The overseas markets were sharply lower, but the equities worked back to open the US market nearly unchanged. Over the past several trading sessions, sentiment has turned the corner. Generally speaking, when the crowd gets too far ahead of itself – it is not advisable to be the last one on the bus. The earnings season has delivered the one-two punch, body blows of disappointment and lower guidance. The election and the looming fiscal cliff are set up to be the ole hail mary. Tick tock… Previously, it was hard to knock the bull off course as the QE worked it’s hopium, but that balloon has sprung a leak. Time will tell if the leak is manageable and maybe this recent price action is a wakeup call for Congress to act like leaders. Then, maybe Sources are sharing: A Romney victory means less Fed interaction with limited emphasis on less regulation, while an Obama win is seen as “more” Fed and restrictive regulation and higher taxes. Yields do have to rise sharply to make stocks uncompetitive, but a shift in regulation which is more favorable toward business is what the market really needs to work higher. Risk has turned decidedly defensive as CEO’s in the US have called for a comprehensive resolution of the fiscal cliff peril. They have acknowledged that to avoid the fiscal cliff will require both tax increases as well as spending cuts. The Congress has until Dec. 31 to address the problem or the U.S. can expect a severe recession.
Morning observations: GDP posted a 2.0% growth rate in Q3, versus Q2′s 1.3% and 2.2% in Q1. It’s on the high side of market expectations, but nothing to get too excited about. Overall, the recovery has yet to translate to a significant climb in business and consumer confidence that is critical for transitioning the early cyclical inventory rebound into a sustainable growth surge for aggregate demand. Without a recovery in confidence, GDP growth is likely to remain well below the 6%+ rates that might otherwise be expected through the third year of an expansion from a deep trough.
The recent trend of the higher overnight price action followed by the failure to hold onto the early gains suggests the continuation of a buyers’ strike. Furthermore, the inability to sustain buying activity in light of oversold conditions and proximity to support levels suggests that any rebound could be short lived. Coming into Thursday the SP futures were +2.17% MTD on the open and are -4.15% MTD during the actual U.S.trading hours.Thursday the SP opened up more than .5% and erased that. Benefactor? Well, the Hang Seng has closed up 10 days in a row until Friday’s action, profit taking. FXI has been on a tear – check out the relative outperformance. Today, obviously opened 1.5 handles, but did work 4 handles higher in the early going before the flop to 1398.00.
MrTS video: http://www.mrtopstep.com/10-26-12-rich-canlione/
Jamie Dimon: CEOs Already Cutting Back Due to ‘Fiscal Cliff’ – YAHOO! http://bitly.com/SFslpZ
Friday started with 548k ESZ and 3.2k SPZ traded on Globex, trading range 1394.50 – 1411.00 / Friday’s RTH’s, pit range was 1399.70 – 1416.70, settled at 1408.20 up 2.90 handles. The RTH’s gapped 1.5 handles lower to opened 1.5 handles lower at 1406.80 – 1407.00, traded 1407.80 down to 1406.30 and up to 1411.60 before stepping lower to 1404.50 post Michigan sentiment checking in 82.6 vs exp 83.0. The euro popped as the ECB stated Spain’s bailout was on track and the spoos made a lower high, holding the 1409.50 area before flopping to new lows of 1403.80 by 9:30CT. Unable to convert the opening range the spoos stepped lower to 1398.00 LOD by 11:07 as AAPL lead the charge trading $591.00 down over $18. EUBIE (11:36:53): almost every chart I see OIL / SPU / NQ… individual names AAPL etc .. all PUNCHING HUGE / 1399 TIMESTAMP. The spoos went on to retest the opening range by 12:40 in light trade as scores of traders left early for the day. mts2 (13:14:35): Eubie is taking some profits on his AAPL trade tony_rago (13:14:35): for da bulls to head into the weekend with a little dignity they want SPY to close north of 141.00 and ideally convert the 08 SPOT IMO mts2 (13:15:23): if you need the profit – take some in. At 2:00 both the spoos and AAPL, not necessarily in that order…were still testing unch to slightly positive, the nazzy was up 14 handles, DJT’s up 13 points and the DJIA up 15 points. The last hour was fairly uneventful, mostly sideways trade in the unch’d area in very light Friday afternoon volume. The closing imbalance showed only 28 of the Dow 30 to sell and the broader market with an overall $ 239.29 M / -1,615.89 M – large sell side imbalance. The spoos traded 1407 area on the cash close before settling at 1407.60 on the 3:15 futures close, down only .6 handles on the day.