Asia overnight calm. All moved lower but between .2% and .5% or so.. Asia does not believe the US default is remotely possible.
US indexes wise we came to 5 ticks to my near term target of 12150 on the ym (dow futures). We hit 12155 in hours session. I’ve let all my remaining shorts go end of session yesterday (was around 25% of the total account inc remaining ym sept futures sp500 and ym option puts for sept and dec11, qqqs on nasdaq and a couple of es futures short) for a profit i add.
I am 100% naked long again as of close of play yesterday – you pay your money you take your chances. I don’t see supporting sell price action.. yet. I will join if i see a battle and the shorters look to have an edge. But i want evidence first. I want to see genuine sellers.
On the out of hours we have spiked below down to 12061. This was money from a baby for those awake out of hours – i was asleep, you have to at some point.
Note, we are also at a key support of 1295 sp500 – remember the UBS call on the end of the cyclical bull level i posted up last week.. 1295.
SP500 stocks over 50dma looks ok here:
Of more concern are the recent 52wkhs of sp500 stocks. Here:
The 2nd top of the 21st of July was narrower still than the 7th of july top. This ‘narrowing’ demonstrates some increasing weakness in the rally. (There are parallels with the economic recovery here with main street worsening and upper street booming). I don’t think this is enough of a reason in itself to stop the cyclical bull as yet. And the price action is not confirming the narrowing, yet.
These levels are very unlikely to get blown over in a meaningful sustained way. Spikes could move indexes 1 or 2% downward at high speed and then an equally high speed retrace would very likely occur. I’m saying this from the price action over the last month or two. There are no serious sellers yet. Now this can change. Of course no one can know what comes out of the wood work as price levels are hit. The weight of the market is still to the long side even as price spikes lower. Indeed the moves lower simply have supported the cyclical bull being alive and well. The test will be when the longs come forward and push price back northward. Will any serious shorters come forward in large pattern breaking waves against the longs? Its unlikely but you never know who got out of bed on the wrong side. If Carlos Slim and perhaps a few of his buddies want the market lower and is ready for a fight then the leveraged longs could be over come but there would be a big fight and this is what we need to watch. The price action will show the direction, no question. Here the cash dow with volume. If this was meaninful you would expect the dow cash to be much higher. (Just one indicator of course).
Remember, i agree the data is weakening here. Fundamentally the data continues to worsen, no question. European data is worsening more quickly than US data but both are weakening. Earning season has been, on average, good and meeting or at expectations. Having said this the variance across the earnings is getting wider. Ie good cos are making above average earnings whereas weaker cos are significantly under achieving. This demonstrates the squeeze is starting, imo. Without the consumer adding debt more monetization will most certainly be needed from all the developed economies.
The picture for pms remains as was. We have some spiky price action but no levels broken note. They are very strong trends. Short term spikes vs trend are generally to be seen as entry points, not exit points. I’ve done some research on pms and miners in the last few days. I will write a piece soon. Its secular bullish of course but i will outline a few issues i see on the horizon. Short term bullish, Medium term range, long term to the moon. Ill save the longer analysis for the specialist piece.
Industrial metals remain so strong. Their price action disputes the spiky wider market. Oil remains fairly strong. I’m looking for 89 now.. up from 88.. It could occur.. I’m waiting. When/if she shows the correlations will be all important. Ie dx, copper, equities, etc. Here the reason for the target and my patience. This is still part of the reaction to the failure at 114, imo.
Why is the copx so strong given shanghi and the concerns in Europe and US?
On a specific issue.. Congratulations to the young billionaire David Einhorn of Greenlight Capital. He stuck with his call on VOD. He increased his position as price moved lower he was so sure the value was there. Today the news finally broke for him that Verizon are to pay a divi to vod of £2.8bn. This radically changes things for VOD’s valuation both in terms of income and capital valuation of Verizon. Everyone and their dog have come out this am and upped their targets for vod. I fully expect £2 to be achieved very soon. The pe, even at £2, will not be challenging at all. As i posted on ‘allocations’ board i entered a large position on vod (cash and leverage) but well done to David who really prompted me to do the research on them.It was his largest single position i believe.
Much more to come on markets in the markets section of the forum. All the best Rich
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