Living Inside a Broken Clock: Wednesday, Dec. 16, 2009

by gmak

Pittsburgh fires a tiny salvo that opens the generational tax war as it asks students to fund the pensions of retired city workers with a “fair share” tuition tax.  The morally bankrupt Pres. proposes to rob Peter to pay Paul for making their homes energy efficient.  Bernanke rewrites part of the FED act ot justify his MBS purchases. The wind shifts and Abu Dhabi finally smells what is behind the Citi facade. CBs are buying gold still. The FED is on deck to wink and nod to the markets that the party will continue. Bank leaders thumb nose at Obama and entourage. Welcome to the broken clock.

EQUITY

All eyes on ESH0 which shows that the July trend line is still intact. Prior prices are interpolated and this is one of the problems I have with using ES to make trading decisions – the history is brief and suspect.

SPX, on the other hand, is showing an index that is struggling. That horizontal white line clothelined the SPX over the last two days. Going short here means put your stops above the high of Monday at 1115ish. If you’re feeling brave, put the stop above the HIGH at 1119ish from December 4th. The TD Pressure indicator at the bottom of the chart shows that buying is weak as highs in SPX are not matched by highs in TD PRessure.  Today is an FOMC day, of which commitments will require that I miss the afternoon action (superstitious gmak-meeting traders take note. lol).  I susect that it will be buy the rumour sell the news meaning slightly bullish all day in anticipation of reconfirmation of ZIRP ad infinitum, followed by profit taking into the close.

Asia was mixed but Europe is green. Financials (see the DAX) seem to be leading the pack in all their glory – where else would you go to play a steepening yield curve with a gov’t guarantee?

The DAX continued its move up in step-wise fashion, from yesterday. The only news that I can see is that inflation was less than anticipated. French and German mfg and services were about or above expectations as were the “European” numbers. Financials are running – bright green. In fact, pretty much every stock is up in the DAX – a precursor to the SPX. Lots of inflation data coming from the US and the equities market suggests that it will be tame enough (also given BenDovers comment about capacity, yesterday) to permit the liquidity flood to continue.

ES was tame overnight until Europe opened, and then took off along with the DAX. Could be another ramp and camp day for the SPX as all await the FOMC announcement  Pivots of note:

• R2: 1116 = high enough above the highs of the last 10 days to suggest a game changer if reached.
• R1: 1110 = ES is trying to make this the floor for a launch – but there is selling coming in. Note that this is above the dashed green line that TD has as an important risk level. If this line were to turn solid than R2 would be likely assured.
• Netural: 1105 = was the ceiling until Europe opened. Those crazy Chermans.
• S1: 1099 = Saw some support on Monday, but hasn’t been REALLY tested.
• S2: 1094 = top part of the gap from Dec 10th mini rocket launch. Was a floor for a while. Would likely be so again were ES to get down there in the next week or so.

FX

Yawn. USD is weaker, CAD, JPY, EUR, and GBP are all stronger. The risk trade is back on in anticipation of Bernanke’s “Party on, dudes!” to come this afternoon. When you add in OPEX, the fireworks should be spectacular into the close.  Note that last Thursday was up, but Tuesday was down – some OPEX myth, eh?

As I type, DXY is falling below the middle pivot at 76.79 that was also support yesterday. Look for support at 76.49.

The EUR has been marching up since 3AM EST – when Europe opened – and I think on an FOMC day it is safe to assume that the usual suspect correlations will hold. In other words: DXY down, SPX up. So watch the FX for 1 or 2 second advance notice. heh. TD has a retrace level at 1.4591 – which is usually a bit high in its estimation.  EUR=1.4564 – 68 is a key support level that has to break hard if DXY is to resume its move up.

NEWS

It looks like a lot of do as I say, not as I do – if distribution is to be a success for the IBs.

DATA

Lots of price data, as I said earlier. If the numbers are higher than expectations and the prior – look for a nervous sell off as rate hike expectations move back into the picture.

If you want to short ES here, put your stop at 1114 or more – so about 5 point loss. The gain would be about the same as there is a pivot at 1105. I would expect if ES were making that move down, that 1105 would be knifed through but that buyers would come in at the TD risk level at 1103ish.

Cheers.