September 18th, 2012
in Gary's blogging
Midday Market Commentary For 09-18-2012
Another session of 'Do Nothing'. Low volume, mixed averages and flat. Trading has been in a tight range and the only players are the HFT crowd. Everyone is sitting this session out waiting for the politicians to figure out what they are going to do. It is very quiet out there as we wait for something – anything to happen.
The Grand Plan, as we have espoused for years, is to force all 'safe' assets to a point where they appear 'rich' to 'risk' assets - and inflate another bubble to take our eyes off the debt being inflated away in the other hand. In the Fed's mind, they tried this before with QE1 and it worked magnificently - lifting stocks phoenix-like from the ashes of a credit-crunch reality.
However, this time is different. The last time the Fed forced MBS CurCpn yields down to 'match' the S&P 500's dividend yield was March 2009 - and investors 'rotated' back to risk (to many people's surprise). Yields were at 4% then and the S&P's P/E multiple was 10x; this time yields are just above 2% and the S&P 500's P/E multiple is a staggering 14.9x.
We suspect that rather than re-enacting the post-March 2009 eruption, valuations this time will force that liquidity to flood into non-equity asset classes (and with HY call-constrained, it leaves little but the energy and precious metals complex to soak up the Fed's exuberance).
The RRR** has remained very narrow from the opening bell and any trades will probably end up on the unprofitable side as long as this market remains flat and 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 12:30 is at 16543 down 9.52 or -0.07%.
The 500 is at 1456 down 4.54 or 0.31%.
The $RUT is at 854.18 down 4.73 or -0.55%.
SPY is at 146.31 down 0.43 or -0.29%.
The trend is neutral and the current bias is down.
“It looks as though the Crude Oil market was not yet ready to tackle the $100 level. Fundamentally and technically, Crude Oil looked a bit overbought.
Like many commodity markets, Crude Oil has been riding the coattails of the explosion in grain prices and cheap money. There has been no significant uptick in economic activity or demand increase.
The wildcard is the situation in the Middle East. If the fallout from the "documentary" depicting the Prophet Mohammed in an unflattering light drags on, it can be seen as bullish for Crude Oil.”
WTI oil is at 96.00 trading between 97.20 and 95.38 and the bias is negative.
Gold is up today at 1764.65, trading between 1751.00 and 1771.10 with a negative bias.
Dr. Copper is at 3.78 down from 3.79 earlier.
The US dollar rose from 79.05 earlier to 79.31 and is currently trading at 79.26.
** RRR = Risk Reward Ratio
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Written by Gary