The US market had a nice rally continuing from yesterday’s. And we are waiting for the decision from the ECB on Thursday.
US China Trade Wars
This is something we have to watch out for. Since the bill has been passed and no detail plans have been reported on the news, any detailed plans that’s executed may stall the already slowing engine of China, and bring about negative consequences to the world economy.
Mixed signals out of Europe. Nobody wants troubled economic environment yet there have not been any real solutions announced: just rhetoric. Why does the EFSF keep wavering without a push?
”In the last three years, member states have granted aid and provided guarantees of 4.6 trillion euros to the financial sector. It is time for the financial sector to make a contribution back to society,” he said, adding that such a tax could raise as much as 55 billion euros a year.
Any such duty is strongly opposed by the United States and Britain, which has the EU’s largest financial centre.
“Any financial transaction tax would have to apply globally and there are a number of practical issues that need to be worked through,” a Treasury spokesman said.
More credit rating cuts and warnings of further cuts in Europe
The Market Today
Yesterday’s possible intervention serves as a strong floor to the market.
Yesterday the S&p500 rallied 400bps in the last 30 minutes of trading. During the day it traded through many support levels. The papers reported the FT breaking news article at 3:30 as the reason but the article referred to was just an update from an earlier article in the day. The veraciousness of the rally leads us to believe that there was intervention buying to scare short traders and this which caused a mood change. There was no real reason to sell the market below current already low levels.
Today many people were expecting the S&P500 to give back some of its gains but it closed 1.85% higher (8.95 points in the last 30 min =.78%)to cross the 1400 level (1500 is important resistance, 1120 and 1100 important support) last week closed at 1134.62.
Is this rally to be believed? Earnings from Yum and Costco today disappointed the markets because although they had good EPS and sales, their stock price implied higher growth. Monsanto reported a loss for earnings but better than expected- the stock rallied 5% but after hours down 4.98%!!!
Because of the large rally in the last two days, we believe we have established a weekly floor in the market. We expect to re-test support on Friday , because we believe traders want to square long position for the weekend in case of unexpected negative news from Europe. Of important note: Shw closed above its resistance of $77 for the first time since July 25. next level is $80. IWM closed testing resistance $65 since Aug 9.
Tomorrow we have the ECB meeting and announcement. We are not expecting the ECB to reduce the rates and post more monetary stimulus based on the ECB’s track record and Trichet’s talk yesterday.
On Friday there will be payroll numbers. The ADP payroll numbers showed positive sign but there were reports of large scale layoffs recently. Therefore the number may come out disappointing the market.