China’s official PMI rose slightly in September, but stayed below the all-important 50 mark for the second straight month. Stanton analytics points out; It is troubling because this is the time of year that factory activity picks up. The stimulus mentioned by the Chinese leadership of late will have to wait for the communist Party congress. This is due on or around Nov 18. It will decide the next leader of China for the upcoming ten-year period. There will be no major policies until the leadership is assured. The markets were expected to be quiet Monday as China has a week long holiday. As we move further west, the Euro Zone September factory output points to a new recession looming. The third quarter output was the worst since the depths of the Great Recession. The weakness in output came despite lowered prices. The Euro Zone PMI came in at 46.1 in September up from 45.1 in August. However, it was the fourteenth consecutive below 50. In a sign that sanctions are having an effect on Iran the rial has fallen 7 percent at the start of the fourth quarter. However, China is supplying SuperTankers to Iran – they need the crude. Other countries are ducking the sanctions as well and as usual.
Morning observation: Stories that Greece will receive the next Troika payment and relief from Spains stress tests results welcome in the 4th quarter. The Euro Zone headlines continue to roll out and plenty more to come. The market reaction has stabilized as the backstop is set and observers wait to see how the plan plays out, but until then it seems as though the bears are sidelined as we climb the wall of worry. Also, the Japanese Tankan report was weak and the outlook was lagging. There is no improvement in the growth picture which puts profit estimates at risk of reduction. Sources say, the Bulls may point to the idea that overnight data points boost the chance for the BOJ and RBA to enact easier monetary policy. The 4th quarter started out firm and gained momentum after the upbeat ISM release caught traders leaning the wrong way as we have entered into warnings season. The lean may have something to do with the number of high profile warnings out already, thus lowering expectations. The window is now open for some further warnings as “the Federal Reserve is doing all it can to prop up an underperforming economy and will keep at it until the jobless rate falls below 7 percent, Chicago Fed President Charles Evans told CNBC.” Also, Evans
suggested that Fed could be buying debt for a long while. This is positive for risk assets, hints the Fed will be buying treasuries for a long time.
Today started with 270k ESZ and 1.2k SPZ traded on Globex, trading range 1442.00 – 141427.75 / Friday’s RTH’s, pit range was 1439.80 – 1429.30, settled at 1434.20 down 6.9 handles. Today’s RTH’s gapped 5 handles higher to 1439.80 – 1439.40, traded 1439.00 low and then up to 1443.00 at 8:35CT, the DJT were up 10 points as the financials helped lead the way. Crude was trading in the $92.25 area again, as prices at the pumped have backed off in the Chicago area and expecting further savings near the end of October / early November. Hopefully! OEX leaders to start were GS, GILD, V, HPQ, MS, NWS, C, BAC, AXP, FCX, JPM. The trading range at 8:59 was 1439 -1443, at 9:00 the ISM checked in at 51.5 vs exp of 49.7 and the spoos spiked from 1442 area to 1448.00 and clawed up to 1451.20 by 9:09 which is where Mike_V (09:11:16): 1450 BEN (1451 area was trading when Bernanke comments / next leg 1468 area) and 2x fibs, straight up 10 handles, if you buy this I honestly don’t think we can help you. It goes against literally every rule we have. The spoos traded 1447.80 at 9:28, 1447 by 10:00 and traded all the way down to a new low at 1438.50 as Bernanke was speaking. At 1:00 CT the SPZ started to short cover, taking out buy stops and running a buy program back up to 1444 .00 area a few minutes later. Compared to most Mondays recently, todays big rally and big sell off have helped push volumes higher than the recent average; so far 1.4mil ESZ, 6k SPZ with 40 locals in the S&P pit. The only paper in the pit was Bache bought 400 SPZs and sold 500. After a few handle pullback the SPZ traded back up to the 1443.50 area and sold off to the 1434.70. After 2:00 the premium between the S&P cash and the futures “slipped” in to sell program levels and down the S&P went. After marking the low at 1434.70 we put this out on the IM (14:26:55): usually after that many programs u get a bounce. Right after that the SPZ rallied up to 1438.00 and sold off a little as the 2:45 cash imbalance showed 16 of the DOW 30 for sale and the broader market MOC showed sell $22mil. On the 3:00 cash close the SPZ traded 1437.57 and then went on to settle at 1436.90 on the 3:15 futures close, up 2.7 handles on the day.
MrTS video: http://www.mrtopstep.com/10-1-2012-mark-sebastian-covering-options/
MrTS Chart: EUBIE over +70 handles in these Bollingers SETUPS 3days ago! http://www.mrtopstep.com/mrtopstep-charts-i-gotta-case-of-the-bollingers-esz-1425-cl-89-bonds-zb-144/