September 22, 2011 HOME EDUCATIONAL PRODUCTS CONTACT TONI An online version of this newsletter is available at http://www.tonihansen.com/Newsletters/current.html.
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Daily Commentary
Tuesday’s Weak Bias Plays Out Post-Fed (Note: Unless otherwise stated, the index action described below relates to the EMini futures contracts for the respective indices. Actual index action may differ slightly in terms of pattern formation, although the market bias will remain the same.) WEDNESDAY’S MARKET WRAP-UP Market Snapshot for September 22, 2011 (12:32 am ET): Closing Prices: DOW 11,124.84 (-283.82, -2.49%),SandP 500 1,166.76 (-35.33, -2.94%), NASDAQ 2,538.19 (-52.05, -2.01%), Nikkei 225 8,558.44 (-182.72, -2.09), DAX 5,433.80 (-137.88, -2.47%), FTSE 5,288.41 (-75.30, -1.40%) OIL 84.41, GOLD 1,780.90, SILVER 39.585 EURO 1.3542, YEN 76.77, BRITISH POUND 1.5459, U.S. DOLLAR INDEX 78.615 Fed Fails to Provide Relief The focus throughout Wednesday’s session was the Fed’s policy announcement following a two-day meeting of the FOMC. The market held up well heading into the news, but offered little action for short-term traders by holding in a trading range throughout the session until after the afternoon announcement. As I mentioned in yesterday’s column, this set the stage for the bears with favor towards a late-day breakdown.
This bias played off daily resistance levels such as the 50-day moving averages in the Dow Jones Industrial Average ($DJI) and SandP 500 ($SPX). I’ve spent a lot of time over the years writing about what to expect following a Fed announcement and Wednesday afternoon was a strong example of the norm. Volatility spikes immediately following the news. This is the most dangerous time for market participants since stops are easily flushed. Heading into the news, my bias was in favor of the bears, but notice that the indices flushed quickly to the upside before continuing with that bias. This would have easily shaken out traders that positioned themselves short ahead of the release and used stops on the books to protect themselves from extreme losses. Dow Jones Industrial Average (Figure 1) With news events this strategy for entry and stop placement, which is great under normal market circumstances, is extremely hazardous. Once the news had settled, however, there was still plenty of opportunity to play with. The action I typically look for following Fed releases takes place within three waves. These tend to occur first on a 1 minute chart and then repeat on the 5 minute.
The 5 minute is where most traders find the best opportunity since the action is not nearly as hectic as the immediate response. On Wednesday, the initial reaction on the 5 minute time frame was in favor of the bears. A two-wave secondary reaction followed, which set up a nearly textbook short off the 5 minute 20 period moving averages in the major indices heading into the final 45 minutes of trade. This was the strongest Fed reaction we’ve seen in quite some time and one of the strongest of the past two years. Lately the Fed announcement has not been as exciting as it once was, but this time around the Fed gave investors more food for thought with the additional announcement it would move to launch yet another recovery package. Dubbed Operation Twist, this move to rebalance the Fed’s portfolio consists of a $400 billion program that would focus upon selling short-term notes to purchase longer-term Treasuries. The Fed also reiterated plans to keep interest rates low into at least 2013, and emphasized the downside risks to the economic outlook, in addition to strains in the global financial markets. The market should take some time on Thursday to digest the selloffs of the past two days, but use caution when approaching larger intraday and overnight positions.
A slow down in the selloff afterhours from Wednesday evening into early Thursday morning leaves the door open for some upside recovery into Thursday’s session, but the larger 15 minute time frames should limit such action and the overall pace will be slower than the decline. As I write this, however, there is no setup for a buy and the potential for the slower trend to continue into previous daily lows in the Dow and SandP 500.
SandP 500 (Figure 2) Index Results
The Dow Jones Industrial Average ($DJI) ended the day on Wednesday with a loss of 283.84 points, or 2.49%, and closed at 11,124.84. Hewlett Packard (HPQ) was the only component in the Dow to post a gain. It rallied 6.72% on speculation that the company’s CEO, Leo Apotheker, may be removed after only 11 months on the job. The top decliners in the index were Bank of America (BAC) (-7.54%), JP Morgan Chase (JPM) (-5.92%), Caterpillar (CAT) (-5.14%), and Travelers (TRV) (-4.42%). The financials were the hardest hit following debt rating downgrades by Moodys on Bank of America (BAC), Citigroup (C), and Wells Fargo (WFC). The SandP 500 ($SPX) loss of 35.33 points, or 2.94%, and closed at 1,166.76. The top percentage performers in the index were Hewlett Packard (HPQ) (+6.72%), Range Res. Corp. (RRC) (+4.73%), Oracle (ORCL) (+4.20%), and General Mills (GIS) (+2.53%). None of the SandP’s industry groups managed a gain. The top individual decliners were Alpha Natural Resources (ANR) (-17.16%), Cliffs Natural Resources (CLF) (-12.82%), Morgan Stanley (MS) (-8.60%), and Leucadia Natl. Corp. (LUK) (-8.52%). The Nasdaq Composite ($COMPX) ended the session lower by 52.05 points, or 2.01%, on Wednesday and it closed at 2,538.19. The strongest performers in the Nasdaq-100 ($NDX) were Liberty Media Corp. (LINTA) (+8.12%), Oracle (ORCL) (+4.20%), Vertex Pharmaceuticals (VRTX) (+2.17%), and Netapp Inc. (NTAP) (+1.79%). The weakest performers were Illumina Inc. (ILMN) (-7.36%), First Solar (FSLR) (-7.18%), Joy Global (JOYG) (-7.16%), and Virgin Media (VMED) (-5.70%). Nasdaq Composite (Figure 3) ECONOMIC REPORTS AND EVENTS THIS WEEK U.S. Domestic: Eastern Time Zone (GMT -5:00) (New York, Toronto) Sep 19 10:00 AM NAHB Housing Market Index Sep Sep 20 8:30 AM Housing Starts Aug Sep 20 8:30 AM Building Permits Aug Sep 20 2:15 PM FOMC Rate Decision Sep Sep 21 7:00 AM MBA Mortgage Index 09/17 Sep 21 10:00 AM Existing Home Sales Aug Sep 21 10:30 AM Crude Inventories 09/17 Sep 21 2:15 PM FOMC Rate Decision Sep Sep 22 8:30 AM Initial Claims 09/17 Sep 22 8:30 AM Continuing Claims 09/10 Sep 22 10:00 AM FHFA Housing Price Index Jul Sep 22 10:00 AM Leading Indicators Aug International: Eastern Time Zone (GMT -4:00) (New York, Toronto) Sep 20 01:00 JPY Leading Index (JUL F) Sep 20 01:45 CHF SECO September 2011 Economic Forecasts Sep 20 02:00 EUR German Producer Prices (AUG)*** Sep 20 02:00 CHF Trade Balance (AUG) Sep 20 02:00 EUR German Producer Prices (AUG) Sep 20 05:00 EUR German ZEW Survey (Economic Sentiment) (SEP)*** Sep 20 05:00 EUR German ZEW Survey (Current Situation) (SEP) Sep 20 08:30 CAD Leading Indicators (AUG) Sep 20 08:30 USD Building Permits (AUG) Sep 20 08:30 USD Housing Starts (AUG) Sep 20 18:45 NZD Current Account Balance (2Q) Sep 20 19:50 JPY Merchandise Trade Balance Total (AUG) Sep 20 23:00 NZD Credit Card Spending (AUG) Sep 20 23:00 NZD Credit Card Spending s.a. (AUG) Sep 21 00:30 JPY All Industry Activity Index (JUL) Sep 21 04:30 GBP Bank of England Minutes*** Sep 21 04:30 GBP PSNB ex Interventions (AUG) Sep 21 04:30 GBP Public Finances (PSNCR) (AUG) Sep 21 04:30 GBP Public Sector Net Borrowing (AUG) Sep 21 07:00 CAD Consumer Price Index (AUG)*** Sep 21 07:00 CAD Bank Canada Consumer Price Index Core (AUG) Sep 21 10:00 USD Existing Home Sales (AUG) Sep 21 14:15 USD Federal Open Market Committee Rate Decision (SEP 21)*** Sep 21 18:45 NZD Gross Domestic Product (2Q)*** Sep 22 05:00 CHF ZEW Survey (Expectations) (SEP) Sep 22 05:00 EUR Euro-Zone Industrial New Orders (JUL) Sep 22 08:30 CAD Retail Sales (JUL) Sep 22 10:00 EUR Euro-Zone Consumer Confidence (SEP A) Sep 22 10:00 USD House Price Index (JUL) Sep 22 10:00 USD Leading Indicators (AUG) Sep 22 20:00 AUD Conference Board Leading Index (JUL) Sep 23 EUR Euro-Zone Purchasing Manager Index Composite (SEP A) Sep 23 EUR Euro-Zone Purchasing Manager Index Manufacturing (SEP A) Sep 23 EUR Euro-Zone Purchasing Manager Index Services (SEP A) Sep 23 EUR German Purchasing Manager Index Manufacturing (SEP A) Sep 23 EUR German Purchasing Manager Index Services (SEP A) Sep 23 04:30 GBP BBA Loans for House Purchase (AUG) *** Highly influentialNotice: The Bastiat Group, Inc. has attempted to verify the information contained in this calendar, however, any aspect of such info may change without notice. Foreign economic reports included in this list are only those deemed medium to high impact. KEY EARNINGS ANNOUNCMENTS THIS WEEK Monday, Sep 19, 2011 Before: LEN During: – After: ARAY Tuesday, Sep 20, 2011 Before: AZO, CAG, FDS, GFN, GENT, JEF, VSR During: – After: ADBE, ALOG, ORCL Wednesday, Sep 21, 2011 Before: IHS During: – After: BBBY, FUL, MLHR, RHT, SCS Thursday, Sep 22, 2011 Before: FDX, RAD, SYMX During: – After: NKE, TIBX Friday, Sep 23, 2011 Before: – During: – After:
Note: All economic numbers and earnings reports are in line with those compiled by Briefing.com. Occasionally changes will occur that are made after the posting of this column and some companies have not confirmed their time, so always double check when taking positions overnight during earnings season! (?) = Not yet confirmed at the time the list was compiled. DISCLAIMER There is a very high degree of risk involved in trading securities. Past results are not indicative of future returns. Prior to the execution of any securities trade, you should always consult with your broker or other financial advisor. The positions given and described by the Bastiat Group, Inc. and its employees and affiliates are for educational purposes only. The Bastiat Group, Inc. and its members, employees, agents, consultants, analysts, representatives, content and/or service providers, affiliates, subsidiaries, successors and assigns (hereinafter collectively, The Bastiat Indemnities) assume no responsibility or liability for your trading and investment results. Go to http://www.tonihansen.com/disclaimer.html for a complete disclaimer. © 1998-2011 All information presented is property of TradingFromMainStreet.com and Bastiat Group, Inc.
