Aug 032010

Big day for news with the Personal Income & Spending numbers coming in flat but with revisions are actually a bit better than expected. This is counteracted by some weak earnings (finally) from a couple of key components – P&G and Dow Chemical. Factory Orders and Pending Home Sales @ 10 should be interesting in terms of what sort of reaction to expect. I have been saying for years that economic reports are almost always either priced in or front run to death and unless the numbers are both a true surprise and in a major way, you can’t judge or glean anything from the action they produce in the short run. Earnings and correlated market actions are more important as well as noticing the trend of broad market and institutional volume. Yesterday large traders turned the extremely light volume around late in the day and sold hard into the highs ahead of the reports today. The broad market actually finished flat and to the long side. Likely profit taking for institutions who are actively trading this trend to protect profits as made. In contrast big traders are buying this level overnight though not with not enough volume to truly pay attention to any of it other than to notice that positive sentiment is still in place. The homes news will likely not be good and we may see a reaction, but as I said I doubt it will really be from that if so but rather just more profit taking and natural retracement. Also of note is that we are sitting right on top of the 200 day MA and though broken yesterday we are at a major rejection area on the composite. We either reject right here in the mid to high 20s and retrace back into the 1090s (again) or we rally to the high 30s. Something has got to give soon and at the moment it is looking as though positive sentiment will hold. We don’t bet on direction that way nor do we care, but certainly treasuries, the Euro and gold support that sentiment. However, my old friend the carry trade signals otherwise and has broken its rally, flattened out yesterday and turned negative overnight DESPITE a rising Euro. Take heed. The Yen doesn’t lie when it comes to free money v. risk appetite. I would bet we at least see some kind of test of the interim support around the S1…

 Posted by at 9:00 am

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