Blah, Blah, Blah

The market temporarily stabilized on Friday after a little bit of decent economic data as consumer sentiment rose to its highest level in more than five years. The Thompson Reuters/University of Michigan on consumer sentiment came in at 84.9, up from 82.

Why said consumer is suddenly optimistic, I have absolutely no idea. Generally, most economic data remains mixed at best, but even data like the last jobs report are lacking the necessary wage-based income growth needed to be sustainable.

Factor in the disruption from Sandy which will most likely exert a drag on consumer spending growth headed into the holiday season, and the forecast turns downright sketchy.

All of this comes with a worsening European “s%@t storm” and the big daddy downer of them all, the looming fiscal cliff. While both President Obama and Speaker of the House John Boehner took to the airwaves on Friday, proclaiming they want to solve the fiscal cliff, it sounded to me like more of the same.

Obama called for compromise in the context of tax cuts on the wealthy while Boehner talked of spending cuts and really by the end both of their eloquently crafted words amounted to blah, blah, blah.

Tuesday night’s results did nothing to change the basic dysfunctional dynamic between the two political parties. Victory guarantees the president nothing more than the headache of building consensus in a gridlocked capital. And of course, it’s all of us that pay the price. Somehow it’s hard to be confident.

Trade well and follow the trend, not the so-called “experts.”

Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banking mafia.

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Volatility Commentary

Repeating pattern 04/29/11 to 7/26/11?

The current market correction looks very similar to the correction the market underwent in 2011. Not the freefall that the market experienced in August 2011, but rather the 3 months prior. On April 29, 2011, S&P500 Index hit a high of 1363.61 and underwent a 7.2% correction to a low of 1265.42 on June 15, 2011.

During the following 5 weeks, the market rebounded off of its 200-day moving average and closed at 1331.94 on July 26,2011 (the day before the beginning of a precipitous market fall). Furthermore, during these 3 months, VIX moved in a range between 15.5 & 19.5, and only for a few days did VIX spike up to 22 level. The current market correction has thus far closely mirrored the price movements of 2011. S&P500 Index closed today at 1379.85, down 4.7% from its September 14th closing high of 1447.15.

The index is also currently near its 200-day moving average, although a stronger support level based on trendlines is slightly below around 1360-1370. VIX has also followed a similar pattern thus far, moving within 15-19 level for the past few weeks. Should the current pattern continue to resemble April to July of 2011, perhaps we could expect a market rebound soon and until mid-December. December 21, 2012 anyone?

Currency Spotlight

The FX market will focus on five key issues for the rest of the year.

1.  Now that the election is over, all market participants in the U.S. will evaluate their portfolios, as potential tax hikes may hurt their bottom line.  A continued sell off in equities will only increase demand for safe haven currencies.

2.  Businesses will remain conservative in hiring new individuals as the, economy remains sluggish.  With Hurricane Sandy distorting several key statistics over the next few weeks, further expansion and growth is being revised to the downside, negating any businesses that were on the verge of increasing their workforce.

3.  The fiscal cliff is also a dangerous risk event that could trigger a wave of selling of high-beta currencies and adding further strength to the Japanese yen, Swiss franc, and U.S. dollar.  The fiscal cliff is expected to be resolved; some economists are calculating a 60-70% chance of being addressed (which includes extending tax cuts 6 –months and then revisiting this issue).

4.  Europe is in headed in the wrong direction and there is no reason why to believe things will change.  Industrial production fell in several European nations, a possible sign that European market is about to get a lot worse.  This week, Die Zeit reported that Germany’s second- biggest lender, Commerzbank will have 5,000 to 6,000 layoffs.  France is now expected to enter into a recession.  In Greece, the unemployment rate rose to 25.4% from 24.8%.  The rate for young adults is 58%, more than double the 24.3% from the summer of 2009.

5. The Political War amongst EU members will intensify as next year’s budget will likely miss its November 13^th deadline. EU governments and Parliaments will also need to secure extra funds (around 9 billion euros) for this year and finalize the hopefully compromise on a breakdown for the 2013 budget. If negotiations fail before the end of the year, finances of the EU will suffer and we will probably see significant devaluation of the euro.

Watch List

After we got off to a pretty nice start to the market today, the President spoke and the market said NO! Went into a hard sell off and retraced right back to the open. Quick and furious trading during that time, momentum built up quickly and down the market went! Actually now that I think about it, the market usually sells when the President speaks.

Financial sector started off strong early on, but again when the President spoke they gave back most of the gains from earlier in the day. They did recover to close up for the day, and the outlook is still good for the short and intermediate term for upside play. Out of all the sectors this has the best buying opportunities in my eyes to gain substantial value in 2013. Now obviously certain things need to play out, and unless the EU has a massive crash/collapse then the sector is a great Bull play.

Finally I want to touch on AAPL once again. It had opened below the 550.00 mark and there was no doubt that profit taking was going to come into play after the hard sell off the last two trading days. A huge level of resistance presented itself at the 550.00 mark and sure enough, every time it tried to pull away it would get SLAMMED and dropped that threshold. Now to me if they still suppress the buyers in the market, it will only confirm what I had mentioned yesterday. AAPL is trending down possibly to 525.00 and if it flushes then 500.00 will almost be a certainty. Open Position: CHKP Stocks to Watch: AAPL AMZN FSLR GMCR NFLX DIS HD BAC C PCLN

Futures Data

Value Areas:

ES 1383.00 / 1374.50

POC… 1377.50

YM 12807 / 12745
NQ 2594.75 / 2578.25

Notes from the Pit

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Dan O'Brien - Smaller Profit Targets

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