Last week the Fed and Europe dominated the markets. This week Europe and a vast amount of macro news should be dominating the markets once again. The Fed warned of a “significant risk” for our economy last week and did not announce more money printing in the form of QE3. The dollar quickly strengthened on this news whilecommoditiesand the market fell hard with a very light bounce on Friday. We are not far from the lows of the year. If the trading range stays intact, which I am not optimistic it will, this would be a great time to buy. With no real positive news expected on the horizon, the odds of breaking down further are increasing. Outside of some unexpected bullish news, the quickest way to get the market to rally would be when all the bad news is digested and market players are desensitized to the same concerns. This is not an Armageddon scenario and market players will realize that at some point. However, if we continue this current path, that scenario will play out some day, just not yet.
It is finally becoming generally accepted that Greece is going to default. This is bad news, but Greece is not a major global economy, so it could be worse. That “worse” is in the form of Italy, a major part of the global economy. Italy may be anotherdominoto fall down the line that would be a major hit to the global economy if they do follow the same path as Greece. These fears will grow over time.
Outside of the normal European concerns, this week has a significant amount of macro news starting with new home sales on Monday and the third GDP estimate for Q2 on Thursday. Since this is the third estimate, it tends to be less volatile and more in-line with what is expected. In-line numbers tend to be bullish, if anything, only because they are expected and this helps desensitize market players to the bad news.
| Date | ET | Release | For | Actual | Briefing.com Forecast | Briefing.com Consensus | Prior | Revised From |
|---|---|---|---|---|---|---|---|---|
| Sep 26 | 10:00 | New Home Sales | Aug | 290K | 293K | 298K | ||
| Sep 27 | 09:00 | Case-Shiller 20-city Index | Jul | -4.5% | 4.5% | -4.52% | ||
| Sep 27 | 10:00 | Consumer Confidence | Sep | 45.0 | 46.7 | 44.5 | ||
| Sep 28 | 07:00 | MBA Mortgage Index | 09/24 | NA | NA | 0.6% | ||
| Sep 28 | 08:30 | Durable Orders | Aug | 0.5% | 0.0% | 4.1% | 4.0% | |
| Sep 28 | 08:30 | Durable Ordes ex Transportation | Aug | -0.5% | -0.2% | 0.8% | 0.7% | |
| Sep 28 | 10:30 | Crude Inventories | 09/24 | NA | NA | -7.336M | ||
| Sep 29 | 08:30 | Initial Claims | 09/24 | 415K | 420K | 423K | ||
| Sep 29 | 08:30 | Continuing Claims | 09/17 | 3700K | 3713K | 3727K | ||
| Sep 29 | 08:30 | GDP – Third Estimate | Q2 | 1.2% | 1.2% | 1.0% | ||
| Sep 29 | 08:30 | GDP Deflator – Third Estimate | Q2 | 2.4% | 2.4% | 2.4% | ||
| Sep 29 | 10:00 | Pending Home Sales | Jul | -1.5% | -1.3% | -1.3% | ||
| Sep 30 | 08:30 | Personal Income | Aug | -0.3% | 0.0% | 0.3% | ||
| Sep 30 | 08:30 | Personal Spending | Aug | -0.2% | 0.2% | 0.8% | ||
| Sep 30 | 08:30 | PCE Prices – Core | Aug | 0.2% | 0.2% | 0.2% | ||
| Sep 30 | 09:45 | Chicago PMI | Sep | 53.0 | 54.0 | 56.5 | ||
| Sep 30 | 09:55 | Michigan Sentiment – Final | Sep | 57.0 | 57.6 | 57.8 |
This week is going to have higher-than-normal risk, so adjust your strategy accordingly. My strategy is to hold mostly cash and hold both long and short positions to trade the volatility. I can not be confident in the direction we will move, but I am more confident we will bounce in both directions until that final direction is clear. Forced to choose, I believe we break the lows of the year soon. I’m not bettingaggressivelyon that though. I will look to trade the volatility and take profits from my longs on bullish days while taking profits in shorts on bearish days. I’ll consider adding those profits back by adding to shorts on bullish days and vice versa. As discussed often, I will be keeping positions much smaller than normal. Risk is high and we are still handcuffed to headlines, not making trading an easy task. Many seasoned traders are still holding cash and taking a vacation. I can’t blame them nor can I knock that strategy.
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As always, do your own homework to see if you agree. Good luck out there.
Mike
No positions mentioned.
