Today President Obama is expected to reappoint Fed Chairman Bernanke to another term. This news did not come as surprise to the markets especially after Bernanke’s upbeat speech late last week regarding the economic recovery in the U.S. Traders also figured that he would stay on board especially since there is still a long road to recovery before the Fed begins to raise interest rates. With so many Fed actions yet to be unwound before the U.S. fully recovers from the worst recession in decades, it didn’t make sense to hand the job over to anyone else.
Comments from a banking official in China shouldn’t be ignored by traders. Overnight a banking official said that governments and central banks have to be wary of excessive cash causing asset bubbles. This news comes as central banks have to decide whether to up the amount of financial stimulus available or remove some of the excess stimulus still in the system now that the global economy has started to recover. Look for pressure on China’s equity markets and lower demand for commodities if China decides to curb excessive liquidity. Weakness in its markets could spread globally.
With the Bernanke news a non-event, traders will be watching the Case-Shiller Housing Report and the Conference Board’s Consumer Confidence figure for direction. The Case-Shiller Report is expected to show a decline of 16.4%. This number would be the smallest drop in almost a year. Despite recent negative economic reports, traders have been buying equities when negative news ends up better than expected. Traders somehow feel contractions less than forecast are bullish signs. Investors will also be watching the Conference Board’s Consumer Confidence figure. This report is expected to show that consumer confidence rose for the first time in 3 months.
The Consumer Confidence figure should be the market mover today. Recent activity by the consumer has been a major concern of equity traders recently. This was especially true of the last retail sales report. Consumers have cut back in spending because of the fear of job loss. If this trend continues then the pace of the economic recovery will be much slower than estimated. The “cash for clunkers” program encouraged consumer spending but also increased consumer debt. The Fed’s mortgage buyback program will be coming to an end in October so soon there will be little stimulus to help the consumer. Nonetheless, today’s report may show an increase in confidence, but this may have been triggered by the bullish stock market. If this number comes out worse than expected, look out below in the stock market.
Yesterday the September E-mini S&P 500 posted a closing price reversal top. This wasn’t a big event, but this signal has been know to trigger the start of substantial corrections. In this case because the market has been so bullish lately, expect only a 2 to 3 day break. A follow-through break through yesterday’s low will confirm the reversal top at 1035.00. If this break attracts sellers then look for a break to at least 1005.25 to 998.25 over the short-term. A new high negates the signal.
The same pattern developed in the September E-mini NASDAQ. Based on the short-term range of 1561.25 to 1648.00, look for a potential break to 1604.75 to 1594.50 over the short-run if this reversal top is confirmed today. A trade through 1648.00 will negate the signal.
The September E-mini Dow closed up, thereby creating a minor divergence between the Dow and the NASDAQ and S&P 500. This minor divergence could develop into something major if the two closing price reversal tops are confirmed.
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