The big question for today is -- can the Dow and S&P 500 sustain a third day of intense selling pressure? The overall volume selling pressure was lighter on Tuesday compared to Monday but the problem was it started when the S&P 500 and the futures were already at vulnerable price levels. When Wall St. opens today those equity indexes will be at vulnerable price levels again.
The S&P 500 futures recovered overnight, making their way back over the 700 level. Having made it cleanly below the 700 level during NY on Tuesday I believe that index is vulnerable again. There's a lot of revenge and anger behind those moves we've seen on Wall St. this week.
As I mentioned on Monday, it's my feeling a bunch of folks who got their tax refund checks or scraped together whatever money they could are helping fuel the intense downside pressure put on the S&P 500 and Dow this week. There's revenge and anger in that price action and intense selling volume. It won't last forever, it can't.
But you add in a couple hundred thousand folks from around the world with their Scottrade and TD Waterhouse account's, all revenge trading against the market that destroyed their 401(k)'s, and that's exactly how we get that intense selling pressure.
Don't think of an equities index as you do the Forex market. An equities index like Dow futures or the S&P 500 is exponentially smaller than the "market" that "makes" the EUR/USD or any other currency pair. We trade a highly liquid global market with no central exchange. Even a few million in extra liquidity in say the S&P 500 futures market will have a much more profound impact on the price action compared to how a few extra hundred million in the Forex market would.
When those revenge traders go away, price bounces. We saw it happen yesterday when the S&P 500 futures shot up almost 15-points once the profit taking came in at the 691 level. This also explains how a 1-point up/down move in the S&P 500 futures can translate into a 20-point up/down move on the EUR/USD.
EUR/USD:
The euro, dollar, yen and Wall St. will all have a number of issues to contend with today... Challenger Job Cuts report, ADP, ISM Services, Crude Inventories, plus speeches by Geithner and Atlanta Fed Lockhart who is known to run his mouth.
I think the ADP report is one of the most worthless pieces of monthly data but the markets are fascinated with it so expect to see some sort of reaction if the data prints better or worse than expected. I've started to look at bank trader's forecasts for NFP and I'm seeing numbers like -720K and -789K. ADP will be watched closely today.
Throughout the Asian session and right into London it appears the EUR/USD is under fundamental selling pressure. It's failed miserably above the 1.2600 level and continues to slide lower as the week goes on. The Asian markets may have been positioning themselves for Thursday's ECB rate decision, anticipating a euro sell-off.
As far as trading goes, I think shorting the euro on the rises is the smart trade. Unless we get a sustainable bear rally or relief rally on Wall St. I can't see how the euro can hang on to any upside gains. Should the euro keep failing to hold above the 1.2500 level I think the doors for testing sub-1.2400 remain open. Fundamentally, I can really find no reason to buy the euro.
The caution for heavy euro shorts would be to watch out for a surprise equities rally which would lead the USD Index lower and the EUR/USD higher. The emotions of humans drive price action in markets and right now people are flatout pissed off.
Because of what I do here I get the opportunity to talk to a lot of people from around the US and the world and just about everybody I talk to has had enough. They've had it with AIG, Wall St., Obama, Congress, the Treasury, you name it. When we have a scenario where the Dow goes from over 14,000 to well under 7,000 in a matter of months, we have a situation where trillions of dollars of wealth has been destroyed... wealth that makes credit markets function, that consumes goods and services, that travels, donates to charities, etc.
The whole world has been turned upside down by the global financial turmoil and it's unlike anything a government or central bank has ever had to contend with because at no other point in history has the sovereignty of nations been so weak and the financial markets of the world been so connected.
The bigger the world gets, the smaller it gets. All roads from every world economy and market lead back to the US and dead-end on Wall St. The wide destruction of wealth for the many are obviously making a few even wealthier but those are the names we never hear about on CNBC or Bloomberg... we don't read about those folks in Forbes or the Financial Times.
This madness is far from over, there are no market bottoms put in, and if people like Obama, Trichet, Geithner, and Bernanke continue behavior that is clearly intensifying the fear and panic in these markets it would continue being a sel-fufilling prophecy.
As far as trading goes, I'm going to stick with exactly how I've been doing it all week, just like how the trade calls have been. Higher-probability trades that pay out with minimal time exposure and drawdown. I encourage traders to use low margin entries and stay prepared to take a loss if you're wrong. Small losses are very easy to recover from.
I'll post some key levels later on this morning, check back in a few hours.
-David
The S&P 500 futures recovered overnight, making their way back over the 700 level. Having made it cleanly below the 700 level during NY on Tuesday I believe that index is vulnerable again. There's a lot of revenge and anger behind those moves we've seen on Wall St. this week.
As I mentioned on Monday, it's my feeling a bunch of folks who got their tax refund checks or scraped together whatever money they could are helping fuel the intense downside pressure put on the S&P 500 and Dow this week. There's revenge and anger in that price action and intense selling volume. It won't last forever, it can't.
But you add in a couple hundred thousand folks from around the world with their Scottrade and TD Waterhouse account's, all revenge trading against the market that destroyed their 401(k)'s, and that's exactly how we get that intense selling pressure.
Don't think of an equities index as you do the Forex market. An equities index like Dow futures or the S&P 500 is exponentially smaller than the "market" that "makes" the EUR/USD or any other currency pair. We trade a highly liquid global market with no central exchange. Even a few million in extra liquidity in say the S&P 500 futures market will have a much more profound impact on the price action compared to how a few extra hundred million in the Forex market would.
When those revenge traders go away, price bounces. We saw it happen yesterday when the S&P 500 futures shot up almost 15-points once the profit taking came in at the 691 level. This also explains how a 1-point up/down move in the S&P 500 futures can translate into a 20-point up/down move on the EUR/USD.
EUR/USD:
The euro, dollar, yen and Wall St. will all have a number of issues to contend with today... Challenger Job Cuts report, ADP, ISM Services, Crude Inventories, plus speeches by Geithner and Atlanta Fed Lockhart who is known to run his mouth.
I think the ADP report is one of the most worthless pieces of monthly data but the markets are fascinated with it so expect to see some sort of reaction if the data prints better or worse than expected. I've started to look at bank trader's forecasts for NFP and I'm seeing numbers like -720K and -789K. ADP will be watched closely today.
Throughout the Asian session and right into London it appears the EUR/USD is under fundamental selling pressure. It's failed miserably above the 1.2600 level and continues to slide lower as the week goes on. The Asian markets may have been positioning themselves for Thursday's ECB rate decision, anticipating a euro sell-off.
As far as trading goes, I think shorting the euro on the rises is the smart trade. Unless we get a sustainable bear rally or relief rally on Wall St. I can't see how the euro can hang on to any upside gains. Should the euro keep failing to hold above the 1.2500 level I think the doors for testing sub-1.2400 remain open. Fundamentally, I can really find no reason to buy the euro.
The caution for heavy euro shorts would be to watch out for a surprise equities rally which would lead the USD Index lower and the EUR/USD higher. The emotions of humans drive price action in markets and right now people are flatout pissed off.
Because of what I do here I get the opportunity to talk to a lot of people from around the US and the world and just about everybody I talk to has had enough. They've had it with AIG, Wall St., Obama, Congress, the Treasury, you name it. When we have a scenario where the Dow goes from over 14,000 to well under 7,000 in a matter of months, we have a situation where trillions of dollars of wealth has been destroyed... wealth that makes credit markets function, that consumes goods and services, that travels, donates to charities, etc.
The whole world has been turned upside down by the global financial turmoil and it's unlike anything a government or central bank has ever had to contend with because at no other point in history has the sovereignty of nations been so weak and the financial markets of the world been so connected.
The bigger the world gets, the smaller it gets. All roads from every world economy and market lead back to the US and dead-end on Wall St. The wide destruction of wealth for the many are obviously making a few even wealthier but those are the names we never hear about on CNBC or Bloomberg... we don't read about those folks in Forbes or the Financial Times.
This madness is far from over, there are no market bottoms put in, and if people like Obama, Trichet, Geithner, and Bernanke continue behavior that is clearly intensifying the fear and panic in these markets it would continue being a sel-fufilling prophecy.
As far as trading goes, I'm going to stick with exactly how I've been doing it all week, just like how the trade calls have been. Higher-probability trades that pay out with minimal time exposure and drawdown. I encourage traders to use low margin entries and stay prepared to take a loss if you're wrong. Small losses are very easy to recover from.
I'll post some key levels later on this morning, check back in a few hours.
-David
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