An Ignoble Experiment: Getting Back to Normal?

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"Getting Back to Normal?"

There wasn’t a great deal of news Thursday to move the markets, but they sure moved up early. The data that was released before the open wasn’t very bullish, so when the market rallied shortly after the open I’m sure most traders thought – “it’s getting back to ‘normal.’”

One may have argued that the 10-YR Note has been falling (thus driving yields higher and scaring equities) due to the belief that the economy is getting better. The early data has once again proved this assertion wrong.

The first data point to hit the tape was Q1 revised GDP. Official expectations were for a meager +2.5% reading, however, it was only able to print 2.4%. Although this isn’t a huge miss by any standard, the market was hoping for a lot more. Moreover, by this period in a real recovery (4 YEARS on) GDP should be quite a bit higher.

Next up were the weekly jobless claims data. Market consensus was for a 340k reading, but it was much worse at 354k Americans signing up for unemployment. Bloomberg said the following “Jobless claims unfortunately were back up in the May 25 week, rising 10,000 to a 354,000 level that is a sizable 14,000 above the Econoday consensus. The trend for initial claims, after having improved from late March, now looks flat over the last two months.

The 4-week average is up 6,750 to a 347,250 level that's the highest since late April. Though the news here isn't great, it shouldn't have much impact on expectations for the May employment report which was sampled in the prior week, the May 18 week when comparisons with the April mid-month sample week were favorable.”

There is more important data Friday morning and it will be interesting to see if more bearish news will move the ES higher. Considering that it will be a large POMO day, the answer is probably yes.

Trade well and follow the trend, not the perma-bull OR perma-bear “experts.”

---Larry Levin

In conjunction with TheStreet.com and Bar Chart, Trading Advantage Senior Market Analyst Alan Knuckman provides a daily morning update on the global action in stock futures, gold, oil and interest rates.

Congratulations to Keith Ippolito

Congratulation to our student of the day Keith Ippolito. Like many of the other students in the High Volume Area room, Keith is successfully applying the market profile techniques taught by Patrick. Because Patrick follows multiple markets, there are ample learning opportunities in real time for students like Keith. Congratulations!

1:24 pm Keith Ippolito: +360

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OPTIONS: Volatility Commentary

---Steven Lee / Michael Shorr

The Nikkei was down 5.2% in today's trade. That takes the broad index down nearly 14% since last week. The two contributing factors cited for the precipitous fall were fears about the end of the Fed's QE program and the falling dollar-yen. Conflicting signals continue to flow out of the housing sector. Today some good news. Sales of residential properties in foreclosure dropped 22% y/y in Q1. Foreclosure transactions accounted for 21% of all sales compared with 25% last year and a peak of 45% in Q1 2009. Then, some bad news. According to RealtyTrac: "the average time for a foreclosed property to sell just hit a record at nearly 400 days across the entire nation". Initial jobs claims rose +10k to 354k this week. The market was looking for 340k and last week was revised up to 344k. Continuing claims were up +63k to 2.99M. What was interesting (suspect) about the initial claims number was that due to the shortened holiday week, five states did not report at all and their numbers were "estimated". Call me a cynic, but it seems that the Labor Department never estimates on the high end of bad news. Don't be surprised if there are significant revisions next week.

Today we are looking at Covanta (CVA). The Company is a owner and operator of infrastructure for the conversion of waste to energy (energy-from-waste or EfW), as well as other waste disposal and renewable energy production businesses. Their earnings are set for release July 15. In the past few days, implied volatility has increased dramatically. There has been no fundamental reason for this. What's more interesting is that June IV (not included in the earnings release) is well over the July IV (this month is included in the release). The technicals all point to a continued bullish trend with moderate energy behind it. We constructed a trade signal to buy the June/July 22.5 call calendar. That took advantage of a lot of different facets of option trading. First, the decay in the June options. Without some fundamental reason for a "gap" type move, the June IV will decay at a much faster rate than the July options. We believe that the July options will hold their value (especially in relation to the June options) given the "event premium" priced into the earnings report. Second, we are not fighting the overall directional trend of the market. The stock and the entire market is in a distinct bull pattern and this construct is profitable with the continued move up. Third, alternative energy stocks are very much in vogue now. Look at solar, wind, etc. Lastly, there is very little capital outlay to enter into the trade, ~$0.15-$0.20. Very good reward to risk here.

FOREX: Currency Spotlight	---Ed Moya

NZD/USD fell today and made another attempt to take out the 80.00 price barrier level. The bearish stance in May remains in place and further downside may accelerate if that key support level is taken out. Over the past two weeks, price remains trapped in a 200 pip range and along with the tentative respect of the 80.00 handle, the Relative Strength Index (RSI) on the daily chart emphasizes a potentially oversold kiwi. Confirmation of the reversal will only be completed if we see a definitive kiwi rally above the .8200 level and RSI advances above 50.00 region. However, if price action breaks below the 80.00 level, possible momentum may target .7923, which is near the September 2012 low and is the 61.8% Fibonacci retracement level, of the May 22, 2012 low to April 11, 2013 high move.

STOCKS: Watch List

---Charles Moon

The Dow took a momentary dip into negative territory right at the open, but rallied quickly to push the market into the green. The Dow extended as high up as 95 points, but slid back to close up 21 points on the day. This rally was expected as the Dow has shown a habit of rallying the day after a loss through out the year. We have had back to back losing day, but they have been a rarity in 2013. The market rallied off the lukewarm economic data early in the morning, as it is perceived that the bond buying program has to continue. This is in blatant disregard of bad economic data, and shouldn't be a reason to over inflate the markets even more. We have a saying here that "bad news is good news, and good news is good news".

I had spoke on Netflix(NFLX) earlier this week, and had written to look for the rebound. It looks as if the $210.00 price is the level to look at for support in the short term. The two key numbers looming over this stock is $225.00 and $235.00, respectively. These can provide resistance particularly the $225.00 price. If the stock can get above and find immediate support at that price, that can help accelerate gains all the way to $235.00 in a short period of time. This stock is not for the faint of heart, as ranges can be wide and volatile any given day. It is a high risk, high reward type of stock if you catch the move at the right time. Pay close attention to these price points, and it can help you plan and navigate your way through the trade.

Unless the Chicago PMI and the Consumer Sentiment report comes in just flat out terrible, I fully expect the market to close in positive territory as it will be Friday and the end of the month. Look for the push early on, as it may mimic today's trading action. We can also just press to the highs early on, and slowly pullback throughout the day. Open Position: MS, PRU Stocks to Watch: NTC AAPL GOOG IBM AMZN PCLN BBRY FB LVLT CHKP CTXS CSCO BAC C PRU WFC GS JPM MS CMI CAT NFLX WDC GE AIG LULU LNKD DIS KORS COH FOSL CROX STZ NKE UA CHKP JNPR POT GMCR HLF HOG YUM LOW HD LEN TOL V MA AXP DFS LVS MGM TSL FSLR JASO

FUTURES: Technical Data

ES 1657.75 / 1652.75 POC… 1653.25 YM 15371 / 15327 NQ 3021.25 / 3008.25	NOTES FROM THE PIT Click Here To Read

COMMODITIES: Play of the Day

---Patrick Assalone

In macro news, U.S. crude futures prices rose as The Organization for Economic Co-operation and Development on Wednesday lowered its growth forecast fo China, the No. 2 oil consumer. German unemployment figures rose, however, curbing a rise in Brent this week, according to brokers. Based on our educational methodology, we are looking for short entries in direction of the long term trend even with today's rally. Possible entries could be at 93.87 with a target of 93.61 or another short entry with acceptance lower into the High Volume Area at 92.82 with the downside target of 92.26.

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