The E-Mini appeared to be in a suspended state of "roll over and play dead" after last week's rallies in reaction to U.S. Federal Reserve Chairman Ben Bernanke announcement of QEI. (I = infinity)
The Federal Reserve will purchase $600 billion in bonds including mortgage-backed securities to boost the housing market. The stimulus may boost the stock market along with housing and perhaps the labor front. The target unemployment rate could move closer to 7% unless inflation reaches 3% first. While the Fed worked on putting about $40 billion into the economy per month, the European Central Bank (ECB) also introduced a bond buying program to stimulate the euro economy.
ECB President Mario Draghi was at first met with opposition from Germany, but the German Constitutional Court ruled to support the European Stability Mechanism (ESM). Now that everything is set, the markets are looking at Spain to see if a full bailout will be requested. Spain must meet month's end structural reforms.
Monday's action across the board was wrought with demand concerns over U.S. products. Higher prices may dampen the demand further, but the weaker U.S. dollar could create a boost in the marketplace. One has to wonder if the stimulus both here in the U.S. and the eurozone will be enough to eventually end the debt crisis. Spanish and Italian bond yields were up again today.
The market may actually have factored in a potential bailout for Spain. Out of the 27 Eurozone nations, 21 are deemed under excessive deficit procedure and may be subject to fines and disciplinary action. Budget deficits must be below 3% of their GDP. Target deadlines remain mixed as the "six- pack" rules are setup to combat contagion fears. Eurozone exports contracted 0.2% in the second quarter year on year while the trade surplus was $15.6 billion euros in July.
The U.S. Federal Reserve's Empire State Manufacturing Index decreased to -10.41 from a -5.9 in August. The new orders portion of the index decreased to -14.0 in September from - 5.5 in August. The forward-looking portion of the index increased to 27.2 in September from 15.2 in August. The number of employees decreased from 16.47 in August to 4.3 in September.
Steel stocks today were downgraded by JP Morgan analysts going from "overweight" to "neutral." Cliffs Natural Resources (CLF) and US Steel (X) both were down on the forecasts. General Electric (GE) suffered "urgent safety recommendations" on their Boeing (BA) jet engines by the National Transportation Safety Board taking the stock down along with Boeing as well.
U.S. President Barack Obama was applauded on his attack on the Chinese auto and auto parts subsidies that compete with U.S. companies that hire Americans. China's exports in auto parts are thought to be about $70 billion at today's market. China has been accused of currency manipulation as an unfair trade advantage over the years, but perhaps never so voraciously as now with so many countries on the verge of recession.
Our trade partner has had an undervalued yuan making Chinese imports in demand. After last week's action, it is only natural for the market to pause and pull back from the highs. Often the more solid support comes from a market that will back and fill on the charts while still pushing higher. Any market gapping up or extending higher each day without any back and fill may require a more severe correction. While the bull trend remains intact, we encourage caution with the use of stops and a trade plan that embraces all possibilities. We are at 4 year highs and the S&P500 Emini Futures are pressing the top of a price channel that has been building since June of this year.
On the stock side: JP Morgan Chase and Co. (JPM) was down 0.95 % to $41.17. Citigroup Inc. (C) was down 1.93 % to $34.12. Bank of America (BAC) was down 2.41 % to $9.32. Alcoa Inc. (AA) was down 2.64 % to $9.58. Boeing Co. was down 1.87 % to $69.95. Caterpillar Inc. (CAT) was down 1.11 % to $92.14. General Electric Co. was down 0.50 % to $22.00. Halliburton Co. (HAL) was down 0.51 % to $37.25. Hewlett Packard Co. (HPQ) was up 0.06 % to $18.18. SPDR Select Sector Fund - Financial (XLF) was down 1.04 % to $16.11.
Today, we have no major U.S. economic reports due out.
E-Mini S&P 500 Chart
Tuesday, what to expect: We maintain a bullish bias unless the (December) E-Mini S&P 500 penetrates $1407.50. Today, we anticipate an inside to lower to outside day. Monday's range was $1459.00-$1450.50. The market settled at $1454.00. Our comfort zone or point of control for this market is $1455.25. Our anticipated range is $1463.50 - $1448.50. $1432.50 is the next downside extension.