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Equities: May Not Take Much To Inspire a Technical Rebound

by Dave Hightower on May 16, 2012

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Global equity markets were sharply lower during the overnight and early morning hours, as fears of a European debt contagion mount. The breakdown in talks to form a new coalition government in Greece has pushed the country into a new round of elections. Probably the more severe threat is a liquidity crunch as people withdraw funds out of Greek banks. Some estimates suggest that Greek banks saw outflows of around $900 billion on Monday alone. Outside market weakness and a definitive risk-off vibe weighed on the Japanese Nikkei, which slipped to its lowest level since January 23rd. The Chinese Shanghai Composite slumped to a new four week low, coming under added pressure from stagnate Chinese loan growth in May. However, some pockets of the market saw the soft data as a force that could motivate their Central Bank to ease monetary policy, and that might have limited losses. The major European indices were down nearly 1.0% this morning, as they tried to rebound from their morning lows. While the early morning tone was negative, a better than expected read on UK employment data helped lift the major indices from their session low. Perhaps the negative sentiment in the market could get a lift from this mornings active US economic calendar. The trade appears to be factoring in a considerable monthly improvement in US housing data in April, as well as an increase in industrial output. Markets will get the latest FOMC meeting minutes later in the session, and will likely key in on any comments regarding the US labor market or potential for more quantitative easing.

S&P 500: A weak early morning trade in the June S&P 500 pushed the index down to its lowest level since February 2nd. Overnight weakness in Asia, ongoing uncertainty with Greece and definitive risk-off vibes in outside markets leaves the bulls with a number of headwinds to overcome. Further weakness in the index came in the wake of JC Penny’s earnings Tuesday afternoon that fell short of estimates, especially since they discontinued their dividend and posted weaker than expected sales figures. The index will get more retail-related earnings from Target and Staples prior to the Wall Street open. Both earnings reports are expected to come in above their year ago quarter performance. The index will also get the latest earnings this morning from Deere & Co, which is expected to show a gain of 19.0% compared to the same quarter a last year. While the June S&P 500 managed to bounce nearly 10-points from its early morning low, the short term trend continues to point down. It probably takes a move back above 1347.00 to overcome the bearish tilt.

DOW: The June E-mini Dow trended lower throughout the overnight and early morning hours and fell to its lowest level since January 31st. After marking its overnight low, the index has been able to pare some of its losses. The weak outside market tone and new FBI probe into the $2 billion hedge-related loss at JP Morgan continues to tamp down sentiment. However, extremely oversold technical conditions and fresh merger news of General Electric buying two foreign mining firms could become a source of support later in the session. The breakdown and subsequent downside follow-through action in the June E-mini Dow below 12,650 confirms a negative technical pattern that targets an eventual slide toward 12,000. In the shorter term, the next area of support comes in at 12,460. A move back above resistance at 12,759 would break the near term downtrend pattern.

NASDAQ: The June NASDAQ is on a six-day losing streak and has broken down below the March low of 2569.50 during the initial morning action. However, the index has been able to log a 20-point rebound from its early morning low and has climbed back into positive territory, and that is a minor positive. Perhaps some of the support for the NASDAQ comes ahead of this week’s IPO from Facebook, which raised the size of their offering and is now expected to bring in nearly $16 billion. The short term trend in the June NASDAQ is negative until prices climb back above 2616.25. The next area of support for the index comes in at the mid-February swing low at 2539.50.

TODAY’S MARKET IDEAS: With the June S&P 500 and E-mini Dow sitting at their lowest level since early February and sporting extremely oversold technical conditions, there is the prospect of new bargain hunting coming into the market. Especially the buy-the-dip crowd. Slowing global growth and the fate of Greece hang in the balance, and present equity markets with major negatives. However, it might not take much in the way of this morning’s earnings and economic data to inspire a technical rebound. While the trend in the indices point down, we can’t rule out the possibility of a near-term technical rebound. Downside support in the June S&P 500 comes in at 1313.50 and 12,460 for the June E-mini Dow.

Interest Rates: US Treasuries Carve Out Fresh New High Overnight

by Dave Hightower on May 16, 2012

Not surprisingly, US Treasuries have carved out another fresh new high for the move overnight. One almost gets the sense that the current flight to quality condition is poised to reach somewhat epic proportions, as the situation in Europe has taken on the appearance of a Gordian knot. However, the bulls in Treasuries might be temporarily vulnerable to some choppy two sided action this morning in the wake of scheduled US data that might post minimal improvement. Ordinarily the Treasury market wouldn’t be markedly undermined by a minimal rise in US Housing Starts, especially if that news was accompanied by minor weakness in permits, but in the current condition, Treasury prices have periodically priced in a pretty conclusively bullish environment. In other words, minimal growth in either US housing or Industrial Production and capacity Utilization readings might be cause for some very temporary selling of bonds and notes. However, with June bonds, as of this early writing sitting roughly 1/2 point off their overnight highs, one shouldn’t expect too much weakness in prices unless the US scheduled data ends up being much better than expectations. The bull camp is probably emboldened by residual Euro breakup fears, or perhaps simply because a portion of the trade is already anticipating something negative from the longer term Spanish debt auctions later this week. While the scheduled data from the US is likely to prompt a two sided early trade, the focus of the Treasury trade should quickly shift back to the FOMC meeting minutes release later today and there could be a minor setback in Treasuries in the event that no hints of easing are found in the meeting minutes. In conclusion, the flow of US data is important and the stance of the Fed later today will also be very key but as long as the Euro zone is feared to be on the verge of a breakdown, it could be difficult to effectively remove the safe haven bid for US instruments. With a recent TIC report showing ongoing foreign investor interest in US Notes and Bonds, it is clear that US Treasuries and the US currency are set to remain in a very limited group of flight to quality instruments.

Commodity Low Seen Before the End of May!

by Dave Hightower on May 14, 2012

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As of this writing the markets were fully entrenched in a risk-off mentality that was the result of weak US data, renewed Euro zone turmoil and perhaps a measure of political uncertainty in China. While the recent change in leadership in Greece and France cast doubt on past austerity pacts and the uncertainty has injured global confidence, it isn’t a given that the global recovery attempt will be completely foiled by this bump in the road. However, the Euro zone situation will probably remain the dominating theme for now, and it could take some time before the newly installed leaders realize they will have very little capacity to dictate terms to the rest of the world.

Greece’s ability to dictate terms to the EU is effectively zero, and that could be quickly demonstrated by the Germans, who might be able to exert even more influence over the EU in the wake of the temporary power vacuum in France. However, the change in Greek and French leadership will probably have some impact on current affairs, as politicians everywhere are taking note of the disdain for aggressive austerity. As the ultimate goal of politicians is to stay in office, the recent turn of events might result in a reduction of austerity policies. It could also increase the prospect of additional easing from key central banks.

In the US, where austerity is often touted for members of the Euro zone, it might not take much of a slide back towards recession and/or renewed Euro zone debt concerns to resurrect efforts at yet another US stimulus package, especially with the election looming ahead. It is also possible that significant turmoil from the Euro zone situation could bring the US Fed off the bench sooner than previously expected. The Fed made it clear last year that it considered events in the Euro to be very important to the US economy.

China is perhaps content and even happy with the recent decline in commodity prices, as it is providing an opportunity to restock. We suspect that the PBOC is taking note of the recent reduction in inflation (June crude oil down $16/barrel from the March high), which could give it a freer hand to act. Unlike the US, China can insulate its economy from inflation pressures through an aggressive rebuilding of commodity supplies.

We suspect that copper, platinum, cattle and corn have already seen 90% of their anticipated liquidation off of macroeconomic events and that the ECB and the Fed will step up and soothe sentiment when the June S&P contract reaches down to the 1325 level. The economic horizon is dark right now, but sharply lower energy prices for the early portion of the summer, fresh easing from one or more central banks, another round of refinancing in the US housing sector and increased auto production by Ford and Toyota could quickly improve fortunes. It is also possible that further deterioration in the US economy and adverse polling data might force the US Administration to employ some classic capitalistic measures.

In looking at the enclosed chart of the spec net long positioning of non-financial markets and adjusting those figures for the additional price slide in May, commodities in general are getting much closer to a “liquidated” condition. On the monthly CCI chart, a normal retracement from the 2001 low and the 2011 high points to a potential bottom around 500. We remain bearish in the short term but realize a bottoming potential is coming most likely as a result of US Fed dialogue!

Stocks: Bulls Have the Edge; Favorable Earnings Would Further Set the Tone

by Dave Hightower on April 17, 2012

Global equity markets began with a shaky start, with follow through weakness in Asian markets but a dose of favorable European data this morning has helped turn the tide back to a positive tilt. China’s Shanghai Composite slipped to a new three day low overnight, with a finish just off the session low, weighed down by the fifth monthly decline in foreign direct investment. The Japanese Nikkei continued its recent decline but support at 9,450.00 kept overnight losses fractional. Equity market sentiment took a significant turn higher after a successful Spanish debt auction and better than expected German sentiment. Spain sold around 3.18 billion euros worth of short term debt, while borrowing costs were higher, it was seen as a boost to confidence that the country was able to tap into capital markets. April German ZEW sentiment readings showed an unexpected gain to the highest level since June 2010, which bolstered the case that their economy is recovering from the recent pullback. These two developments helped restore sentiment in the market and lifted the major European indices, as well as US futures to their best levels of the session. There were also upbeat comments from St. Louis Fed president James Bullard late Monday, where he forecasted US growth in 2012 to run near 3.0%. US markets face an active economic report flow this morning, with March housing starts expected to show improvement compared to the previous month, while March building permits are expected to hold near last month’s pace. March industrial production is expected to show improvement, with forecasts for capacity utilization to climb to the best levels since July 2008.

S&P 500: The June S&P 500 slipped to a fresh four-session low during the overnight session and has since rebounded more than 13-points from those early lows. The short term oversold condition of the market coupled with a successful Spanish debt auction and upbeat German sentiment readings offer the bull camp the early edge. European bank shares appear to be the beneficiary of the positive turn, with early gains of nearly 3.0%. A positive showing in this morning’s earnings from Goldman Sachs, which is expected to show a considerable jump from the year ago quarter to $3.55 per share, would offer further momentum to financial sector gains. 17 S&P 500 companies are expected to report earnings today, and that is liable to turn the focus away Europe and toward US earnings and growth prospects. The early reversal action to the upside in the June S&P 500 favors the bulls and a challenge of 1388.00. While the trend on the daily charts continues to point to the downside, there is a considerable upside room for a corrective bounce, perhaps back to the 1400.00 level.

DOW: The June E-mini Dow has taken a higher track this morning and looks poised to challenge yesterday’s high of 12,925. The index showed relative strength compared to the other major US indices throughout yesterday’s session, initially supported by gains in IBM and Caterpillar, and then by a favorable reaction to March Retail Sales data from Wal-Mart and Procter & Gamble. A number of Dow Jones components report earnings today, with Coca-Cola and Johnson & Johnson prior to the Wall Street open, then Intel and IBM after the close. Intel is expected to report a decline in earnings of around 15.0% compared to the year ago quarter. Meanwhile, expectations are for IBM to show earnings growth of 10.0% and that in turn could raise software demand forecasts. The price action in the June E-mini Dow has taken a positive turn and looks ready to challenge last week’s high of 12,971. Confirmation back above this level in today’s trade would trigger a short term technical pattern targeting a push toward 13,060.

NASDAQ: The June NASDAQ fell to a new four-week low during the initial morning hours but has since climbed back into positive territory. The technology sector came under pressure yesterday from a 4.0% drop in Apple, which was down for its fifth straight trading session. Apple is down nearly $65.00, or 10.0% from its April 10th record high, as concerns mount over iPad demand, talk of some mobile carriers cutting subsidies and slowing Mac sales in the US. The index will get a round of tech-related earnings reports later this afternoon from Yahoo, Intel and IBM. Early morning weakness in the June NASDAQ satisfied corrective retracement targets from the March advance of 2654.00, and the upside reversal action gives the bulls an early advantage. Upside targeting this morning stands at 2699.00.

TODAY’S MARKET IDEAS: The bulls get the early nod this morning, helped by a favorable Spanish debt auction, better than expected German sentiment readings and hopes that today’s corporate earnings flow will beat lowered expectations. A favorable result of today’s earnings would go along way in setting the tone for the season and is likely to steel the market focus. While the daily trends for the June S&P 500 and E-mini Dow favor the downside, the early morning recovery from oversold levels leaves the potential for a corrective bounce targeting 1388.00 and 12,970 respectively.

Bonds: All About the Payroll Data; Shorted Session Could Add Volatility

by Dave Hightower on April 6, 2012

At least in the early action today US Treasuries were showing some minor weakness and that was partly the result of an overdone reaction in the prior trading session and that could also have been the result of position squaring ahead of the US Non farm payroll report later this morning. With a partially holiday thinned trade to start and a shorter trading session, one might expect the report to compact activity and in turn that could enhance the initial reaction to the release. While US equities were showing some minimally positive action in the early Friday US morning trade that action came on the heels of slightly weaker market action in Asia. In fact, the Nikkei was weaker again overnight and that market ended up posting the worst week since last August. Despite the holiday in Europe, there would appear to be ongoing concern toward the Euro zone, as rising yields in Spain and Italy have increased concerns that the LTRO impact has worn off. However, the European influence probably won’t be significant today, as the focus of the market today will be almost exclusively trained on the US Non farm payroll results. Expectations call for a +200,000 Non farm payroll gain, with most economists predicting no change in the unemployment rate. Some analysts wonder if a Non farm payroll reading of only +200,000 will be good enough, to convince the marketplace that the US recovery is strong enough, to self propagate, especially since the US Fed recently seems to have moved to the sidelines. In fact, some economists think that an average 200,000 monthly non farm payroll reading gain might not be enough to offset natural attrition. While the market will also see a Consumer Credit reading later today and expectations call for a rather noted jump in that reading, in excess of 10 billion, that report impact might be lost in the shuffle of the early closes and the long weekend. While the payrolls will dominate the trade, it could take a number moderately away from expectations to completely distract the market from it recent return to European debt concerns. While the markets don’t seem to be attaching significance to the potential for unrest and political change in China, some news outlets overnight carried a story that the Chinese government military newspaper was instructing troops to ignore rumors on the internet and in turn that they should follow party direction. While the recent coup attempt was largely discounted as a one off change of positioning among the upper ranks of Chinese leadership, that situation was joined by violent protests against the Chinese company that manufactures Apple components and that in turn has supposed uncovered factory worker dissatisfaction. In other words, it is possible that China’s 165 million manufacturing workers might be poised to push for higher wages and improved working conditions and that in turn might prompt China to give in and allow a larger measure of inflation in its economy. In the mean time, the situation in China is probably only a very minor bullish influence on Treasuries but the focus of the trade will probably mostly remain on the pace of the US economy.

Interest Rates: June Bonds on Lower Track; Lowest Level Since 10/31/08.

by Dave Hightower on March 14, 2012

June bonds are on a sharply lower track during the early morning hours, breaking down to their lowest level since October 31. The overnight breakdown in the US Treasury market comes as Asian markets react to the rally in global equity markets and comments from the Fed acknowledging an improving US economic backdrop. While there has been an improvement in the latest round of US economic readings, confirmation on that point from the Fed was seen as a factor taking a third-round of quantitative easing off the table. The Fed expects moderate growth in coming quarters and a gradual decline in the unemployment rate, while vowing to keep short-term rates at extremely low levels into 2014. With a diminishing chance for more QE and a surge in global equity markets, inflation expectations have ticked up. In fact, breakeven rates on 10-Year TIPS rose to a new seven-month high yesterday of 2.38%. That is up around 70 basis points from the September 2011 low and highlights the rising threat of inflation in the market. Two-Year Note yields also reached their highest level since September 2011 (0.35%). The US Treasury Yield curve steepened, with the 2 vs. 10-Year Note spread widening back out to 179, up 8 basis points yesterday. The price decline in June bonds, down more than 4-00 from last week’s high of 142-10 has coincided with an 18 basis point jump in yields. This should help bolster demand for today’s $13 Billion in 30-Year Bond auction. Yesterday’s 10-Year Note auction was well-received, with a bid to cover ratio 3.241, compared to the 10 auction average of 3.10 and a high-yield of 2.076%. The latest decline in the Treasury market will look to this morning’s scheduled flow of economic data to confirm the improving growth theme. This comes after better than expected US Retail Sales data yesterday that climbed to its best level in five months. The Treasury markets could get a reaction from this morning’s European inflation data, which is expected to come in above their 2.0% target this morning. Fed Chairman Bernanke speaks at a community-bankers convention this morning and could provide a follow-up to the US economic outlook conveyed at yesterday’s FOMC meeting. The scheduled flow of US economic data this morning includes the Mortgage Bankers Association mortgage market index and the latest read on February Import and Export prices for February. The US Q4 current account deficit is expected to come in around $114 billion, which is slightly larger than Q3 levels.

Stocks: Bulls Have a Number of Positives Working In Their Favor

by Dave Hightower on March 14, 2012

Confidence is running high within global equity markets following yesterday’s improved economic assessment from the US Fed and favorable result on US bank stress tests. The Japanese Nikkei finished the overnight trade up 1.5% and registered its first close above the 10,000 level in seven months, helped by an improved US economic outlook and a weaker Japanese Yen. Meanwhile, the Chinese Shanghai composite experienced negative reversal action overnight, with a failed test of recent highs and finishing down more than 2.5%. A sell-off in property-related shares seemed to drag the market lower after a government meeting did not result in further easing in the property sector. European shares rallied to their best level in seven-months, led by a more than 2.0% gain in the financial sector. Risk-sentiment in the US market took on a new level of optimism late yesterday following the FOMC meeting comments and news that 15 of 19 banks passed Federal Reserve stress tests. The stress test results provide the go ahead for US banks to increase their dividend payouts and reflect a considerable turnaround in the US financial sector from the 2008 crisis.

S&P 500: The June S&P 500 climbed to a new contract high overnight and reached its highest level since June of 2008. The index held gains during the FOMC meeting announcement but exploded on reports that JP Morgan was raising its dividend and buying back shares. This carried financial shares as a group by nearly 4.0% on the session. European bank shares were up more than 2.0% during the early morning hours, led by a 4.0% gain in Barclay’s, and that is seen as a positive force this morning. The June S&P 500 is up more than 140 points in 2012, into this morning’s high, and has only had 2 minor corrections: a late-January break of 30 points and the March break of 36 points. While sentiment is running high from the improving trend of US economic data and financial sector recovery, the overbought condition of the market has become more dependent on better than expected data to keep the trend intact. Swing low support stands at 1370.40. The breakout from recent congestion targets 1406.40.

DOW: The June E-mini Dow registered another contract high in overnight action, on follow-through optimism following the FOMC meeting and US bank stress test results. One of the big benefactors in yesterday’s trade was the shares of JP Morgan, which surged more than 7.0% on the session and climbed to a new 10-month high. The company announced plans to increase their dividend and repurchase $15 billion in stock. The surge in the shares of JP Morgan, as well as Bank of America, lifted the Dow Jones cash index to its highest level since December 2007. Yesterday’s upside breakout above a six week congestion zone and follow-through action overnight is a positive technical development, with an upside target of 13,334. Meanwhile, the 8.5% rally in 2012 into yesterday’s high and overbought momentum indicators are a near term concern. Bulls have the edge to start, with swing low support below at 12,967.

NASDAQ: The June NASDAQ registered a higher high in overnight action and has held in the upper end of yesterday’s trading range. The June NASDAQ ended yesterday session with a 1.8% gain and the NASDAQ Composite reached its best level since December 2000. Some of the optimism in the NASDAQ came in response to yesterday’s positive US Retail Sales data that showed its best monthly gain in five months. This bolstered tech-related shares and supports the notion of a healthy US consumer. The NASDAQ was also supported by a more than 2.0% gain in the shares of Apple, following an analyst raising the price target for the company toward $700.00. It is also worth pointing out that option trading activity on the CBOE showed a very active put trade during yesterday’s advance. Recent technical action in the June NASDAQ projects a further push toward 2720.00. The short term uptrend pattern supports the bulls, with support at 2653.50.

TODAY’S MARKET IDEAS: The bulls have a number of positives working in their favor, including an improved economic outlook from the Fed, evidence of a recovering US financial system and a “buy the dip” mentality from portfolio managers’. Complacency has increased further as a result, with the CBOE Volatility Index falling to its lowest level since June 2007. While trading volume on the New York Stock Exchange was about 16% above the 30 day moving average yesterday, the trend throughout the 2012 rally has been a concern. Another potential negative comes as insider sales for S&P 500 companies climbed to their highest level since December 2009. While these negatives suggest that the market is due for a corrective break, the short term trend continues to support the bulls until 12,810 comes out in the June E-mini Dow and 1370.40 for the June S&P 500.

Stocks: Benefit from a Surge in Risk-Appetites This Morning

by Dave Hightower on March 8, 2012

Global equity markets are on a sharply higher track during the early morning hours, supported by growing optimism that Greece will be able to pull off its debt swap deal. This optimism has lit a fire under risk appetites, which in turn has sparked a rally in equity and commodity markets. The Japanese Nikkei broke a three-day losing streak overnight with a gain of 2.0%, helped by growing participation for today’s Greek debt swap deal, a weaker yen and positive US sentiment. The major European indices were all up more than 1.0% during the early morning hours and that was accomplished ahead of interest rate policy meetings from both the ECB and Bank of England. In addition to optimism surrounding Greece and their ability to secure a second bailout installment (130 billion Euros) and stave off a disorderly default, markets have also embraced ideas that the US Fed may be considering further quantitative easing measures. The prospect of more easy-money sloshing around the capital markets is seen as a rising tide lifting markets this morning. The US labor market comes into focus this morning, with traders looking for clues ahead of tomorrow’s Non-Farm Payroll data from a report on February job cuts and from weekly initial jobless claims.

S&P 500: The March S&P 500 has taken a higher track this morning, as it goes for a challenge of Tuesday’s high (1366.00). Strong upside showings in Asia, as well as 2.0% gains in European bank shares this morning is expected to carry through into the Wall Street open. Reports of a strong take up for today’s Greek debt swap deal from private investors brings the country a step closer to avoiding a nasty default, and that has fueled a risk-on tone this morning. The US Treasury is expected to recoup some of its investment in AIG today, with the sale of $6 billion in shares. Prices are offered at a slight discount, and that has weighed on AIG shares in pre-market trading. The March E-mini S&P 500 has broken out above yesterday’s inside day trading range, and that offers the bulls camp the early edge. The market faces a ceiling of resistance at 1369.50 to 1377.00.

DOW: The March E-mini Dow traded higher throughout the early morning hours and broke out above yesterday’s inside day trading range. It seems that a positive shift in sentiment, from growing participation for today’s Greek debt swap deal, as well as hints from the Federal Reserve over more quantitative easing, has inspired a move back into Dow components after this week’s break. Shares of Boeing were up 1.0% in early German trade, helped by better than expected profits from its rival EADS. The company forecasted a positive demand outlook for Airbus orders in 2012. The early morning action in the March E-mini Dow favors the bull camp for a further push toward 12,985.

NASDAQ: The March NASDAQ has fully recovered from Tuesday’s slide and stands about 20 points away from contract highs at 2650.00. The index has a couple of positives working in its favor, including fresh buzz surrounding Apple’s new iPad release and an early risk on vibe in outside markets. It appears that the new iPad has garnered excitement from the tech crowd, with the market now looking for confirmation from investors. A number of Asian companies within the Apple supply chain saw strong gains overnight, and that could support shares this morning. The index is also expected to get the latest earnings from Altera, which has warned of softening semiconductor demand for some of its products. Strong overnight gains in the March NASDAQ leave 2650.00 as the next upside stopping point.

TODAY’S MARKET IDEAS: Equity markets benefit from a surge in risk-appetites this morning, fueled by expectations for a favorable result with Greece’s debt swap, indications that the Fed is considering further quantitative easing measures and buzz surrounding Apple’s new iPad. The early drive higher could face a boost in volatility ahead of this morning’s economic calendar, Greek swap deadline this evening and tomorrow’s Non-Farm Payroll report. We would expect the March E-mini Dow and S&P 500 to continue to move higher for a re-test of near-term resistance at 12,985 and 1367.00. Failure to confirm a move above these levels would keep the down trend pattern in tact. Aggressive bears might consider selling strength into resistance, risking a move into new contract highs of 13,042 in the Dow and 1377.00 in the S&P 500. Downside targeting for the March E-mini Dow comes in at 12,600 and 1320.00 for the March S&P 500.

Interest Rates: Markets watching Philly Fed Speech & EU News

by Dave Hightower on February 14, 2012

The Treasury market enters the Tuesday US trade sitting just under the highs of the last four trading sessions. There appears to be a slight shift toward a risk-off vibe in the wake of news that Moody’s downgraded Italy, Spain and Portugal overnight and also because of talk they might also cut the credit ratings of France, Britain and Austria. Countervailing the fresh fears toward the Euro zone are results from a widely followed German ZEW survey, which reached the highest level since April of last year. Perhaps even more importantly, the ZEW suggested that the recent slowdown in German growth “wasn’t likely to last”. However, the markets are likely to have their tone set this morning by an Italian auction of 6 billion Euro worth of debt. It should be noted that other debt yields from the Euro zone this morning were also showing declines and that helped yields decline in the Italian auction this morning! In addition to the European debt auction influences, all eyes are likely to shift back toward the US in the wake of the US retail sales release, which is generally expected to show a modest rise of +0.7 to +0.8% over the prior month. Also due out during the session today, is a private small business index survey, Manufacturing Inventories, and Import & Export prices. The markets will also be presented with two Fed speeches and testimony from the US Treasury Secretary to a Senate Finance Committee on the 2013 US budget. While anxiety toward the Euro zone has generally remained in place, it would seem like the markets quickly discounted the ratings issues overnight and seeing a decline in Italian debt yields, in the Auction this morning, could further tamp down the flight to quality interest in US Treasuries. While the bid to cover ratio of the Italian auction wasn’t as strong as some might have hoped for, the yields did fall and that might be the main take away from the most recent Euro zone debt development. On the other hand, to fully kick up macro economic optimism in the Treasury market this morning, probably requires retail sales readings that meet or exceed expectations. It is also possible that Treasuries will take a portion of their direction from the action in the US equity markets today. Traders should not discount commentary from the Fed later today, as the last FOMC meeting apparently showed some dissent within the ranks of the Fed and therefore the market will probably take note of the early speech from the Philly Fed’s Plosser. So far, the release of the 2013 US Budget hasn’t had a definitive impact on Treasury prices, but that could change today if the Treasury Secretary foments severe bi-partisan fighting.

Stocks: While On Upward Track, Volume Needs to Improve

by Dave Hightower on February 14, 2012

Global equity markets rallied during the early morning hours, supported by more Japan quantitative easing and by better than expected German Sentiment readings. The market overcame a ratings downgrade overnight from Moody’s on Italy, Spain and Portuguese debt and warned of a potential downgrade for the UK. This pressured global indices during the Asian trade but that news was partially offset by the Bank of Japan increasing the size of their asset purchase program by another 10 trillion yen ($130 billion). The added QE boosted shares in export and real estate companies and pushed the Nikkei to a new 3-month closing high. Risk-sentiment received another boost following German ZEW sentiment readings that came in better than expected and climbed to their best level in 10-months. The data provided evidence that the German economy was showing a level of resilience in the face of the European debt crisis. Positive economic data and a favorable result with this morning’s Italian debt auctions injected added confidence into the market. The latest operations by the ECB appear to be working, and have helped reduce borrowing costs for Italy, with their 2-year government debt costs falling by 140 basis points from the January auction. US markets continue to work through President Obama’s 2013 budget proposal that boosts revenues by $1.3 trillion by raising taxes on the wealthy, such as taxing dividend proceeds as ordinary income. The US economic calendar picks up this morning, with January retail sales expected to show an increase on the month from a boost in small vehicle sales.

S&P 500: March S&P 500 continues to coil inside of a tight 10-point closing range over the last 7-sessions. The coiling action in the index suggests a near-term expansion in volatility which in turn may have an upward bias. The early morning tone in the March S&P 500 also supports the bull case following better than expected confidence readings in Germany and expectations for a boost in January US retail sales. Gains during Monday’s session came from strength in large-cap tech shares, such as Apple’s advance above $500.00 to a new record high. With a little more than 71.0% of S&P 500 companies reporting earnings this quarter, 64% of them have beaten estimates, which is slightly below the recent quarterly average. The price action in the March S&P 500 has stiff overhead resistance coming in at 1352.30 as that level limit recent upside tests last Thursday and again yesterday. Next resistance comes in at the July high of 1354.50.

DOW: The March E-mini Dow is on a higher track this morning, helped in part by better than expected German sentiment readings. Shares of Boeing were higher during the early morning hours and could get some added play in today’s session after it signed a $22 billion deal with Indonesia’s Lion Air. Additionally, shares of Cisco saw active call option activity (April 22 calls) during yesterday’s trade, and that reflects a level of optimism that the Dow component could make a push to its February 2011 high. The short-term trend in the March E-mini Dow turned negative during Friday’s decline. That bias remains intact until the index can overtake swing high resistance up at 12,894. Swing low support in the March E-mini Dow comes in at 12,704.

NASDAQ: The March NASDAQ climbed into another new contract high this morning and extended its 2012 gain to 13.2%. In addition to expectations for a positive January retail sales report this morning, the index has also garnered support from a rally in the shares of Apple into new all-time highs and early morning gains in Google. However, there does seem to be some nonbelievers in Apple’s gains, highlighted by an active put option trade in weekly $500, $495, $490 and $485 strikes. European and US regulators approved Google’s $12.5 billion purchase of Motorola Mobility, and that lifted the company’s shares by 0.7% in early morning action. The trend in the March NASDAQ continues to support the bull camp, with support at 2551.75. Upside targeting today stands at 2578.00.

TODAY’S MARKET IDEAS: Global equity markets are on a higher track this morning, supported by more central bank intervention, favorable sentiment readings in Germany and hopes for a positive sweep in this morning’s US economic data. It is worth pointing out that trading volume on the New York Stock Exchange yesterday was the lowest for 2012. It is becoming more important that the volume improves as prices break out into new ground or face a downside correction from extremely overbought territory. A potential sticking point for the bull camp comes as EU leaders work on the Greek bailout and debt restructuring package ahead of Wednesday’s meeting. The short term trends in the March E-mini Dow and S&P 500 turned negative with Friday’s downdraft, with resistance coming in at last week’s high. Aggressive bears might consider fading early strength in the March S&P 500 to 1354.30, playing for a quick drop back to 1342.00. Risk 12 points from entry.

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