11 Aug
Pre-open eMini S&P 500 Morning Report for August 11, 2010
Posted in Pre-open Analysis by Bob English at 9:09:58 18 CommentsUpdate: We just revised our estimate of Treasury QE to be $176.9 billion, or $14.7 billion per month. Figures below are updated accordingly.
The Precise Take – ES down to critical support
Big Picture Analysis: We mentioned the August trading range yesterday, which has seen both sides since the FOMC Announcement yesterday. The ES is now trading just below what we considered critical support at 1103.50, and a close below this level will damage the rally. If 1191.75 is taken out, odds favor a retest of the July lows. Regarding the FOMC Announcement yesterday, the Fed’s portfolio has been steadily shrinking as a result of principal payments on mortgage backed securities. It will now take its MBS and Agency cash flows and buy 2 to 10 Year Treasurys. Based on current interest rates, our math suggests this will be $176.9 billion over the next year or $14.7 billion per month. It remains to be seen if this will have the same equities ramping effect as it did in 2009, but we’ll keep a keen eye on the first few auction dates.
Leaders Analysis: Equities finally caught up with the plunging yield on long term Treasurys, as the latter is now at 2.72%. There is still a bit to go until 2.65% support is reached, and at that point there could be a slight relief rally. The US Dollar Index broke through trendline resistance to reach its 20 day moving average at 81.75, and has backed off a bit since doing so. The EuroYen and AussieYen are both down big (though to support) after consolidating ahead of FOMC day. For today, it looks like…
Jeff
on August 11 2010 at 09:37:40
Bob, when you said July lows…. did you mean mid-July around 1050 or early July down near 1000?
Thanks for the clarification.
Bob English
on August 11 2010 at 09:54:03
1018-25 near the lows is the strong support band that I think will be tested if 91 goes. This has been a summer of fakeouts and tough to predict beyond the next 15 minutes.
ahmedm
on August 11 2010 at 10:31:58
Is S&P getting some support here, Bob?
Bob English
on August 11 2010 at 10:44:50
A bit, but I think a few more points are in the cards
We’re entering a support cluster in SPX and are below 1091.75 volume based support in the ES.
spainconsultant
on August 11 2010 at 11:15:45
Euro is being smashed loosing more than 2 % against $ and yen………..
In the short term, the talks of FED Q-easewas the excuse to jump and jump from the July lows in the SanFermin and beyond rally………then comes the FED gives the market its Q-ease and suddenly everybody runs? furthermore everybody was looming in June and first day of July…………then suddenly a 12% rally in the middle of crappy macroeconomic news, was a bear trap or a hot air buble rally……… Agree with Bob lot of fakeouts so is difficult to know about this one being a pull-back or something more serious…….. Lucky we have Bob, if just I had traded what you said and not what I thought…………Good luck to everybody
This Image tool is nice…………but risky, you should give us the images allow guidelines
elliswyatt
on August 11 2010 at 11:18:28
I’m thinking seriously about t-shirts that say “Don’t fight the RBA.”
Bob English
on August 11 2010 at 11:30:27
No kidding, Ellis. Probably time to update that RBA spread chart.
Those embedded image tools for comments did not work. You need to use the HTML button above to manually enter the code and store the image somewhere else.
ahmedm
on August 11 2010 at 13:27:20
it doesn’t seem like anyone wants to buy anything
Bob English
on August 11 2010 at 14:14:18
I think equities have seen their lows for the day, but I don’t have a prediction for any upside potential. Euro keeps getting hammered.
ahmedm
on August 11 2010 at 15:03:17
NY FED SAYS TO BUY ABOUT $18 BLN OF TREASURIES IN NINE OPERATIONS FROM AUG 17 THROUGH SEPT 13
NY FED SAYS AMOUNT OF TREASURY BUYING IS EQUAL TO PRINCIPAL PAYMENTS FROM MATURING AGENCY DEBT, MBS
NY FED SAYS TO MAKE FIRST PURCHASE OF TREASURIES ON AUG 17, MATURING AUG, 2014 THROUGH JULY 2016
NY FED SAYS TREASURY BUYING INCLUDES TIPS PURCHASE ON AUG 30, FOR ISSUES DUE JAN 2011 TO FEB 2040
Bob English
on August 11 2010 at 15:17:22
Lack of responsive buying at these levels is not a good sign. R2K is the weakest.
Looks like Fed will buy 5′s and 7′s next Tues, 10′s Thurs and wait until the following Tues to buy yesterday’s 3′s. What restraint.
The next release of the approximate purchase amount and tentative outright Treasury operation schedule will be at 2 p.m. on September 13, 2010.
______________________________
1Operations are tentatively scheduled to begin around 10:15 AM and close at 11:00 AM.
2Nominal coupon operations are specified as “Outright Treasury Coupon Purchase” and TIPS operations are specified as “Outright TIPS Purchase”
elliswyatt
on August 11 2010 at 17:07:31
From the crazy ideas department. Aussie dollar pushes/pulls SPX?
elliswyatt
on August 11 2010 at 17:11:37
The image showed up in the comment window, but got trapped on the way to the comment list. Probably just as well.
The crazy idea is: Aussie $ hits its next pivot, SPX<=1080, if it expresses it’s “pulling up” effect, SPX can recover 1103.
http://i764.photobucket.com/albums/xx285/shalefrack/xfightrba.jpg
spainconsultant
on August 11 2010 at 21:35:57
About statistics and revisions, Gdp Q2 growth could be halved (http://www.marketwatch.com/story/whopping-downward-revision-for-q2-gdp-seen-2010-08-11)………….. that makes a lot more sense. Think we commented that the very same day the GDP figures were public
3.30 am in a swampy hot Majorca…….not far ago we touched 1073 (and 10 points rebound looking not long-legged) , so we have the 3rd downside target (see Bob report 08-11) in the very same day, 5th in some 48 hours…….
mahmed
on August 12 2010 at 00:29:16
The trade numbers the government uses to calculate GDP,
which are adjusted for inflation, deteriorated even more,
showing the gap widened to $54.1 billion from $46 in May.
Josh Shapiro, chief U.S. economist at Maria Fiorini Ramirez
Inc. in New York, is among those who said such a surge was
probably not repeated last month, so trade will not hurt the
economy as much this quarter. Shapiro estimated the second-
quarter growth rate will be cut to about 1 percent.
The expiration of export-tax rebates on some Chinese
commodities beginning in July may also cut U.S. imports from
China in coming months, helping to narrow the deficit and thus
contributing to growth in the third quarter, said Bandholz.
“It does appear there are temporary factors weighing on
the second quarter,” said Dean Maki, chief U.S. economist at
Barclays Capital Inc., who said the rate of growth last quarter
may be revised to as low as 0.3 percent.
“It does emphasize we are in a moderate growth environment
and not the strong growth we saw in the first couple of quarters
of the recovery,” he said.
mahmed
on August 12 2010 at 00:34:06
Expectation of GDP growth was 2.5%, it came as 2.4%, big deal. But market took it hard.
Now it could be revised to 1.4%, 1%, 0.03%?
Import was not just oil, it was cell phones, TV, computers, exports fell. Now USD is getting stronger again
Bob English
on August 12 2010 at 07:35:13
Ellis, how do you calculate the AUD pivot?
Mahmed, I think Q3 could ultimately end up at negative.
elliswyatt
on August 12 2010 at 12:37:58
I’m using a 30-minute for 20-day look at the percentage spread between AUD/USD Futures \ $SPX, and projecting right-wise from days when the spread was > 1 percentage point. 7/28 it averaged 1.3 points. 7/29, SPX crossed below. 7/30, AUD/USD re-crossed above, and 8/2 SPX followed to rally highs. Yesterday’s AUD/USD \ SPX spread averaged 0.98 points – close. Today it is wider ~ 1.1 points, with AUD/USD on top. The two-day behavior over the rally in SPX beginning 7/2 has been for this pair to revert, with the AUD/USD leading. Today’s “pull-up” effect is weaker than prior instances, but it is a two-day effect, and weakness in equities is, to say the least, expected. But it’s another one of those crazy ideas that seem to describe the case. On the 1-minute for 3-day percentage chart, the AUD/USD remains on top – the “pullup” position. Yesterday’s AUD/USD corresponded to its low of 7/29, today it corresponds to 7/28. If the pullup effect is of similar strength, the AUD/USD recovering to about .91 would correspond to SPX 1103. If the AUD/USD continues to lead lower at this spread, it would put the SPX at or below 1080. Which was as far as that notion went for this morning’s open.
At the moment, the AUD/USD just went south, and is threatening to cross below; but the observation only seems reliable over two-day periods, so we’ll see.