18 Aug
Pre-open eMini S&P 500 Morning Report for August 18 2010
Posted in POMO, Pre-open Analysis by Bob English at 9:18:49 15 CommentsGoing forward, the Big Picture Analysis will be combined with the Leaders Analysis
The Precise Take – Equities consolidating yesterday’s gains ahead of opex Friday
Big Picture Analysis: The Federal Reserve Bank of New York conducted its first Treasury permanent open market operation (POMO) yesterday–the first such since October, 2009. Long time readers will recall that there was a strong correlation between POMO days and paint the tape closes in the second and third quarters of 2009. Yesterday was nearly the reverse, as equities rallied throughout the morning auction and shortly thereafter, but sagged on the close. A sample size of 1 a trend does not make, but it to seemed to be a blatant risk-supportive signal. Also noteworthy was the large decline in 10 Year T-Note futures, suggesting that their recent parabolic rise could have been mere front-running of the Fed–financial institutions bidding up coupon Treasurys in anticipation of selling them at a profit back to the Fed. The amount of Fed purchases ($18 billion for the first month) is a bit less than 2009, so it remains to be seen if the 2009 effect can be duplicated. It’s also possible the money will be directed…
tester
on August 18 2010 at 09:31:46
Testing new feature that allows commenter to edit comment within 60 minutes of posting.
Looks like it works.
KL
on August 18 2010 at 09:32:38
Hi Bob,
I Remember well how the market was bid up on the POMO days, especially during the last hour. Do you think it will happen this year as well?
The amounts of QE are smaller this year, but since the end of the August is rather illiquid and volume is light, it will probably have a bigger effect this month than in September
Bob English
on August 18 2010 at 09:49:01
Hard to say KL. This time of year is very sensitive to liquidity. I don’t think future POMOs will have as immediate an effect. Yesterday was just a signal in my opinion. Last year, as the tape paint effect became anticipated, it went away, although equities continued to rally at different times. How’s everything in Estonia?
KL
on August 18 2010 at 10:11:11
It sure does look like everybody is frontrunning FED with treasuries (hence the yield was up yesterday and is down today), will be interesting to see what happens tomorrow. But it does make sense that the first POMO days will have a more meaningful effect.
Things in Estonia are improving well (GDP in Q2 was +3,5% vs. 2,0% estimate), but I guess that during the next 12-18 months the most important thing for us (as well for all the developing markets) is how much the western economies will cool down. And right now the risk looks pretty high ..
spainconsultant
on August 18 2010 at 10:21:57
This is a nice game for big financial institutions and banks, sell the treasuries high to the FED, buy stocks cheap, last hour (or next day) sell them higher, put the money in FED remunerated deposits, next day (wed-friday-monday) buy cheaper treasuries……… and the circle of life continuous as long as Bernanke plays the game. If something goes wrong? No big deal, 10 millon $ bonus are guaranteed because congress and senate will pass trillions of American plumbers, accountants and every day working people taxes to guaranty the health of American banks in charged of this so clever poor people that earns a lot less that Lebron James (go heat!)
After the pain, Estonia seems to be doing great lately, right KL?
spainconsultant
on August 18 2010 at 10:24:45
Bob English
on August 18 2010 at 12:04:33
I’m reposting Ellis’ comment here so it’s on today’s feed:
Well said. That big 50% short from yesterday worked well, as have seemingly all of them in the past month.
1093.50 to 1094.50 is now today’s big resistance.
Bob English
on August 18 2010 at 13:15:23
Impressive rally. Why 94.50 per the prev. comment? After this morning’s decline, shorts should have reasserted control at yesterday’s 94.50 high volume level and point of control. They did not and it should now act as support.
Bob English
on August 18 2010 at 16:31:10
It’s safe to say 94.50 was blown out, and now there’s a perfect double top over the last two days. Opex is now in play, and it looks like SPY option max pain is 108 and 112. Should see one of those two extremes soon.
sdg
on August 18 2010 at 16:47:01
I got short at 1097 and market did not break down for a long time. Covered too early out of frustration.
Today’s range was perfect. Thanks Bob.
spainconsultant
on August 18 2010 at 17:40:56
I leave early, for celebrating Santa Helena, didn´t want to look at the market, kind of negating reality fase………..but thought about posting that Ibex (Spain) closed just 0,21 % up…………. is advancing very well Dow Jones closes this last days……….. and closes kind of 5 hours before (both the cash and the future, that´s a difference with Dax, Germany, or CAC, France
Also is being kind of weak this last 4-5 days. For the ones that like to
have a look, you cand find it free, real time in the next link
http://www.eleconomista.es/indice/IBEX-35/estadisticas
Also in the blue letters above the chart, “grafico de velas” means “candlestick chart” and “graficos interactivos” interactive chart
Tomorrow treasuries big bought…………..last minutes could be the preparation? money in-out stocks/treasuries by the Big Boys (or PD´s as Ellis short name them) and VIP entrance to the FED´s heaven……….
Opex week, as Bob pointed Monday……….. swingers all around
Is very wiseful not take care of my comments about market possible moves always………. furthermore today the dinner was kind of set menu with wine, lot of wine
Good night to everybody
spainconsultant
on August 19 2010 at 00:54:19
Maybe worth noticing:
German 30-Year Bond Yields Fall to Record; Demand Holds at Sale
Aug. 18 (Bloomberg) — German 30-year bond yields fell to a record and 10-year bunds were sold at the lowest rate in at least a decade, indicating demand is holding up amid concern the global economic recovery is flagging.
Bob English
on August 19 2010 at 08:37:30
Thanks. Jobless report very nasty.
spainconsultant
on August 19 2010 at 08:40:19
500.000 weekly claims!!!. kind of big number, not weird with the macro indicators we are seeing………. But don´t worry, day is going to be up (much probably) 3 reasons:
- FED goes shopping today
- Opex tomorrow
- FED is going to hire so many helicopter pilots, paper keepers, liquidity experts, plunge protection team members and cheerleaders……..that very soon there would be no need of private jobs………. That´s kind of the approach in Spain were kind of 1 in each 5 works for the state…….and we even don´t have a Central Bank with autonomy….. Some day main street economy may weight in the stocks……….but I would bet is not going to be today……… tomorrow?
spainconsultant
on August 19 2010 at 08:58:19
Thank You Bob! I come here in front of your clever audience and let my Talking Head instints go……..and is for free
I promise to restraint myself the rest of the day (Spanish day
Have a nice day everybody