September 4th, 2012
in Gary's blogging
Midday Market Commentary For 09-04-2012
Had I been here to witness the opening bell I would have been fooled in that Mr. Market was going to ignore the bad financial news from 9 am this morning. The markets opened flat, low volume and not doing anything for a few minutes and then at 10 am the bottom fell out when the US Construction Spending came up really short. I guess that was just too much for Mr. Market and the bears took over and descending the 500 to 1396.
By noon the SP500 had risen from its morning lows to 1399 and down again all of which was on miniscule volume. This leads me to believe the HFT crowd is going to rule the roost for the remainder of the day and ANYTHING can happen. Regardless, the lack of traders clearly illustrates why the market has not made a waterfall decline after the bad news.
For this reason you can expect further declines, or accents, to be muted until next week when the German High Court announces its constitutional decision NOT to block the ESM. Then Bernanke Holds Press Conference on the 13th and a slew of important financial reports on Friday should prove to be an interesting week for the markets. Until then I wouldn't expect the markets to move very far from where they are today.
The Institute for Supply Management Manufacturing PMI gauge fell to 49.6 in August from 49.8 in July, missing estimates of a reading of 50. Readings above 50 point to expansion, while those below 50 indicate contraction.
The RRR** was very narrow at the opening bell and improved just after 10 am, however still remains risky. Any trades probably will end up on the unprofitable side while this market remains flat. 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 12:00 is at 12994 down 96.23 or -0.74%.
The 500 is at 1398 down 8.24 or -0.58%.
The $RUT is at 808.70 down 3.40 or -0.42%.
SPY is at 140.31 down 0.83 or -0.58%.
The trend is neutral and the current bias is down.
WTI oil is at 95.26 trading between 97.34 and 95.15 and the bias is negative.
Brent crude is at 114.72 trading between 116.61 and 114.48 and the bias is negative.
Gold is at 1692.04 trading between 1698.65 and 1688.30 with a negative to neutral bias.
Dr. Copper is at 3.47 down from 3.49 earlier.
Earlier the USD rose from 81.05 yesterday to 81.38 and is currently at 81.34.
Manufacturing ISM Misses, Third Month In Contraction Territory; Biggest Miss In Construction Spending In One Year
So much for the transitory bounce in positive economic reports from August. While hopes were high that maybe, just maybe, the virtuous cycle has once again been restored and the Fed's intervention would be unneeded, the August Manufacturing ISM just printed at 49.6, down from July's 49.8, and well below expectations of 50.
This was the third contraction in a row and joins the global PMI which as we reported yesterday now has 80% of the world in contractionary territory. The kicker was the Prices Paid category which soared to 54.0 from 39.5, a whopping 14.5 surge, which together with the always hollow Inventories category which rose from 49.0 to 53.0, and Employment, which dipped from 52.0 to 51.6, were the only categories in the 50+ region. Everything else is now contracting.
And in other news, Construction spending (remember "housing has bottomed") plunged from 0.4% to -0.9%, on expectations of an unchanged print, which was the biggest miss in a year, and the biggest drop in also a year.
Unexpectedly weak U.S. manufacturing activity helps to drag European bourses lower in afternoon trading, with drug makers leading the way: Roche (RHHBY.OB -0.8%), Novo Nordisk (NVO -0.5%) and GlaxoSmithKline (GSK -1.1%).
There's a wide divergence in Europe today as the core gets battered while the periphery does okay following the leak of Draghi's ECB bond purchase plans. Stoxx 50 -0.9%, Germany -1.1%, France -1.5%, Italy -0.2%, Spain +0.8%, U.K. -1.5%. The euro gives up big early gains, now -0.2% to $1.2565.
More on ECB bond buys: Draghi told EU lawmakers monetary policy - as it's currently being carried out - is mostly ineffective as rate cuts are not being transmitted where needed. To not do something further would be an abdication of the bank's responsibility for price stability. "Frankly, all this also has to do very much with the continuing existence of the euro."
** RRR = Risk Reward Ratio
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Written by Gary