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December Treasury prices seemed to forge a quasi consolidation low over the two prior trading sessions down around the 129-19 level, with a similar double low forged in December Notes at 125-01. The market seemed to draft somewhat off the last auction of the weekly cycle, but it is also possible that a failure in the US equity markets provided Treasuries with a renewed bid. Not surprisingly, the Treasury markets also saw some buying off a revival of expectations for aggressive QE2. It is also likely that higher yields on the noted slide in prices this week, inspired some of the buying. With US equities in the early action today, managing in some measures to fall below the prior session’s lows and in the process move toward this week’s lows, the equity markets have become slightly supportive instead of consistently bearish toward Treasury prices. Clearly part of the tamping down of QE2 expectations were the result of numbers early in the week that argued against aggressive quantitative easing. In looking ahead today the market will be presented with a series of US economic reports that will be headlined by the advanced 3rd quarter GDP reading. Expectations for the 3rd Quarter GDP reading range from a gain of +2.0 to +2.2 which would be a rise from the prior quarter’s reading of only +1.7. The market will also see a series of regional ISM readings, a Michigan/Reuters Consumer survey and a weekly business survey from the ECRI. Apparently the fresh speculation of a large QE2 event was rekindled in meetings between primary dealers and the Fed, with reports that the discussions centered on as much as $1 trillion worth of Securities purchasing. Supposedly the Fed solicited comments from the Dealers on their opinions for $250 billion, $500 billion and $1 Trillion and to some that really gives added credence to a go-slow approach. However, from the $100 billion every month incremental approach that the market at times embraced, the latest speculation would seem to point to more rather than less aggressive easing. While one gets the sense that the trade is willing to re-embrace an aggressive Fed action, the market could be a little worn out on the on-again, off-again speculation toward the Fed’s next probable action. However, with somewhat weaker equity prices facing the trade and generally weaker outside physical commodity market action, one could suggest that the outside market environment somewhat favors the bull camp more today than it did at the beginning of the week. It is also possible that the proximity to the FOMC meeting and the magnitude of the decline in prices this week is giving the market a lift from technical short covering buying action.
Stock Market Commentary – 2010.10.29
by Dave Hightower on October 29, 2010
Below is a sample of our Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!
From the reversal Thursday morning, the market seems to have lost its bullish buzz. Even more surprising is the fact that some in the Treasury markets have renewed their expectations for an aggressive easing move from the Fed and yet that hasn’t seemed to benefit securities much over the last 18 hours of trade. It is also possible that equities are balancing books ahead of the series of volatility events next week. Some suggest that the better than expected US claims figures yesterday served to lower the expectation of aggressive easing and that would suggest that good economic readings are currently being viewed as negative by the equity markets. On the other hand, disappointing earnings from a key US cyclical consumer products company also seemed to dampen the expectations for growth ahead, especially since that company (3M) offered somewhat disappointing forward guidance. At least from the early action today, the bear camp seems to have an edge but a series of drug sector earnings today, could become the focal point of the trade.
S&P 500: The December S&P in the early Friday morning trade has according to some, forged some partially negative technical action on the charts. To this morning’s early low, from this week’s high, the December S&P was down by as much as 21 points. After the slide yesterday in the wake of decent US claims readings, some players are wondering it positive economic readings have become a negative influence to the market because those type of numbers are thought to be discouraging the Fed from taking aggressive action. There might be little in the way of definitive support in the December S&P until the market falls back to the consolidation low zone around 1167.80.
DOW: The December Mini Dow in the early Friday action has already fallen below the Thursday lows and that has given the bear camp some initial confidence. Surprisingly the market wasn’t lifted by the return of hopes for a more aggressive Fed and it also doesn’t seem as if the markets in general are getting much of a lift from renewed buy out news in the drug/medical sector. In fact, despite favorable earnings from Potash, that bellwether stock has declined because of ideas that the price for the buyout might slide. Therefore, the market seems to be in need of a supportive theme this morning and into the Friday morning US trade that theme isn’t apparent. A return to this week’s lows could be in the cards unless a gain in GDP quarter over quarter is seen as a positive by the market.
NASDAQ: The Nasdaq has managed to hold up relatively better than other sectors of the market over the last 18 hours of trade, perhaps because of favorable news from Microsoft and perhaps because of lingering optimism toward the tech sector in general. In fact, the Microsoft earnings jumped very sharply over the prior quarter and that in turn led to speculation that Microsoft was poised to take some market share from Apple. In short, it would seem like the Nasdaq is generally trying to buck the negative bias from the broad market early today. The December Nasdaq in the early Friday trade has come down to an uptrend channel support line that has generally been respected since late August. That up trend channel support line is seen at 2118.00 and that would seem to leave the reaction to the GDP report this morning as some form of key pivot point.
TODAY’S MARKET IDEAS: The bear camp has a slight edge this morning, as the earnings window seems to have lost its capacity to lift prices. It also seems as if some renewed aggressive Fed easing speculation is being lost on the equity markets. With the market also not responding positively to favorable Microsoft earnings and instead reacting negatively to news from 3M, one gets the feeling that the market is in a mood to embrace the negatives. However, we don’t get the sense that the market is poised to ratchet up anxiety aggressive and in turn pound prices sharply. An ongoing measure of profit taking looks to be ahead and that could send many market measures down to consolidation support, which equates to 1167 in the December S&P, 2116 in the December Nasdaq and at 10,970 in the December Mini Dow.