of the doldrums and send it up, but I can’t think of what catalyst that would be. A simple list of
-GOM oil spill and what carnage will it ultimately bring
-Eurodebt and what carnage will that ultimately bring
-Yen and carry trade drama
-Will the US double dip?
-Is China going to implode?
Its not a little known nor particularily complicated list of things that have us in the dumps. What isn’t clear is exactly what could launch us out.
The earliest catalyst I can see, as it appears that any type of quick relief for the GOM/BP/RIG situation isn’t likely, is a good Q2 earnings season starting in a month or so. Maybe good #’s and good guidance from companies will jar the market out of its doldrums.
Or maybe war or an explosion on the BP site or another country in Europe will jar us downward.
I think the market could rally, wants to rally, and would rally here. It just lacks a catalyst.
We sit in an uncertain spot, and without any exception, human beings faced with uncertainty will feel bad and negative.
I think you are exactly correct, no catalyst… and I also agree that it will be earnings season that ends up being the catalyst, starting in early July, and things could be a lot cheaper then.
Q2 earnings season is likely to have some good #’s… the guidance will be a big part of it. Companies saying “business remains booming, boys, we’re loving it!”.
Also, the jobs data last Friday wasn’t entirely horrid… bear with me. Hours worked rose 0.3%, that corresponds to 300,000 jobs. Wages rose 0.7%, that corresponds to about 700,000 jobs.
Wages rising significantly reduces the odds of a double dip and… if jobs weren’t created, but hours rose and wages rose… that means employers are running overtime/working employees more. That sets the stage for hiring, but two things may be barriers to significant hiring
1. companies are still trepid about things getting crappy again. The panic over Europe, plain and simple, and all the negative headlines and everything, will be enough to slow the re-hiring process. Bad breeds bad, thats an unfortunate reality of eocnomics. sucks.
2. the health care bill may create a situation where companies sort of permanently work employees more. Simply because of the added incremental costs of each new employee.
But if wages are rising, that provides some stability to the economy.
Fingers crossed that we don’t double dip and a worst case doesn’t materialize. 🙂
Dead on… well said.
no bulls Vs bear here , it is just selling , de-leveraging unraveling , it happen’s normallhy on a daily base…
before this there was sssr super super stupid – no volume – GS computer mathematical driven rally , finished with the May 6 crash where everything that was accumulated with lil volume was sold .
Now there’s only this level we’re bouncing on that’s THE ONLY safe bet of the bulls .. and to me this safe line is where some funds ( istitutions ) are not disposed to let it go . Unfortunately they are battling against deleverage , which is a very big lot of money ……. in any case .. who wins ? again .. the banks ..
good analysis
the capital markets are considerably deleveraged. Last I heard it was true that mutual funds had low cash positions and were highly invested, but…
monstrous amounts of money have been withdrawn from them since the highs in 2007. Hedgies have probably already considerably “de-risked” from late April to now, basically every trader/blogger I read is in cash or long/short, conservatively positioned.
Chess is right that the longer we sit around support in the 1040’s, the more likely that support is ot wear out, fail. It happened with dow 8k in jan 2009…
ChessNwine:
I was watching FCX today,
sure enough it was moving lower just one step ahead
of the overall market.
I know that you did not intend on using as a minute to minute
indicator but it was right on.
Thanks for the succinct market overview.
The next few days should be interesting,
That hammer is looking very vulnerable,
Indeed–thanks for reading.