Living Inside a Broken Clock: Wednesday, Jan. 13, 2010

by gmak

 Markets tend to return to the mean over time. So is this the start of a consolidation or the end of a rally? And, by the way, this week is OPEX.

The FED made $45 bb in profits. I wonder how much this would have been if they had to mark-to-market the MBS and toxic waste on the B/S? For example, the garbage in Maiden Lane III was worth only 50 cents on the dollar AT MOST, when purchased at par by the FED – according to Reuters.

The $40 billion 3 year auction closed at 1.49% with the Indirect bid down at 38% versus 61% in December. Direct Bidders climbed from 3% to 23%. One hand washes the other. I’m anxious to see this weeks tally of MBS purchases, and see if it climbs above the usual $15 – $18 billion.

The blogosphere is a-twitter over TEOTWAWKI in Japan. Greece is NOT Argentina… yet. Welcome to the broken clock.

EQUITY

The “Point of NO Return for the Bears” was not breached this time around. In fact, the SPX bullish leap was soundly pushed bac, Keep an eye on the dashed yellow line as an indicator if the trend could change in the short term. TD Pressure has moved below the red signal line – as indicated by the downward pointing red arrow stuck in the middle of the “Since Sept. 17” trend line, above today’s bar. The implied stop level for that low-risk SELL is around SPX = 1162 – certainly not a good risk /reward. My opinion is that short -term trades, scalping, and swings, are still the order of the (intra-) day.

The world is red, except for Eastern Europe and Latin America. India, Germany, Spain, Netherlands, and Belgium are green.  The DAX is still forming a bearish wedge, although up a bit, after the move down yesterday.  Consumer Staples and Discretionary, Financials, Utilities are in the red. Looks like the sector rotation is saying that business will lead us out of the dodgy economic situation without the consumer or banks.

• R2: 1150 = Would be a new high. For an Opex week, this would be a lot of heavy lifting unless the FED is going to buy a truckload of MBS.
• R1: 1142 =  up around resistance in the overnight leading into yesterday open. I would suggest that this is as good a roof as any we’ve seen lately. Notice that the volumes were quite high into the lockup yesterday, all day for that matter.
• Neutral: 1135 = Around support from Friday. Current the center of attention.
• S1: 1127 = Just blow the lows from Yesterday and last Thursday. There are buyers swimming around above this level. Might have something to do with OPEX.
• S2: 1119.75 =  Surprising if we get here this week. The apocalypse might finally show up at its own party. 🙂

On a daily basis, you can clearly see that ES has dipped back inside the nose of the wedge. Trend lines and points of change are obvious, I would think. Notice that the highest volumes are on down days.  IF (and that’s a big if) there are interested parties gaming the futures after hours, then there is not enough volume there to turn the tide when the rest of us respond. TD Pressure has signalled a low risk SELL, with stop above 1152.60. 17 points of risk, for ??? what ??? possibly the same in reward to the downside at the trend line.  TD has the magic line in the sand as ES = 1109.75. ES needs to move below with conviction, probably re-test, and only then be able to head down. “with conviction” means close below the purple dashed line. Open lower, and close lower still. The re-test means coming back up to hit or put a pin above the line again.

FX

DXY is hanging in no-man’s land on the daily chart. There is a downward channel beginning – but it doesn’t look established yet.  DXY failed to get above the “highs” from August on this move up. Only the fear of higher interest rates, rippling out from China possibly, might prevent the re-nascent carry trade.

The 30 min chart shows lower lows and lower highs. The upper edge of the channel is choppy and not well established – but Look how the grey pivot line acted as a roof over DXY as it attempted to rally. Strong resistance that let DXY fall to the S1 pivot for today. Lately these support pivots have been the location of short term rallies if you are looking to grab some quick profits.

NEWS

1. Google in retreat in China after very sophisticated cyber attack.
2. Commodities and emerging market stocks declined most in 4 weeks.  Looks like a liquidity play to me. Wait until the FED buys some more MBS and then we can get this party started.
3. Global economic confidence index rises due to illusion of sustained 2010 recovery
4. Treasury investors are bearish – think they’re worried about the big deficits everywhere?
5. AIG “backdoor bailout” just won’t go away. Maybe this time the cockroaches won’t be able to scurry back into the dark.
6. Obama won’t help the Governator. California bondholders change underwear. Maybe California should apply to become a Primary Dealer.

DATA

1. Mortgage applications were up 14.3% vs 0.5% prior.
2. 14:00 Monthly budget statement. This ought to be good for a few laughs.
3. 14:00 Fed’s beige book.

Tomorrow has the Import price index, advance retail sales, Initial Jobless claiims and ta-dah! -> Business Inventories = the mythical beast that will add points and points to the GDP, apparently.

Cheers.