Living Inside a Broken Clock: Monday, Mar. 8, 2010

by gmak

China has hung out to dry any banks lending to cities and regions. Iceland has said “Hell, NO!” to everyone going into debt to bail out the banks. Dubai World is asking banks for a delay on repayment of $26 bb in debt. US banks facing write-downs after FDIC action. Guess the bag-holders in all cases will be the American taxpayer, courtesy of Ben and Timmay, and the European taxpayers. Tick. Tock. Tick. Tock.

EQUITY

My post on the weekend is a beginning of trying to get a handle on the frequency of occurences. As an intra-day trader, though, I find that I am more interested in what will happen during the day.  I mean, from the open, how often does SPX have both a high and a low above and below the open? If there is a high probability that SPX will move above and below the open, then the trader can be agnostic as to the broader trend – if trading intra-day. I’m looking at codifying the bar shape and identifying ratios of the open, close, high, and low, that can give me a picture. If I throw in rising or falling slope, and relationship to (say) the 55 DMA – I may be able to slice and dice the data down to high probability of having that “T” shape sideways, off of the open.

Asia is green. Europe is mixed – but mainly rd. Sweden, Italy, Greece, and Spain are green – but the breadth isn’t very good (usually less than 50% of stocks in green).  The DAX is flat and down off of the initial (very small) gap.  German Ind. production came in lower than expected – but still positive. The EUR experienced some weakness off of this data point (my P/L thanks you). Half of the sectors are green and half red. The breadth is not good suggesting the possibility of further weakness. Green are Consumer staples, financials, telecom, Utilities.

Myt analysis from yesterday (which was posted) says that there is a high probability that SPX will fall back below the 55 DMA by Friday. But, if it doesn’t, then it is likely to stay above for quite a while. SPX is 2.6% above the 55 DMA, and I also posted the probabilities of SPX falling 2.6% within 1 – 15 days.

My instinct says that SPX should retest the “since Aug 17” trend line, but that there is no way of knowing if it is still relevant – so this is not something to be traded.  I have major resistance (TD and the Jan high) at SPX = 1150. As I said yesterday, that is < 4% above the 55 DMA – and certainly NOT a “stretched elastic” in any sense.

Given the DAX,  I expect a soft day. It could be a minor down or up, without much movement on the SPX. I haven’t decided how I’m going to trade this, yet – but I am currently long the EUR for a quick trade – so I may hedge by going short ES.

ES  moved up slowly off of the open last night, but sold off with the Europe open. It saw quite a range, and now TD has a resistance point at 1138.50 above, and a support at 1134 beow. The pivots are quite wide – so I am having a hard time believing that they will be in pay today. Looks like a “between the lines” type of day. Pivots:

• R2: 1149.50 = SPX will be pushing the Jan high if this happens. I think that this is a low probability event for today. If we go a few more days above the 55 DMA, then this becomes more likely.
• R1: 1143 = Just a whistle stop on the way to the Jan high if the market is going to move that way.
• Neutral: 1132.25 = Looks like this was some support on Friday after the overnight ramp. It is below the TD support, so ikely to come into play if SPX sold off today – but I’m not expecting that.
• S1: 1125.745 = This has been resistance on any intra-day push up for a while. It would likely be solid support.
• S2: 1115 = This was a floor for most of last week. Need I say more?

FX

Not much to say here.  My EUR long (quick grab) just closed for a profit. Forexlive.com reported earlier that there was buying at these levels (when Asia was open).  There were offers stacked from 1.37 to 1.375 and when the EUR reached there, apparently there were hedge funds selling some more.

My opinion on this is that IF there are heavily shorting hedge funds (and the numbers indicate that it is only about 1 – 2% of the total EUR market), that they are hedging any move up with other futures and options. I think the short squeezes is coming from those less sophisticated, or more extended smaller players, so I’m not looking for any monster ramp – just surges in both directions (especially when stops are run). I like this time of action intra-day because it suits my style and helps me divorce my trading from any bias beyond the current trade.

NEWS

Nothing major beyond what I wrote about in the first paragraph.

DATA

See briefing.com for more, but there is no “official” data out of the US today. TOmorrow are optimism and confidence measures. Wednesday is mortgage, and wholesale inventories – big number for side bets on the direction of the economy – and the monthly Budget statement.

Cheers.