Ahead of the open, (01-12)

A global ‘warming’ emergency synchronization… rescue beginning in December 5, but only a piece of the puzzle as banking and sovereign debt crisis is interwoven.

Just as the Shanghai exchange suffered one of its biggest declines in 2011 overnight with PBOC officials still dampening hopes intraday of an imminent easing…Boom!...PBOC cuts reserve requirements after close by 50bp starting Dec.5 (cuts amount of cash banks must set aside to spur lending).

=Futures market reverse about 20 handles into 8am.

In Europe, a dud of an EFSF deal reached by finance ministers, speculation policymakers had made no progress on propping IMF funds with ECB not ready to do anything substantial…. BOOM!...A FED led blitz of Central Banks backed by US gov’t with a US-Funded Liquidity Bailout of worldwide dollar crunch!!. Yes, the same USD funding stresses noted here before the eventual 1275SP- to 1159SP rout just over week ago needed a quick Global bailout!. Simply, central banks rescued what EU officials couldn’t (liquidity shortage) in a bold move taking matters into their own hands.

= SPX rockets and recovers almost all the ground lost in November.

There was not going to be fade job of Monday’s rally as the market ‘squeezed’ higher off fresh cheap cash injections to come. Funny, how you can fix Germany’s 1yr debt going negative this morning (probably kicker for action), China’s horrible market day off renewed hard landing fears and a European ministers inabilities in just a few hours. Note, this intervention isn’t the holy grail guarantee, but it is a piece of the Eurozone puzzle.

Of course, what ails banks is now seemingly fixed for the moment as their lending to each other simply trickles down to economies, but it doesn’t put a blanket over the debt sovereign crisis. Expect more from ECB going forward to make this a true turning point for the crisis. ECB hard-line/standing pat seems to be getting it’s way and sooner than later they will be satisfied to step in. (more political reform etc.). Also, expect IMF co-ordinated program to get off the ground as well.

Unfounded rumors of a bank struggling to fund itself  this morning might have the ‘mishap’ talked about here last week for something to be done.  Still, it’s likely the German 1yr this morning is what spooked the CB’s to let loose their contingency co-ordination. This wasn’t made up overnight, it’s been in the works just in case.  In all, that should give confidence to investors co-ordination is always a possibility.

In all, add ADP# 200k ahead of NFP# Friday ( .. last week here...Employment whispers for Dec 2 starting to come in at 200k~.)..and equities just became sexy again. Last weekend did smell like a prelude to a rally, just as in October rally (noted early this week). Financials rallied ~6% , leading the tape (along with materials (high beta coals (CLF, WLT) steels led (X,NUE ), energy, and industrials). Bascially, you can trade commodity- linked stocks such as above that have been Shadowlisted in the past, as well as the high beta earnings plays related to China ..(ie.WYNN, LVS, CMI.) or just related sector ETF’s.

Although most of the day was over with at 8:40am, the fact SP added some 10+ handles in the last hour suggests some ‘ longs only stepped in’ after the early morning short covering. This suggests we may buy single stocks in anticipation of more upside into year – end. So, did we get our wish from financials to lead rally, just like in October?? They are down nearly 25-30% YTD and big rallies usually see worst sectors bought first.

You may not believe in CB’s actions, EFSF, China ‘s RRR, but this is a day where you can’t ignore the price action. Things are actually being done a step at a time, recall note here investors want action, not more speculation around upcoming (meeting, summits).

Ahead of the open (2-12)

Market muddled along throughout the day and that’s a positive in this view, as ‘digestion’ is a necessity of huge rally day. Today, Bears ranting is in full gear about reality setting in, market exaggerated the concerted intervention and what goes up violently can turn just as violently down after realization this is only Central Bank band –aid.

No disputing it’s a band-aid. But, view here is the move justified.  Macro and technically. If you put enough band- aids on as has been happening this week with more likely to come, it will eventually stop the bleeding.

Also, considering market broke down from mid 1200’s on the SP for 6-7 days from USD funding stress, why shouldn’t it go back to those levels when the band-aid is a specific ‘fix’ liquidity injection for that problem!

Technically, going to mid 1200’s is not a surprise after blowing through breakout levels…(Although, most are looking at low 1200’s,(50ma) as the breakout level to a broader recovery to mid 1200’s for SP, it’s been noted here recently 1215’ish - DJIM benchmark 20ma(1225) would be a hurdle on a bounce.). The next “R” is at 1265 on the SPX ahead of a NFP#, which is probably the most anticipated one in months with 180-200K eyed now. It’s unlikely anything out of Europe on Friday can upstage this report, so market direction will stem off what is happening in U.S for a change.

If, NFP# hits close to the 200k whispers or above, the market better mood/ sentiment continues and it may ignite the afterburners, which would coincide with the Europe peripheral bond tear today. In all, it may be short lived though because it’s not just Wednesday >4% rally that needs digestion, it’s the week gains Monday that need to be ‘consolidated’. So, either way the NFP goes, market probably needs some rest soon before all focus turns to EU/ ECB summits next week.. again

Into the trading week (Dec.5-)

Kicked off November, citing, “ US vs. EUROworld “, in a Journal title. This theme has been prevailing for the last 4 weeks into year-end as US economy goes one way, while Europe goes another. Fortunately, one thing that was not diverging last week is the markets of the two as many relevant Eurozone ‘band-aid’ headlines hit during the week creating positive sentiment all around. Expectation is for more as cited last week.

‘Hope’ is back, just like it was in October leading up to summits only to disappoint afterwards. The question is can the 7% recovery continue and mirror even remotely close to the 20% rally from October. It may seem like a stretch, but the markets have this week before summits to extend the 7% gains, the market will be ‘ headline’ driven with policymakers seemingly on the right path.. Friday, it was ECB Draghi’s comments noted here Friday that could be the game changer ahead. If trader’s think it will end in disappointment like in Late Oct/early November/ summer June-July and strategize for such may be disappointed as there is a big difference this time so far.  What is it? Well, it’s the tear in Eurozone bonds late last week that was not present in the former rally moves. This is a big market difference and it is the thing to watch going forward to get a feel for the equity market direction. Again, investors want action not speculation as pointed out before. Therefore if no magic bullet occurs, the ‘band-aids’ actions so far should be enough to keep sentiment positive among investors. A break of 1265 could be a fast run to 1300. The way market moves these days, it’s really not that much. Unfortunately, unless you trade ES after hours, you need to be invested overnight to make gains as most of the SP moves occur 1 hr ahead of the open and afterwards meanders most of the day.

In all, the upside risks for more action (steps) outweighs any possible ‘intraday’ political maneuvering headlines we may hear during the week that may be perceived as negative intraday. Add, seasonality, underperformance by managers and the fact US eco’ data is solid should be enough keep equities sexy as noted last week.

Ahead of the open, (06-12)

Into the trading week, noted..”In all, the upside risks for more action (steps) outweighs any possible ‘intraday’ political maneuvering headlines we may hear during the week that may be perceived as negative.”

It might’ve not been traditional political maneuvering into the summits, but S&P announcement that they placed its long-term sovereign ratings on 15 EU area countries on Credit Watch with negative implications smells of politics anyways . S&P said that they would conclude their review on the Euro zone sovereign ratings as soon as possible following the EU summits.  The news not only curtailed the rally into ‘R’ at 1265, but dropped SP to low 1250’s at one point. By close what was ‘perceived as negative’ was ultimately shrugged off by the market (close 1257). Of course, it could be a huge negative if leaders fail with a constructive solution to sovereign debt obstacles, but with more ‘band-aids’ in the morning (Italy’s radical austerity, France/ Germany actually agreeing on something= Italy/Spain yields falling), it’s hard to ruin the positive ‘hope’ sentiment. Also, in this view this news is pretty well baked in as we’ve seen huge selling in Eurozone bonds recently. Although Germany on watch was a big surprise, but probably nothing but a kick in the pants to get something sustainable done this week!

The short term focus would have been on European bonds, but by news time those markets were closed and US really had no idea of how this will be perceived by what matters. Remember from heading into the week, it’s the Eurozone bonds action that should dictate your trading in equities this week. If selling pressure doesn’t resume, equities will be okay.

Ahead of the open, (07-12)

The premise of being long stocks since last week remains intact.

As discussed, the S&P downgrade was going to be overshadowed by ‘hope’ and more band–aids.  As far as today, European bonds did not sell off on S&P news, thus keeping equity markets in a holding pattern most of the day. Speculation of Eurozone running 2 bail-out funds (ESM /EFSF – ESM succeeds EFSF mid’ 12) simultaneously for a period of time, doubling in essence to just under 1trl euros gave a bid to equities late afternoon. This would be construed as a half measure and /or even impossible to implement, so it’s no surprise market retreated again off ‘R’ 1265.  Again, speculation is not what market wants, it wants definitive action.  If this was a conclusive action, market would have held its gains. In all, last hour moves up or down like this are negligible as market awaits ECB Thursday/ EU on Friday.

Oh yeah, lost in the storm of headlines is a potential catalytic ECB meeting before the summit. Reason being the Draghi statement from last week was suggestive/implied SMP purchases could be stepped up if ie. reforms were progressing and/or achieved later. If this change of heart is reiterated and/or hints of lending to IMF, market should be happy!  If Draghi’s doesn’t repeat, watch out!  He can’t/won’t say SMP’s will be ramped, the numbers will show up a few weeks later, that’s is why just being ‘suggestive’ again matters so much.

In all, expect leaks (true or false) all day in regards to summit dictating intraday moves. Note, as we inch closer to summit, expectations being too high are increasing. Still, there is time left to‘hope’ and with ECB meet up to deal with before.

Ahead of the open, (08-12)

Although markets awash with reports today downplaying expectations for summit, market is seemingly shrugging it off for a day 3 of consecutive green closes. This is probably evidence of resiliency and so the risk is to the upside. Meaning, even if the summit comes to only a roadmap/ timetable (longer term plan), it may be sufficient this time around to kick the can some more.  This works as long as Eurozone ‘can’ doesn’t stray and roll left or right off the path. The ‘can’ this time may have enough recent band-aids on it to not explode into year end.  The fact a ‘treaty’on political/fiscal is the only real news Germany/France are making this week shows another band-aid for the longer term is being worked on and not a grand ‘shock and awe’ resolution to end crisis is coming from the summit.

All in, it feels like good news will get a bigger market reaction. Simply, if market is shrugging off the downplaying of expectations (not selling off) now, it shows investors are not expecting a grand resolution despite the ‘survival at stake’ headlines many keep (press, shorts) throwing out. “Expectations are too high”, setting up for a big market disappointment is another line being used, but markets keep showing they are sanguine to the summits end result.

 As far as the day’s trade, as cited into yesterday’s open the ESM/EFSF speculation was not worth having as it’s impossible to implement. After a green session overnight, German official rejected the notion by US market’s open sliding it to below SP1250 before the dip was bought and it was bought even before the 330pm Nikkei/IMF headline later denied). This indicates it wasn’t just a false report doing the melt up job. Financials as a group noted last week as a long will lead the way as today demonstrated again with the largest sector gain.

Again for Thursday, pointed out yesterday what to look for (ECB Draghi) and overall watching the Euro bond action for the equity markets.

Ahead of the open, (9-12)

While all investors were awaiting in the 3 day calm before a potential storm due to the EU summit, it was pointed out 48hrs ago a catalytic event was possible beforehand that was overshadowed.. “Oh yeah, lost in the storm of headlines is a potential catalytic ECB meeting before the summit. Reason being the Draghi statement from last week was suggestive/implied SMP purchases could be stepped up if ie. reforms were progressing and/or achieved later.  If this change of heart is reiterated and/or hints of lending to IMF, market should be happy! If Draghi’s doesn’t repeat, watch out!”.  So, while many were likely snoozing pre-market with no speculation seen in media of this happening, “ if Draghi doesn’t repeat’ as hinted here.  A 40 SP handle or ~3% from high to low for the day ensued as soon as Draghi poured cold water, stomping out idea of ECB escalating bond purchases and squashed idea of lending to IMF as a channel stating it was ‘legally complex’.  Also, a false article rallied market briefly on the ESM/EFSF, but was rejected by Germans giving ESM ‘no bank license’ (leverage), which is key to a potential ESM/EFSF program.  All in, a pretty nice short trade for the day, if you followed the potential catalytic events into the day. 

In all, this market letdown news will probably turn the tables and overshadow any summit news considering no bazooka is even on the table, but rather more band aids. This may be even a market positive as discussed yesterday because the market is sanguine to an end result. The biggest disappointment could turn out to be today’s Draghi comments and summit becomes a sideshow.  The market off 40+ SP points today off highs probably ate into the potential losses short term for the market with nothing major coming out of the summit. Note, today’s was selling pressure was not panic like.

Overnight summit update:

Leaders agreed on some key issues, ESM revealed, but no bank license, a fiscal pact that possibly came up short (enough to stop S&P downgrades?), will study IMF loan within week for 200bln (may provoke other countries to join ..China, Russia etc+ good for equities of course.), nothing on bonds,….think the (bracketed) above leaves a lot of speculation ahead and more intraday swings to come, but overall progress made in day 1 and ‘can’ not straying off course.

Into the trading week, (Dec. 12- )

Investors seemingly always look to the weekend for catalysts and position so by Friday’s trading close, especially if there is a summit of major importance as was scheduled for Friday, Dec 9.  Well, not this time around as all news flowed prior to timetable catching more than a few investors off guard.  The European charade was basically concluded by the opening of US trading on Friday, Draghi’s ECB surprise comments on Thursday overshadowing what came to be expected...a ‘relief’ band aid summit agreement.  The markets hysteria on Thursday (big down) and Friday (big up) is just commonplace 2011 action. 

New debates will emerge; new and old speculation will come again.   As discussed, watch (still) the Eurozone bond markets to be the signal for equities.  While summit’s expectations came down during week and end result was underwhelming, Sov’ yields didn’t widen much as in previous underwhelming summit days.  A bazooka result to keep calmness in peripheral Euro bonds may not be needed with all that has been done recently. The ECB liquidity measures were overlooked last week, they will be a big help here.

Underneath the Eurozone mess was continued unfavorable guidance continuing in tech (majority). Noted, GLW, OVTI recently, there has also been HTC and last week TXN, ALTR, LSCC all dropped guidance. Example LSCC dropped to -14-17% from -4 to -9%. These were not expected cuts, these co’s updated just recently.  Maybe, it’s a good thing SP came out of last week up 1% as no one is really paying attention yet to what damage has already been done by Europe to the real economy.  FDX will be eyed on Thursday for all of the markets. Also company analyst days will be in focus ie GE’s this week for 2012 guidance. Global flash PMI’s are the first December economic activity barometers we’ll get mid -week.

Ahead of the open, (13-12)

Nobody promised the conclusion of ECB, Euro leaders meetings would put a brake on the twists and turns in the market.  As aftermath..”.. (enough to stop S&P downgrades?),  leaves a lot of speculation ahead and more intraday swings” Dec. 9.  Fitch and Moody’s started the downgrade review card today. (SP looms for Tues.) * market may shrug off a negative SP note now due to market losses today, it may be positive short term market trade signal if any dip is bought.

ES began to weaken early pre-market off European bond markets selling off and the sell -off exacerbated off what was just hours prior the lead here into the trading week with semi tech giant INTC pre-announcing and cutting guidance quite severely, ”Underneath the Eurozone mess was continued unfavorable guidance continuing in tech (majority)…” Maybe, it’s a good thing SP came out of last week up 1% as no one is really paying attention yet to what damage has already been done by Europe to the real economy”.  As far as market taking cue off Europe, it’s not a case of the telegraphed, not surprising outcome of the summit that was viewed positively on Friday all off a sudden surrendering all gains off a few nights sleep after realization the implementation will take months, it’s more of traders just following the path of the peripheral euro bond market, EURO to pave the equity market direction day to day. In all, there is enough liquidity provided by ie. ECB that should contain yields from re- widening to recent alarming levels for the last 3 weeks of '11 trading.  The rest of the year doesn’t contain much in the way of meetings/ catalytic events for the Eurozone, so market will rely on Euro peripheral bond market solely. Thus, focus is either going to turn to ’12 real economy/Q4 EPS via guidance and/or will turn to US politics and debate over (unemployment benefits/tax holiday),with favorable outcome a market positive into year end.

Just like Thursday’s selling off a hawkish ECB, today’s selling wasn’t panicky either, but break of 20MA is ominous when paired with Euro and Gold selling off today. 20MA held today thanks some late dip buying, but a potential close below it in the days ahead will dampen any hope of a risk on seasonal rally and instead a sell mode effect will prevail. A nearby cross of 20ma/50ma is ominous as well.  Fears are seemingly accumulating now as INTC woke up those not “paying attention”, China export #’s.  The stress of Europe on others is beginning to show it’s hand.

Ahead of the open (14-12)

A puzzling early upward bias on what was only incremental news, if not negative (retail #’s lackluster, BBY earnings) had the market rallying.  The pre-market can be explained by a better sentiment overseas (decent auctions, but were only 3mth ones), the gains afterward left one dumbfounded. This was followed by a dramatic fall in the euro in minutes with equities scaling back all gains and more on a report Merkel said no to the ESM being topped up. Really?. Didn’t they just move up date of ESM with no extra firepower talk speculation? Market seems to be getting greedy and jittery at the same time. This ESM top up and Merkel’s repetitive response to it was not an immediate market expectation post- Summit or a surprise.  The upside or downside made no sense as there was no ‘real’ news.

The process of writing daily Journals begins with sticky notes you can say throughout the trading day as the paragraph above written in the morning. It’s not to recap the events for the next day’s journal as it’s never been the intention to recap here, but instead a ‘mentality check’, methodology, a look into what’s on the mind of a trader(s)during the day. The reason behind mentioning this now is the above paragraph can be repeated for the big sell off post- FOMC minutes. Last month, a lead into FOMC and possible MBS whispers came to an abrupt halt and was put away in this view into this FOMC meet up.  How the market or why the market responded the way it did leaves one dumbfounded again as it was not expected. These moves are always telegraphed. The only noise of FED action was a rumor of such floated in the morning.  (Statement was inline, so it was pure QE speculation).  Is the trader becoming naïve too, besides greedy and jittery.  It doesn’t happen this way, if anything was to happen it would have circulated around institutional desks days before and you would have heard about it here. The morning ramp and sell off was repeated in the afternoon on empty speculation. If there was no QE from ECB, why would the FED QE now?

All in, the trading action is signalling a lot of uncertainty and jitters, it all goes to show yesterday’s lead of ominous signals in the market are not be taken for granted …”..but break of 20MA (closed just above) is ominous when paired with Euro and Gold selling off today.( today,Euro slid to Jan lows ~1.30 and heading lower it seems 1.28 to start, Gold liquidating,off 5% on the week)… 20MA held today thanks some late dip buying, (again) but a potential close below it in the days ahead will dampen any hope of a risk on seasonal rally and instead a sell mode effect will prevail. A nearby cross of 20ma/50ma is ominous as well.  Fears are seemingly accumulating now as INTC (BBY today) woke up those not “paying attention”,(SMH hit hardest vs. other important indices)….  The stress of Europe on others is beginning to show it’s hand.

Let’s add the weakness in financials and the seasonal rally of 9% looks to have hit late Nov/early Dec as any idea of a rally now into year-end is cooling off.