Breakfast with Brodsky
After yesterday's meager performance we wake to find the futures crawling higher. Europe is mixed but mainly flat and people will be more concerned with the fact that today is an options witching day more than anything else. We have no economic numbers due out this morning nor do we have earnings.
As we head into next week, which is seasonally slow due to the holiday, I think people will start looking at a few factors which have been driving markets and begin to reevaluate their holdings, market opinions, and trading strategies. No one can argue that this past year has been fantastic in terms of market appreciation, growing economic conditions, and overall consumer sentiment but one has to ask the following question; are our expectations going forward too high? When I ask this question it is more in terms of economic and macro trends rather then in terms of earnings and overall corporate health. Basically, I am questioning whether or not we would be happy if economic numbers starting coming in that were not blowing away expectations but were still healthy. I think this is an important issue to consider because we all know that things are better and are continuing to improve. We know that technology earnings are continuing to get better, that the semi cycle is still strong and turning higher, and IT spending is picking up. This is nothing new. This is why the market has exploded this year and why it is holding the current levels.
Question number two: what is going to take us higher? What expectations have NOT been met and would be an upside surprise? Think about that for a while and I would love to hear some opinions because I am having a difficult time finding new ideas/catalysts that would make us all happy and cause us to blindly throw money at the market like we have all year (which has paid off handsomely.)
Lastly, one thing to bear in mind is that the consumer was considered the reason we were able to climb out of the three-year rut. Is the consumer going to be the reason for the end of this run? Remember, people's debt is at an all-time high; people are leveraged to the hilt against their homes and a strong Refi environment has provided people with cash to spend. If this party were spoiled, what would happen to our markets? That's some food for thought.
Meanwhile, in the here and now we head into Friday's witching with the futures bid up and the markets at some critical levels. The SPX has now held its 50-day MA (moving average) of 1035-1036 for the last four trading days. It almost seems as if there is a magnet pulling us toward this point but the bids have been somewhat impressive. The trading range highlighted yesterday (1044-1035) held true again as the SPX poked its head above 1044 for the middle of the day only to fail and test and close at the floor of the range. Be prepared for a volatile market as many options are expiring which will cause volatility at the open and at the close. The Dow's pattern is similar to the SPX (as always) and is holding the 9600 level. The Dow is stuck between 9600 and 9700 and those will be the levels (i.e. support and resistance) today. Lastly, the NDX, also in a trading range, closed at its low as well. The levels here are support at 1360 and resistance at 1390-1400.
The sector indexes all followed the same pattern yesterday, trading higher then failing late in the day. The BTK (Amex biotech) tried to move higher but failed and closed near support of 440. It was holding above resistance of 450 for a bit, but closed on its low. These levels should be watched again today. The SOX (Philly Semi) was looking promising early in the morning but turned mid-day and failed, closing below 500 again. Watch yesterday's close, 495, for support and 507 will serve as resistance. The Banks (BKX) seemed to be reversing yesterday after what has been a two week slide, but turned and closed on their lows. Are we seeing a pattern here?? Everything turned lower and closed on its lows. The one index, which in my opinion (not advice), that may be providing a nice technical buying opportunity, is the DRG (Amex Pharmaceutical). This index exploded last week and is now in the midst of consolidating. The 320 level was resistance before it broke out above and has now become support. In addition, the 320 level represents a 38% retracement from the recent rally low to the recent rally high. Watch this level closely because it may provide a good entry point into this group. Lastly, the Gold stocks (XAU) were weak most of the day and never really caught a bid. The metal is trading slightly lower this morning so watch 103 on the XAU as near-term support and a break above 105, resistance, should push this index higher.
Good luck and have a nice weekend!
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