Pre-Market Warm Up Nov 27, 2009

by gmak

I’m here to preach caution. Enjoy the fall and the dawning realization that the FED printing cannot eliminate risk.  But, remember that market memories are short in most cases. If there are no more shoes dropping from the Dubai Default, then a bid will come back under the market faster than many think.

:Looks good doesn’t it. The decline in price; Higher volumes for red candles.  Breaking the bulish flag that was forming in a bearish way.  The violet dashed line just below the green starred-hexagon is where a major ramp up started. It is acting as support this AM. Below that, the red dashed line is a TD indicator of where the buying is likely to come in (A breach of this is likely to turn into a rout and more tears for the bulls – expecially if it is early in a BUY setup count – 1 to 9 bars with price declining).

Notice that SPX (as projected from ES this AM) has not yet gotten below the trend from Aug 17, nor the TD Risk indicator (red dashed line), nor the trend line from Oct 2nd, and certainly not below the last low at SPX = 1029.39 – which has been previously mentioned.

If the USD /SPX correlation is still valid, EUR has not broken below its long run trend line. See here:

As well, there is shorter term support from the trend that began Aug. 18th.  Looking at detail on the 30 min chart (quite busy, I know), it is obvious that EUR has not set a new low below 1.4802 from Nov. 20th (extreme left of chart below). In fact, in spite of the “panic” over Dubai, I see a quite orderly bounce off the lower Bollinger, AND THE PIVOT which suggests that not everyone has given over to the emotion and there are still lucid and cunning heads out there who would be ony too happy to take your money.

So enjoy the bears’ day in the sun – but Dubai is nowhere near the scale of the events of last year. In the meantime, here is some fun stuff to look at, if you like the colour red.

EQUITY

The DAX opened down, but has been clawing its way back up. I would imagine that the ES chart will show the same thing when I post it below.

The short term line in the sand is drawn in red dashes by TD. It is 1067.75; Kudos to those who scalped out of their shorts around there.  The main resistance line is above at 1082 – if you want to scalp short – according to TD, again. ES Pivots:

• R2: 1116.50 = remember this number in a week or two if there are no echoes or dominoes from Dubai.
• R1: 1112.75 = Looks like the last high, no?
• Neutral: 1107.50 =  was the floor before the markets realized that Dubai is only one cockroach.
• S1: 1103.75  = I wouldn’t use any of these numbers because it looks like there is data missing from my graph – all of Thanksgiving AM.
• S2: 1098.50 = I mean, we are so far below these that they are not a factor in any trading. I will use the SPX pivots once they become available. There will be quite a gap on the SPX that some money would like to fill.

FX

Every CB in the world, it seems, is jawboning about how recovery needs stable FX markets. Meanwhile, the FX traders are taking the markets on a ride.  I’ve mentioned the EUR = 1.4802 level as the low that has to be breached if the drop (and USD rise) is to stick.  It looks like 1.4811 is the level for today on the EUR long run trend line.  The apocalypse cannot happen, IMHO, unless these are breached decisively. Further, a lot of money has been made by the USD bears, and I don’t think these levels are enough to cause them to change their thesis. If anything, the resistance below DXY = 75.6ish may make them bolder.

USD is strong – but notice that even in a so-called crisis (Dubai), it is still not above the 75.622 level yet (was the last high). CAD, EUR, and GBP are all down more than a cent. JPY is mildly stronger. This just says that the risk trade is off for now – but that there is no panic, nor blood in the streets.

The funny part is how much GOLD dropped – it usually does well in a crisis. Oil is down as well, so it looks like the USD play is the order of the day, and not the crisis play.

NEWS

Here are the main Global stories followed by more recent headlines. Notice in the latter that the YEN is earning a higher real rate than the USD – which would explain its strength this AM when every other currency is retreating.

DATA

None today. Surprise, surprise! Here is the schedule for next week. Lot’s of green shoot-type stuff coming up – if MSM needs to keep brainwashing the populace.

For now, ignore the ES pivots I posted since they are likely erroneous.  Use the two TD risk points I provide (1082 above , and 1067.75) as risk points for short and long trades, respectively.

?? The 10 year on the run Tbond is at 3.20% up 20 bps – looks like selling, not buying (??). Probably a move down into the short end….

As I said, enjoy the bears’ moment in the sun – but beware the whiplash of a move up over the next week IF there is no carry over or dominoes falling from Dubai.

Cheers.