August 24th, 2012
in Gary's blogging
Closing Market Commentary For 08-24-2012
Low volume and the HFT crowd melted the markets up this afternoon. I was expecting the averages to melt down towards the lows first, but that is what low volume markets are all about. Total confusion, lack of direction and small insignificant movements when you consider the big picture. You can't trade these markets long or short as it is impossible to tell which way Mr. Market will eventually take you. If you are in you stay in. If you cashed out prior to this mess, then you stay out. Doom and gloom mixed in with Rose's and candy is where we are at right now.
Today's flat, but green, market suggests that today could be considered normal after several days down it is only right to have an up day. The question, of course, is this the reversal we have seen before or just a pause before descending further. It could be the algo computers dropped the markets too far yesterday and needed to 'correct' today or it could all still mean absolutely nothing and we are back to guessing. Probably guessing.
Actually, I think it has a lot to do with the German High Courts constitutional decision concerning Merkel's decision to help the EU by transferring power to Brussels. At any rate I suspect next week will be more of the same as we await a High Court decision on September 12th.
Bloomberg has run a story, citing two anonymous central bank officials, stating the ECB may not be ready to finalize its plan to buy government bonds at the September 6th meeting.
JPMorgan's European economists note that the story cites two reasons for this: (a) The Governing Council wish to wait until they have seen the German constitutional court ruling on September 12th before proceeding; and (b) The programme is still being worked on staff may not be able to finalize it by then.
Critically, JPM, like us, regard (a) as something of a smokescreen. The idea that work “is not complete” may also be a euphemism for the fact agreement on the contours of the policy is proving elusive - which in turn contributes to the sense that opinion on the Governing Council is deeply divided, and hence its commitment to any policy intervening in markets will not run deep.
That could undermine the effectiveness of policy interventions themselves - and no matter how many rumors you hear, you should focus on what you DO know - that a decision is delayed - and everything else is as useful as a personal guarantee from Samaras.
The RRR** looks to be very narrow for this afternoon to and any trades probably will end up on the unprofitable side as this market continues to have low volume. Swing trading is at your own risk and being the market is at a crossroads of sorts, I would prefer to sit on my hands rather than risk guessing incorrectly.
The DOW at noon is at 13157 up 100.51 or 0.77%.
The 500 is at 1411 up 9 or 0.65%.
The $RUT is at 809.19 up 3.19 or 0.40%.
SPY is at 141.68 up 1.02 or 0.73%.
The trend is slightly bearish and the current bias is positive.
WTI oil is at 95.97 trading between 95.40 and 97.18 and the bias is negative.
Brent crude is at 113.17 trading between 113.00 and 115.30 and the bias is negative.
Gold is at 1670.27 trading between 1662.50 and 1673.35 with a positive bias.
Dr. Copper is at 3.48 up from 3.46 earlier.
Earlier the USD rose from 81.22 to 81.73 fell to 81.38 and is currently at 81.65.
The 500 at the close.
The DOW at the close.
Despite the valiant attempts to create something from absolutely nothing in the last few minutes of the European week (to wit Hilsenrath's Bernanke story and ECB bond 'corridor' rumors), Europe fell back from its hope-ridden highs this week.
Spanish 5Y CDS broke back above 500bps, as did its 10Y spread to Bunds - giving back 10 days of 'gains' - while the exuberant front-end closed the week basically unchanged (but 40bps higher in yield from Monday's best levels).
For context, Spanish bond spreads remain well above the peak crisis levels of last November - having bounced perfectly off them on Monday. European stocks ended today with small gains but all red on the week with Spain's IBEX -3.4%. EURUSD gained 200pips on the week as Fed QE hope faded and we suspect the re-appearance of EU pain repatriated more EUR.
Thoughts for the weekend. Are going to continue to see more of the low volume hardly moving markets until AFTER the US elections? I hope not, but this blurb from Advfn is interesting food for thought.
Greece will not be forced out of the single currency until after the US presidential elections at the earliest, according to senior British officials. Britain believes that any such preparations would prompt President Obama to force Europe to delay expulsion until after November 6. A report on the progress of the Greek economy by the IMF and EU officials is expected towards the end of September or early October.
Any Greek exit is likely to happen over a weekend. “President Obama would bring a pretty large amount of pressure to bear on Germany if they tried to go before the elections,” a senior government source said. US officials are worried about the impact of a Greek exit across the Atlantic, and that they would not be able to focus on the inevitable turmoil it would trigger at the same time as the elections.
Britain has told Germany that if Greece were to leave, Europe must increase the size of the firewalls to prevent contagion spreading to other Eurozone countries.
There is speculation in Whitehall that the Eurozone may try to delay any Greek exit until after the German elections in September 2013, The Times reports.
The Euro lost ground on Friday as Greece struggles to obtain an extension to meet its budget deficit, and the single currency may track lower going into September as recent talks amongst European officials fail to shore up investor confidence.
To end the day here is some humor.
The past several weeks have made one thing crystal-clear: Our country faces unmitigated disaster if the Other Side wins.
** RRR = Risk Reward Ratio
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Written by Gary