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Stocks: Quad-Witching and Greece Situation Enhances Volatility

by Dave Hightower on June 17, 2011

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Global equity markets are once again on a lower track this morning as they continue to grapple with the Greek debt situation and quadruple-witching option expiration. The Greek debt problem continues to saddle risk appetites, which was highlighted by a plunge in crude oil prices to their lowest levels since late January overnight. The growing unease helped to pressure China’s Shanghai composite index to its lowest level since October. There was talk overnight of a potential hike in Chinese interest rates again over the weekend, and that could be another factor working against the bulls this morning. The Japanese Nikkei was also lower and fell to its lowest levels since March 29th. Not only is the Greek debt crisis worrying overseas investors, there remains concerns over a resolution to the US debt ceiling debate. European shares were lower at the same time their volatility index reached a new 3-month high, which reflects an ongoing level of fear and diminished buying interest. While there seemed to be a minor lift in US indices following Thursday’s favorable Initial Jobless Claims data and a surprise jump in Building Permits, the ongoing Greek debt situation continues to undermine market sentiment. This morning’s US economic calendar will show the latest on June Consumer Sentiment and June Leading Economic Indicators

S&P 500: The September S&P 500 traded lower during the initial morning hours, but it has since reversed course and registered a higher high on the session. Perhaps some of the added lift this morning comes from fresh merger news, with Capital One planning to buy ING’s US retail banking unit for $9 billion in cash and stock. Meanwhile, the CBOE Volatility index was up by more than 6.0% yesterday and reached its highest level since March 16th, and that action suggests there is still a high level of fear in the market over a potential Greek debt default. Banks stocks remain under pressure on concerns that a potential Greek debt default could lead to greater write-offs that may have them in search of added capital to boost balance sheets. While it is possible for an extended corrective rally this morning, the short term trend favors the bear camp.

DOW: The September E-mini Dow made a higher high overnight as it attempts to build on Thursday’s late day gains. Banks stocks within the index continue to struggle with their exposure levels to Greek debt, and that remains a drag on the Index. Bank of America made the news wires late Thursday evening after its CIO did not know the extent of damaging documents compromised through recent Wikileaks. Overnight weakness in the crude oil market could also be a factor that pressures energy related shares within the Dow. In the meantime, the September E-mini Dow has turned the tide during the early morning hours in favor of the bulls, with a move above downtrend channel resistance of 11,940. Next upside resistance comes in at this week’s high of 12,050.

NASDAQ: The September NASDAQ began the overnight trade on a weaker track and stood about 8% below the early June high. Some of that weakness comes from disappointing quarterly results from Research in Motion late Thursday, which showed first quarter profits down by more than 9.0% compared to year ago levels. The company also lowered forward guidance and announced upcoming layoffs, which pressured its shares lower by over 14% in the overnight action. The tech sector may also get some play from a multi-billion dollar lawsuit, as Oracle goes after Google over patent infringements, and that casts another negative for tech related shares this morning. The September NASDAQ remains in a downtrend pattern, with support this morning coming in at 2175.00. It probably takes a rally back above 2213.00 to begin to turn the charts in favor of the bulls.

TODAY’S MARKET IDEAS: Today’s session represents quadruple-witching option expiration that is likely to bring about added volatility, especially after an 8.4% break in the S&P 500 off of the May high. Resistance in the September E-mini Dow comes in at 12,000, with a swing high above at 12,050.

Stocks: Fundamental and Technical Tracks Look to Remain Down

by Dave Hightower on June 3, 2011

The stock market has tried to throw off the slowing mentality this week but the flow of weak data has been fairly consistent. The market seems to be of a mind, that last month’s bulge in energy prices wounded the US consumer and that the numbers this morning will reflect the headwinds facing the recovery. With the markets also seeing fresh legal action against a major US investment bank, slack retail sales views, uncertainty off the US budget situation and residual fears off the Greek debt problems, there seems to be at least 3 or 4 bearish themes populating the headline flow. Therefore investors could take a large measure of direction from the payroll readings this morning, as there has to be some hope of growth and momentum, to decide to weather the risk presented in the current marketplace. With Moody’s yesterday indicating that they might cut ratings on a number of US Banks and the markets coming away from this week’s trade with fresh concerns for the US housing sector, the market might need to see a patently weak payroll reading and a sharp range down move on the charts to fully adjust stock prices for the new slower reality.

S&P 500: While the June S&P has managed to hold above the Thursday low in the early Friday morning US action, the technical picture from the charts doesn’t look that encouraging. Some traders see a developing pattern of lower highs and lower lows and given the flow of macro economic and political news this week, that pattern seems to be justified from a fundamental perspective. Some traders aren’t ready to call for a key low in the S&P until there is an exhaustion failure on the charts, with a reversal within the same session. In fact, the odds of a temporary test of the sub 1300 level looks possible today in the aftermath of the payroll release.

DOW: While the June Mini Dow initially managed to respect the prior session’s low in the early Friday trade, a recent pattern of lower lows has settled onto the charts. With a ratings threat against some US banks, the trade accepting of slowing activity and recent damage on the charts, the bear camp would seem to hold most of the cards to start the last trading day of the week. Big cap stocks might also be somewhat undermined by ideas that China might be poised to raise interest rates again. Down trend channel support in the June Mini Dow is seen at 12,169 today, with that level falling down to 12,161 on Monday.

NASDAQ: With an initial slide in the early action today, the bear camp this morning probably feels like it has the technical picture working in its favor this morning. With Walmart apparently seeing the need to revise its strategy to win back customers and the market recently presented with some poor retailing numbers this week, it is clear that investors are accepting of the idea that high energy prices have indeed dampened activity in the US economy. Therefore the non farm payroll readings this morning might take on a significant role in the market today, especially given the initial attempt to push the NASDAQ down overnight. Some traders see a critical pivot point at 2317.00 this morning but to turn the tide back in favor of the bull camp might require a rise back above 2327.00.

TODAY’S MARKET IDEAS: The fundamental and technical tracks look to remain down with the market seeking fair valuation. With growth suspect and the end of easing anticipated at the end of the month, it could take some dovish commentary from key Fed officials to actually shut off the downward track in equity prices. In fact, when one adds in the budget mess in Washington and the tightening bias from China, a number of roads seem to lead to even lower equity prices ahead.

Stocks: Global Markets Under Pressure

by Dave Hightower on May 12, 2011

Global equity markets are on the defensive once again during the initial morning hours as yesterday’s commodity liquidation trade continued. Asian shares were lower across the board, fueled in part by concerns over China’s next step with monetary policy and whether the country’s growth story may falter. Weakness in commodity markets, like copper reaching its lowest level since December and silver’s 14.1% slide from Tuesday’s highs have pressured mining related shares in European trade again this morning. Adding to the weak tone was disappointing European Industrial Production data that showed a decline in March compared to expectations for a modest gain. There also remained concerns over Greek debt restructuring as well as fresh warnings from the IMF that urged the ECB to hold off on hiking interest rates and calling for more reform to limit the debt crisis from spreading. Some analysts said that weakness across most asset classes left no place to hide and prompted many to cut risky positions, which has further contributed to the liquidation trade.

S&P 500: The June S&P continued to decline from Wednesday’s negative reversal and ongoing liquidation trade during the early morning hours. This puts the index closer to the May 5th low of 1325.50 and makes that level a likely downside testing area this morning. In addition to broad weakness in commodity related names, financial sector shares were also under pressure. While there was news regarding AIG’s debt offering of around $9 billion, it was nearly half previous estimates and makes it more difficult for the Treasury to exit their position (bailout funds) with a profit. The bears have the edge to start this morning with the key downside pivot level of 1325.50. Clear penetration below this level would bring the 1300.00 area back into focus.

DOW: The June E-mini Dow fell to a new 5 session low this morning and has closed in on last week’s low of 12,467 in the process. In addition to weakness in energy and industrial related names, the Dow came under more downside pressure following disappointing guidance from Cisco Wednesday afternoon. Cisco reported an 18% drop in third quarter profits and lowered its sales and growth prospects below street expectations going forward, and that seemed to add to the prevailing bearish tone. Wednesday’s bearish wide range reversal and downside follow through this morning provide the bear camp with the early advantage. The June E-mini Dow has support below at last week’s low of 12,467, which corresponds with a 50% retracement level from the late April rally at 12,454.

NASDAQ: The June NASDAQ has fallen within 10 points of its May lows of 2363.50 during the early morning hours. While news that Intel planned to hike their quarterly dividend by 16% may have normally been viewed as a positive, worries over economic growth and sustainability of recent gains in the NASDAQ inspired profit-taking. Perhaps economic data this morning on April Retail Sales provides NASDAQ shares with something positive, but for now sentiment favors the bears. Downside resistance in the June NASDAQ lies at 2363.50.

TODAY’S MARKET IDEAS: US equity markets face a weak outside tone driven by an ongoing liquidation trade in risk assets. The major US indexes are approaching a key support level provided by last week’s low and further penetration below that level could set the stage for an even deeper slide. At the same time, it probably takes a disappointing sweep in this morning’s US economic data on April Retail Sales, Producer Prices and weekly Jobless Claims to fuel a decline worthy of more downside momentum. There were reports that China hiked their bank reserve requirement ratio, which could be another negative blow to the commodity trade that manifests itself in weaker related shares this morning. Key pivot levels below in the June S&P 500 come in at 1325.50 and 12,467 in the June E-mini Dow.

Stocks: Embracing the Postives and Shrugging Off the Negatives

by Dave Hightower on April 29, 2011

The final trading day of April presents rather flat equity markets, with a low volume trade as markets in Japan were closed for the May Day holiday and London markets closed for the royal wedding. European shares were under modest pressure after a 6 day winning streak that has likely fostered a round of profit taking. While many companies in the country in the Euro area have posted better than expected earnings, there is some concern after others lowered their future outlooks, which suggests a more challenging environment to come. This view was also highlighted by this morning’s economic data that showed Euro zone inflation coming in above target levels and sentiment falling below estimates. Retail sales data in Germany showed an unexpected decline, indicating that consumers there are beginning to feel the effects of higher inflation. Meanwhile, world equity markets key in on a plunging US dollar that weakened further after US GDP data showed slower than expected 1st quarter growth. While sentiment for the greenback has turned decisively negative, there is a sense that the US will maintain accommodative policy for the foreseeable future, and that continues to foster movement of funds into alternative assets. This morning’s flow of US economic data will present a couple of sentiment metrics, including the Chicago Purchasing Manager’s report and April Consumer Sentiment. Equities will also get the latest results this morning from Caterpillar, Chevron and Merck.

S&P 500: The June S&P 500 has experienced an upside breakout from recent congestion that has gone on to register new contract highs. Some technicians note that the breakout has come on a 72,000 contract jump in open interest during the first 3-days of this week, which is viewed as supportive. The upside gains have been supported by better than expected earnings and upwardly revised forward outlooks. Overnight earnings from French energy giant Total showed a surge in quarterly profits that topped estimates, and that coupled with their bid for US Sun Power could be a factor that supports energy shares this morning. Meanwhile, there appears to be some concerns that the June S&P 500 has become short-term overbought during the push higher and maybe in need of a short term pullback. There is short term support below at 1347.00.

DOW: The June E-mini Dow spent most of the overnight and early morning trade around unchanged levels after making new contract highs late Thursday. Shares of the Dow Transports closed at a new all time record high and were helped by solid gains in rail stocks. Perhaps the lack of upside follow through comes ahead of this morning’s earnings results from Caterpillar. While the company is expected to report a surge in 1st quarter profits, the market could be looking for even better results and an optimistic earnings outlook. Additionally, Chevron and Merck are expected to release their latest results before the Wall Street opening, and that could be a force that dictates the early tone. The June E-mini Dow has closed higher during 6 of the last 7 sessions and prices are up over 5.5% since last week’s low, and that might indicate a market vulnerable for a near term set back. The short term trend continues to favor the bull camp, with key support below at 12,609.

NASDAQ: Shares of the NASDAQ 100 have been on a tear of late, with a 7.3% rally in the June NASDAQ from last week’s low to yesterday’s high. Despite the upside surge into new contract highs, prices showed some negative reversal action late in the session Thursday. While Microsoft beat consensus earnings estimates, sales of their key Windows product declined. The soft sales exerted downside pressure on its shares overnight. It is also possible that a surprise cut to Research in Motion’s 1st quarter outlook, on fewer BlackBerry shipments, could provide a minor negative headwind for the NASDAQ this morning. The chart action in the June NASDAQ has unfolded in a three wave advance from the March 17th low, and that provides the chance for more upside targeting 2422.50. Key swing support below stands at 2387.25.

TODAY’S MARKET IDEAS: US equity markets have embraced better than expected quarterly results, which have powered the major indexes to new contract highs. The market is clearly embracing the positives and managed to shrug off disappointing GDP data and Initial Jobless Claims Thursday. While some say that data is history and that the market is looking forward, it does raises questions to how profitability might be going forward. Views that the Fed will continue to support easy monetary policy, as well as expectations for ongoing active inflows coming into US equity markets would seem to suggest that the bulls have the wind at their backs. While it is possible for a near term setback after recent gains, the overall trend continues to support the bull case.

Stocks: Rumors of China Monetary Tightening and Earnings Uncertainty Pressure

by Dave Hightower on April 14, 2011

Global equity markets traded lower during the initial morning hours, pressured by the prospect of rising Chinese inflation and lingering uncertainty over the current earnings cycle. Shares in Japan closed fractionally higher despite sentiment readings that showed the sharpest fall on record and indicated that about 60% of companies in the country were affected by the March earthquake. Global markets have also keyed in on unofficial reports pointing to another jump in Chinese inflation in March, and that has fostered concerns of further policy tightening by their central bank. The prospect of further hikes in their Required Reserve Ratio (RRR) to tame rising inflation was seen as a force likely to reduce demand. The potential for reduced demand from China pressured shares in Europe, as well as England, despite news of a new record IPO from Glencore ($12.1 billion). US markets appear to have a keen eye on the ensuing budget battle in Washington and at the same time appear a little concerned over Q1 earnings. The US Dollar index slid to its lowest level since December 2009 on the prospect of loose US monetary policy, but that seemed to offer little support to risk assets in the US. This morning’s US economic calendar will provide a fresh look on the labor market with Initial Weekly Jobless Claims, but the trade will also get a fresh reading on inflation from the March Producer Price report.

S&P 500: The June S&P traded lower during the initial morning hours and broke down to their lowest levels since March 29th. Ideas that Chinese inflation inched higher last month has increased the odds of more tightening by their central bank, and that could limit the demand outlook. While Wednesday’s data flow on Retail Sales marked their 9th consecutive monthly gain, it did come in below expectations and appears to be a factor that prompted some economist to lower their expectations for US Q1 GDP. Meanwhile, the S&P 500 garnered a level of support with utility stocks following Obama’s speech on the deficit, as investors raised their defensive bets. The June S&P 500 is off to a weak start this morning and appears ready for a challenge of the 1300.00 level. If this level fails to contain weakness, there is the potential for a deeper decline toward 1293.00.

DOW: The June E-mini Dow extended its recent slide this morning as it broke down to fresh 12-day lows. The index experienced a volatile trade yesterday that initially found support from favorable earnings from JP Morgan, but later comments from their CEO over near term dividend prospects seemed to weigh. Analysts began to weigh in on earnings outlooks for other banks within the index, suggesting that bank revenues remain sluggish. It is also possible that early weakness this morning, from ideas of slower demand out of China, has pressured commodity prices, and that could be a factor that pressures industrial shares within the index. The June E-mini Dow broke down below short term congestion this morning, which gives the bears the early edge and the potential for a further decline targeting 12,075.

NASDAQ: After making a higher high yesterday, the June NASDAQ has reversed those gains and looks poised for a challenge of support at 2285.00 this morning. Wednesday’s upside performance was helped by a favorable analyst outlook on the shares of EMC, with earnings prospects that could come in above street estimates this quarter. Additionally, a favorable earnings outlook from Riverbed Technology provided further support for the tech sector. However, it seems that Tech related shares were weaker during the European trade this morning, following concerns from Ericsson regarding supply disruptions from the Japanese earthquake. There could also be some concerns ahead of Google’s earnings report later this afternoon, especially with a new CEO at the helm and after shares have fallen 8% in 2011. There is a shelf of support below in the June NASDAQ at 2285.00 and penetration below that level could target more downside toward 2250.00.

TODAY’S MARKET IDEAS: US equity markets appear troubled by the threat of further monetary tightening in China and uncertainty surrounding first quarter earnings. These concerns have the potential for a greater markdown phase after US indices factored in a strong earnings season and easy-money stance by the Fed in recent weeks. This week’s earnings from Alcoa and JP Morgan have come in better than street expectations, but have provided very little support for the market, and might indicate a level of disappointment from investors. The June S&P 500 and June E-mini Dow have challenged key support levels this morning, and should those levels give way, it has the potential for more weakness ahead.

Stocks: Bulls Dealing With China Hike & Portugal Debt Downgrade

by Dave Hightower on April 5, 2011

Global equity markets are on a slightly lower track Tuesday morning despite new M&A activity and they also seemed to come under added pressure after the Bank of China raised short-term interest rates. Early morning reports indicated that the PBOC hiked rates for the second time this year, as they turn up the fight against inflation. Shares of the Japanese Nikkei were down nearly 1.0% on ideas that the country’s Q2 GDP could be down over 2.5%. It also seemed that weakness in the shares of troubled Tokyo Power fell to an all time low as the company struggles to get a handle on the recent nuclear disaster. European shares were also lower to start despite better than expected Euro zone PMI data that showed indications of inflation cutting into corporate profits. It is possible that another downgrade on Portugal’s Sovereign debt rating this morning aroused fresh concerns over debt challenges in the Euro region and that in turn hampered risk appetites. Meanwhile, comments Monday evening from Fed Chairman Bernanke seemed to play down the threat of inflation in the US as he still viewed them as “transitory”, but since he expressed concern over high crude oil prices, that could begin to weigh on risk appetites. The US budget battle is expected to heat up in the US today, as Treasury secretary Geithner calls for a higher US Debt ceiling and as President Obama urges lawmakers to hash out a deal to avoid a government shutdown this week. The looming budget debate seemed to have little effect on recent stock market action, and that could become a factor that plays a more instrumental role in the days ahead. This morning’s US economic calendar will get the latest on March ISM non-Manufacturing, followed by the latest FOMC meeting minutes, which are expected to be closely watched for further clues on the future course for US interest rates.

S&P 500: Some analysts forecast Q2 earnings to surpass the 2007 peak later this year, and that has been instrumental in fueling an impressive rebound from the March 2011 low. Meanwhile, new deal activity this morning involving Texas Instrument’s over $6 billion bid for National Semiconductor has so far failed to contain overnight weakness in the S&P 500. It seems that the impressive 30-point rally off of last week’s lows may have become overbought, at the same time the index struggles to overcome resistance provided by the February highs. The failed attempt to break above that 1337.50 level suggests that the index will likely challenge March 30th gap support (1319.80 to 1317.00). Clearance below this support zone would give the bear camp short term control.

DOW: The June E-mini Dow is on a slightly lower track during the initial morning hours after breeching Monday’s high overnight. Trading volumes remain below average as the index tries to register a close above the February highs. The Dow managed to garner some support during Monday’s session after comments from General Electric’s CEO defended the nuclear industry. However, those modest gains were limited by significant weakness and active put option activity in Intel. Weakness in the June E-mini Dow this morning has challenged uptrend channel support off of the March 23rd low. There is short term support that lies at 12,285 and then at 12,250. For now it appears that the bull resolve is being tested and could turn in favor of the bears on penetration below 12,250.

NASDAQ: The June NASDAQ appears to be under pressure again this morning and has broken down to the lowest level since March 29th. The weakness within the NASDAQ seemed to bubble up during Monday’s session, and that was further supported by Semiconductor Industry Association data that showed three month average sales were down over 1.0% in February. There is also talk that the NASDAQ is planning to adjust the weighting within the NASDAQ 100 by reducing Apple’s current weighting of 20% of the index. This is expected to pressure shares of Apple in the near term and ahead of the actual index change. This morning’s sell-off in the June NASDAQ has confirmed a break below uptrend channel support and the recent swing low of 2324.00, and that has put the short term technical edge in favor of the bear camp.

TODAY’S MARKET IDEAS: US equity markets have come under pressure during the overnight and early morning hours, and that weakness comes in the face of first quarter earnings optimism and fresh merger and acquisition activity. It is very possible that the recent advance from the March lows has become short term overextended and overbought and in need of a correction to work off the excess. Trading volumes remain light at the same time the level of complacency in the market remains at elevated levels. It is also possible that this morning move by the People’s Bank of China to hike interest rates could provide an added wrinkle to the bull case. While the NASDAQ has penetrated below short term support and turned in favor of the bears, the Dow Jones has so far been unable to break below 12,550 and the same for the S&P 500′s support at 1319.50.

Stocks: Seem to Embrace the Few Positives and Discount Negative Headwinds

by Dave Hightower on March 25, 2011

Global equity markets continued to climb overnight, supported by earnings optimism and month and quarter-end rebalancing that helped to offset negative headwinds from the Euro zone, turmoil in the Middle East and the Japanese nuclear disaster. Shares in Japan were up over 1.0% on signs of active foreign investment. Some analysts note that nearly 60% of big board shares in Japan were trading below their book value and the Finance Ministry estimated around $11 billion in foreign inflows coming into the market last week. It also seems that world equity markets have discounted a fresh downgrade of Portugal’s sovereign debt as well as the ongoing budget/bailout battle taking place in the Euro zone. Ratings agency S&P slashed Portugal’s credit rating two notches and noted that another downgrade was possible depending on how the EU bailout fund talks go this weekend. It also seems that recent optimism surrounding corporate earnings, as well as active fund buying interest of the quarter’s top performing stocks has helped equity markets shrug off outside market uncertainty. Additionally, risk appetites appear to be on the rise, which is highlighted by continued weakness in the US Dollar. Looking ahead, equity markets will get a final look at US fourth-quarter GDP, which is expected to show a modest improvement from its previous reading of 2.8%. Another factor that will be closely watched is this morning’s Sentiment reading after an earlier report showed a drop to fresh 5-month lows on higher fuel costs.

S&P 500: With active fund buying interest positive news from recent corporate earnings news, the S&P 500 stands about 70 points off of last week’s downdraft. While some traders view extreme put/call ratios, weakness in the CBOE Volatility Index and below average trading volume during the advance with some concern, others suggest that much of the outside market uncertainty has already been priced into the market. It also seems that corporate results from BestBuy, which surpassed street estimates, have helped to fuel hopes that consumer spending was on the rebound and that lifted the shares of consumer discretionary companies this week. Price action the June S&P 500 showed a measure of strength, with its move beyond the March 11th high at 1303.70, and that leaves the next upside target up at 1326.30.

DOW: The June E-mini Dow continued to rally during the initial morning hours today and in the process reached its best level since March 9th. It appears that active fund buying interest in front of quarter-end has added to gains in energy related shares of Chevron and Exxon Mobil. While some technicians note caution over the below average trading volumes during the 720 point rally from last week’s low, others suggest that the 7.0% correction from the February highs to the March low was deep enough to relieve overbought conditions. It is also possible that recent gains in a number of physical commodity markets have inspired a profitable environment for industrial related companies within the index. The June E-mini Dow is off to a positive tilt once again this morning and has near term targeting at 12,190, and then at the March high of 12,220.

NASDAQ: The June NASDAQ is also on positive footing to start this morning with a breakout to its best levels in 12-sessions. The bulls seem to be emboldened by the impressive 6.8% rally from last week’s lows, and that coupled with a positive technology spending outlook, provides them with the early advantage. The higher tech sector spending outlook was highlighted by Oracle after yesterday’s close, as that company projected a notable increase in new software sales for the coming quarter. Perhaps some of that optimism was limited by Research in Motion’s latest quarterly results that pointed to a weaker than expected outlook, which pressured its shares down 10.0% overnight. Near term resistance in the June NASDAQ lies at 2445.00.

TODAY’S MARKET IDEAS: US equity markets are showing a bullish bias with positive price action and their ability to embrace strands of positive news and discount a number of seemingly negative headwinds. Perhaps end of quarter window dressing is also providing an upside tilt that has overcome a series of disappointing US economic data, higher energy costs and Euro zone credit woes. For now the bull camp has control and appears to have their sights set on a challenge of the March highs (1326.30 in the June S&P 500 and 12,220 in the June E-mini Dow). This morning’s final fourth quarter GDP reading and March Sentiment figures present headline risks to the recent advance and probably need to come in short of estimates to derail the bull resolve.

Stocks: US Up Slightly Overnight; Range Bound

by Dave Hightower on March 9, 2011

Global equity markets are slightly higher to start this morning, with solid upside performances in Asia. The Chinese Shanghai index seemed to benefit from talk of OPEC potentially boosting crude output, which helped the index post it’s fourth consecutive up day to close above the 3,000 level. Meanwhile, shares in Europe hugged the flat line on reemerging debt fears and anxiety in front of the Portuguese debt auction. The final yield on the Portuguese 2-year bond auction was 5.993%, up over 190 basis points from the previous auction. The much higher yields suggests that the Euro Zone debt situation maybe deteriorating again and that could become a factor that detracts from recent optimism and from the rate hike talk. The focal point for the markets remains the delicate situation in the North African and the Middle East region, especially ahead of planned protests, including the “Day of Rage” in Saudi Arabia on Friday. As it stands now, UN sanctions on Libya and proposals for a no-fly zone continue to highlight the uncertainty in the region. The threat of higher energy costs on economic recovery prospects and forward earnings potential keeps the equity market in a holding pattern. Looking forward, US equity markets are likely to keep a close watch on opening statements for the insider trading case involving the Galleon hedge fund later in today’s session.

S&P 500: The March S&P 500 has a positive tilt to begin this morning, as it trades in the upper portion of this week’s trading range. So far, the S&P 500 has been able to shake off news from Texas Instruments late yesterday indicating that challenges with one of its chips is likely to weigh on upcoming earnings. It appears that the weaker crude oil pricing and talk from OPEC that supplies remain adequate, provide a level of support under the market to start. The March S&P 500 registered an inside day trading range Tuesday and the overnight and early morning action continues to coil within that range. This leaves a defined zone between 1303.00 and 1334.00 for the market to overcome and point to the next wave direction.

DOW: The March E-mini Dow traded higher during the early morning hours, as it continued to build on Tuesday’s gains. It seemed that a positive earnings outlook from Bank of America during yesterday’s session helped boost the index as well as its shares by over 4.0%. The positive result was also supportive to other bank related shares in the index including American Express and JP Morgan. Despite the positive action, the market remains trapped inside a trading range between 12,288 and 12,027 and in search of a catalyst to drive prices outside of that range. There is a slightly bullish tilt to start this morning, with near term resistance coming in at 12,260.

NASDAQ: The March NASDAQ traded slightly higher overnight, with prices spending most of the evening and early morning hours in the upper portion of Tuesday’s trade. One of the factors that seemed to limit gains yesterday was dismal action in the shares of Netflix, which was sold heavily after Warner Brothers indicated that it would make some of its films available on Facebook. In the meantime, technical traders suggest that the market remains range bound inside the 2379.00 to 2306.00 zone and therefore the market needs a decisive break out of that zone to point out the next probable direction. The early bias favors the bull camp, with a further advance above 2344.00 favoring an advance toward 2365.00.

TODAY’S MARKET IDEAS: The major US indices are on a slightly higher track during the early morning hours, as they continue to dance inside of a trading range. The volume characteristics over the last three weeks suggests that the trading range is one of distribution, highlighted by with declining volume on up days and increased volume on down days. While some players suggest that Middle East tensions maybe ebbing, talk of greater OPEC crude production and weaker crude oil pricing failed to inspire a run out of the trading range. The bulls have a slight edge to start and need to overcome the 1327.00 area in the March S&P 500 and 12,260 in the March Dow to reinvigorate the bull drive. A price breakdown below their respective trading range lows would favor a deeper downdraft targeting 1285.00 in the March S&P 500 and 11,875 in the March E-mini Dow.

Stocks: Disappointing Retail Sales or US Housing Could Pressure

by Dave Hightower on February 15, 2011

World equity markets maintained tight trading ranges overnight and a flat trade, as they reconciled the latest inflation data from China and the UK. The closely watched inflation gauge out of China came in slightly under expectations, but continued to show signs of price pressures that are likely to keep their central bank with a tightening bias. Meanwhile, strong growth in China was supportive to fourth-quarter GDP data out of the Eurozone, but the headline number matched third quarter rates. Inflation data out of the UK came in nearly double the size of the BOE’s target rate, which seemed to reignite ideas of tightening in the country. There was also a report out from a major global bank earlier this morning that noted the appeal of developed market economies, as emerging market inflation, along with the threat of higher interest rates could limit upside potential. US budget talks continue, as Obama’s latest plan meets opposition from House Republicans who want greater spending cuts. While clean energy companies appear to have the most to gain from the proposed plan, major drug makers face increased competition from generic products. The US economic calendar picks up this morning with the latest January Retail Sales data that is expected to show a slight up tick from December levels, followed by January Import and Export Prices, December Business Inventories and the February Housing Market Index. Technology bellwether, Dell reports their latest quarterly results after the close today, which are expected to show a 32% gain from year ago levels.

S&P 500: Shares of the March S&P spent most of early morning trade waffling around unchanged levels, as they digest Monday’s late-day sell-off. However, it is possible that the index garners modest upside support from the potential merger between Deutsche Boerse and the New York Stock Exchange, which is expected to be finalized today. Another potentially supportive factor this morning comes from General Motors, with its plans to increase the number of models for sale in China in an attempt to expand its market share. Meanwhile, some traders indicate that the March S&P 500 has doubled in value from the April 2009 lows of 666 (1332.00), which could become a pivot level in the session ahead. The short term trend continues to favor the bull camp with downside support below at 1322.00.

DOW: The March E-mini Dow established a lower low during the early evening hours and has since recovered near the highs of the session. While the index established another new contract high during Monday’s session, some traders expressed concern over the light trading volumes and lack of upside participation within the Dow Transports index. This morning’s US Retail Sales data is expected to be a closely watched data point, especially after recent weakness in the shares of Walmart. Meanwhile, shares of index component Merck, were also seen as a drag during Monday’s session on the prospect of increased generic-drug competition from Obama’s budget proposal. The March E-mini Dow has trendline resistance above today at 12,270, with short term support below at 12,180 and 12,130.

NASDAQ: The March NASDAQ remained inside an extremely tight trading range after the index reached new contract highs Monday. There appears to be concerns over the weak volume levels during the latest rally, which is seen as a divergent indicator that has failed to confirm the charge higher. It is likely that further delays with the Sanofi-Aventis and Genzyme merger has become a bit of a drag as both companies continue to hash out details on a final price.

TODAY’S MARKET IDEAS: The major US indices reached new contract highs Monday in the face of sluggish volume, which has become a concern for the bull camp and provides another indication of a market rally that could be running out of steam. However, it appears that recent declines have been met with eager buyers, and that remains a bullish factor in the short term. This morning’s active pace of economic data presents a challenge for the major indices, and disappointment from Retail Sales or US Housing has the potential to pressure the prices down to short term support levels: 1322.00 in the March S&P 500, 12,130 in the E-mini Dow.

Stocks Ready for a Setback?

by Dave Hightower on January 24, 2011

Below is an excerpt from The Hightower Report’s most recent Newsletter. To receive access to this story, with trade strategies, and our daily coverage of 16 markets, visit futures-research.com for your free 2 week trial!

While US economic data over the last two months have shown signs of improvement, there are a number of factors that suggest that current equity prices may have become a bit rich and that the market is ripe for a setback. US economic data showed considerable improvement in late 2010, and that was instrumental in driving the S&P 500 up more than 11% off the November lows. Meanwhile, the optimism seemed to feed on itself and prompt several large Wall Street banks to raise their 2011 US growth estimates, as well as their upside price targets for the S&P 500, with some estimates calling for equities to appreciate an additional 20% in 2011. There appear to be a number of factors behind the positive trend in economic readings, including massive and unprecedented government interventions. During the 4th quarter alone, the US Fed embarked on a second round of quantitative easing worth $600 billion, and Washington approved the extension of the Bush era tax cuts, worth an estimated $900 billion. Easy monetary conditions in the face of improving growth prospects have reinvigorated inflationary fears, as evidenced by the resurgence in a number of physical commodity markets to multi-year highs. While there remain concerns over how to pay for all of these stimulative measures, it appears that the prospect of limitless US government spending, along with ideas that Washington will do everything in its power to engineer a financial recovery, has escalated inflation fears as well as risk taking.

Weekly Nearby S&P 500 However, there are indications that growth expectations are moderating, which could limit the outlook in the US and reduce equity market valuations. Many emerging market nations like China and India have implemented rounds of monetary tightening in an attempt to rein in growth and inflation. While some of these maneuvers have already been factored into the market, the threat of reduced growth in these nations could have drastic effects in the US. Meanwhile, the growth in US debt is confronting Congress with the issue of raising the US debt ceiling by the end Q1 2011. With new leadership in the Senate, any increase in the US credit line is likely going to come with reductions in government spending, which raises additional concerns over reduced US growth. Some states have begun to address the spending shortfall, with Illinois hiking tax rates that are likely to slow output by $6.5 billion this year and California discussing spending cuts in the neighborhood of $12 billion.

Weekly Volatility Index (VIX) Given the economic uncertainties facing the equity market today, a number of sentiment readings appear overextended and hint at a near term correction at a minimum. A recent survey from Investor Intelligence showed the percentage of bullish market participants climbed to 58.8% in December, which corresponded to the equity market peak in 2007. It almost seems that markets has factored in a remedy to all US economic ailments and has become extremely complacent, evidenced by an extremely low CBOE VIX Index that bounced along the bottom of the range of the last seven years. Finally, the market is technically overbought territory, with a number of momentum indicators that have failed to confirm the higher index pricing.

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