Living Inside a Broken Clock: Thursday, Jan. 28, 2010

In times of crisis, leaders often look for an enemy to distract the great unwashed from the growing problems. The President of the US has decided that it should be the Legislature. Bernanke, it seems, has been lobbying senators to keep his job.  The great contradiction yesterday was Geithner saying he had nothing to do with the AIG decision, and a later witness (I forget the name) saying that he signed off on all the AIG transactions.

In the meantime, it’s official: The FED has declared that we are in a recovery. It must be. Ford was profitable in accounting-world. More importantly, this means that lquidity backstops and MBS purchases shoud be on the way out. In my opinion, the risk market has only risen due to that “rising tide”.

China tells the world that there is NO inflation in its country. Clearly, their Central Bank is cloned from Greenspan and the FED who cannot see a bubble when it’s coming out their noses. It seems in Greece that on top of death and taxes, the only other certainty is bribes. Businesses are making decisions to avoid or minimize the amount of payoffs they need to make to do business there. Irony of irones, a judge in Ireland tells a debtor, “But you will appreciate that when parties enter a legal arrangement, if someone loans you money, you have to pay it back.”  German unemployment increase was less than expected. Consumer confidence remains at its previous levels (low, if there are any doubts).

It’s just another day watching the hands of time tell lies. Welcome to the broken clock.

EQUITY

The world is green. Only Canada and Latam are showing red on the Wheel of Fortune. Even the PIIGS are getting a bid this AM. Obama may not be much – but he sure can give a speech! The DAX gapped up at the open, but has been selling off since and almost closed the gap. It looks like a bearish flag being put in.  The current level, around 5660 looks to have been support all th way back to September. It must be the DAX equivalent of SPX = 1086. Industrials, Health Care, and Utilities are the only RED. Materials and Financials are leading.

SPX put a pin through 1086 yesterday, which seems to have lit a fire under the buttocks. It went on a tear upward, to be stopped at the 5 DMA. So far it is looking like a small gap up at the open, but the lying Durable goods number comes out this AM, along with jobless claims. You can be sure that there are a number of gamblers with money on one side or the other – and the low volumes make the swings particularly dangerous.

Today, the “Since Aug 17” trend line is overhead at around SPX = 1103. The 50 DMA is overhead at the visual resistance point of SPX = 1114. SPX = 1086 has held again (For the 6th time, more or less, since going above on November 9th).

If you look back to SPX daily in 2003 – 2004, you will see that after the ramp off of the bottom, there was a period of sideways range-bound activity from around January 2004 until October 2004, with the TA indicating on each down leg that it migh head lower. My expectation is for similar action for the next few months until liqididty begins to be taken out of the market. One of the reasons is that I believe that the big money has to do distribution – and what better way than to bring in the SHORTS and sell to their panic covering?

One final note on the big picture: On a weekly basis, the trend lines have been clearly broken. TD has a technical support line at 1069.30. If the trend line is to be re-tested (and they don’t have to be before a drop), then SPX = 1121 could be a possibility.

ES rose overnight on Obama’s eloquence, and began a slow sell-off when the silver spoon turned back at midnight. TD has a technical support level (and it was the base for the overnight rise) at ES = 1096. The resistance level is at ES = 1102 (SPX = 1106ish, I believe).  Looks like range-bound trading until 8:30AM EST, to me.

• R2: 1107.50 = Also the potential target for any momentum, since TD has a price exhaustion level there on the 5 min chart.
• R1: 1101 = Moving above this and retesting from above would activate the 1107.50 price exhaustion level and make it an active target.
• Neutral: 1089.75 = Site of some noise into the close yesterday. Looks like it was resistance and support both over the last week or so.
• S1: 1083.25 = ES analog to SPX = 1086, more or less. Definitely not the Maginot line.
• S2: 1072 = Looks like this was the area for a lonely pin at the end of November. It was also resistance on the way up in the second half of September. If SPX = 1086 is breached at some point in the future, I believe that this would be where the bulls would come in to force short covering. (remember Jan – Oct 2004!).

FX

Looks like DXY is going to get a bit of a rest after avoiding the double top.  The 50 DMA at 76.82 looks like a solid longer-term support level, and TD technical support is there as well. The EUR is resisting falling below 1.40 – money is on there being some option bets around that level.  On the 30 min chart, DXY found some support at the pivot at 78.63 – but it hasn’t been able to hold above the last high at 78.814. Lower support is at the pivot at DXY = 78.41.

CAD and GBP are stronger. EUR is flat (more or less), JPY is weaker. Yet the DXY is up. Is it the mightly CHF?  It is weakening. Are those the BIS footprints at the crime scene?

NEWS

Economic recovery is underway in the USA. There is no inflation in China. Russia says that it doesn’t expect country issues in Europe to have an effect on the Euro. Japan says that it won’t suffer a double dip in the first calendar quarter. I can hold my breath for an hour.

Sales of floating-rate corporate bonds are falling off, suggesting that there is less of a worry by investors about inflation. The market seems to believe that rates are going to stay low for a while. Don’t they understand that the FED has been buying Treasuries and that when liquidity is withdrawn, rates will ramp?

Brace for more useless spending as Obama is making jobs his top priority (what was it before?). Nokia shares surge 16% – let’s party like it’s 1999.

DATA

8:30AM EST = Durable goods (remember the fudging last time) at 20% expected versus the adjustment to -0.7% prior.  If I were going to fudge, I would make a statistical adjustment because not many would notice the downward movement that would make the next period positive. Watch out for low-flying reindeer games.

Also, Jobless claims and continuing claims – which has become a bit of a snore-er. 450K expected vs 482K previous. Expect a thrilling appearance by the Birth /Deaths model that attempts to simulate small business activity.

ES is coming up to the top of its overnight range. I like the idea of swing trading between 1102 and 1096.  I would put a stop just above ES = 1103, and look to come back in short around 1107.50;

If we get down to 1096, depending on TA at the time, a trade going long with a stop below 1095 looks like a decent risk /reward trade – with upside around 1101. BTW, the 9 pMA has crossed the 34 pMA on the 5 min chart indicating a bullish cross – even as ES bumps against the pivot at 1101 with TD technical resistance just above at 1102.