Living Inside a Broken Clock: Tuesday, Dec. 22, 2009.

by gmak

There are now 55 banks who have missed payments on their TARP money. House prices continue to fall. US prime mortgage delinquencies are up 20% QoQ to 3.6%. The surge in temporary employment is seen as a sign that recovery is around the corner, as this usually preceeds full-time employment. More and more pensions are looking for a bail out.  A new study by Ross professors Ran Duchin and Denis Sosyura found that banks with connections to members of congressional finance committees and banks whose executives served on Federal Reserve boards were more likely to receive funds from the Troubled Asset Relief Program, The market is holding its sphincter tight and the fear is being kept in, for now. Welcome to the broken clock.

EQUITY

SPX managed to claw a hold on the horizontal white line that has been the area of resistance for the last month.  The recent high was 1019 and change. Yesterday’s high was 1117.68 – these are important numbers into the new year. I have seen speculation that there will be profit taking in the new year (defer taxes). Possibly.  SPX has been in a range betwen 1086 and 1114ish for a while. Two days ago, the pattern changed on very heavy volume. However, yesterday’s volume was some of the lightest – in spite of the gap up and a close up near the highs. I have no advice here, except to be judicious and tight in the use of stops if you are going short.

The world is green except for isolated pockets. DAX has reached new highs (since the bottom), and is being led by the usual suspects.

ES has been climbing steadily since the lock up, but has still been challenged by the high of yestrday, around 1113.25 (add 4 points or so for SPX numbers).  This, according to TD TA on the daily ES chart, is around the make or break level for a bullish breakout. The line is still dashed (turns solid if the breakout is qualified) on my chart (not posted), but ES looks like it is pushing into the nose of a flat-topped wedge.  Volume is decining – is everyone in who can get in? WIll there be profit taking in the new year?  I’m looking at the usual suspects for correlation and indicatioins – and there aren’t any. I see the steepness of the yield curve increasing – which is usually bullish for stocks as it indicates a fear of inflation or better opportunities in equities than in fixed income. ES pivots of note:

• R2: 1122.75 = almost 1127 on SPX. I think that this is a little high – based on my old Pareto (80/20) calculation for MBS money.  A lot more has been used since then, and SPX is stalling.
• R1: 1115.50 = Not too far above ES, right now, and certainly plausible. TD has a couple of risk indicators indicating a retrace coming – but not a big one if the wave count is to be believed
• Neutral: 1106: Not even on the radar, and was sliced through like butter yesterday at the NY open.
• S1: 1098.75 = Around the area of supposrt ovr the last week or so. Also a TD level that needs to be breached if there is to be a change in trend.
• S2: 1089.25 = ES bounced here a few times over the last 4 days. There wasn’t enough conviction to push through.

FX

The USD has impressed me with its strength and resiliency in the face of overwhelming bearishness – especially with the long end of the curve selling off and yields rising. Notice how DXY pulled back up off of lower lows to set a new high (recent).  Meanwhile, USD is weaker today with CAD, and EUR stronger. JPY and GBP are weaker. Not your usual combination. Greece no longer is feared.

Here DXY FIB lines show us important levels that need to be reached and held to stay out of the abyss.

I didn’t see any FX news that was a deal changer – except that the UK GDP numbers disappointed, yet the FTSE is still up over 1%. The EUR is still putting in another bearish flag. The chart is interesting becuase it shows that the pivots are “more or less” indicators of support and resistance – but not with absolute certainty. Still, using 3min charts and TD TA I find it easier to trade and scalp than ES.

NEWS

DATA

This is a good place to play a retrace on ES. Going short here with a stop above 1116, and an interim  target of at least 1112 – with ultimate target at 1106 on the pivot – seems to be a decent risk /reward setup. Beware the 8:30 news though.  Might be better to wait for that unless you feel like gambling.

Cheers.