Daily Client Note
Equity Indices Review
Weak Equity Outlook Holds Steady
The last 4-hour chart S&P 500 (1170) signal was generated on Jul 27 11 with a break below 1290 that targeted 1220, and potentially 1190. It was noted that twelve near-term trade signals, six long and six short, were created from the 1295areas, with none able to hold for more than a few sessions; the last one certainly changed that pattern of trade.
The mid-term trend is short after two months of sideways crawl and sets up a sell-the-test-of- resistance situation that will likely last through August. Now is not the time to be looking for long-term equity positions ahead of some major ripples that are still to hit the market from credit default swap increases and inter-bank spreads widening.
Trade potential suits intra-day trades that get banked at near-term targets, selling the previous session high and selling the previous session low. The average period for stocks being bought and then sold in 2010 was eight seconds, which shows how dominant high frequency trading has become. 2011 will likely have a smaller overall hold time.
After the re-positioning of equity valuations in August the last three sessions have offered instability and choppy trade that has allowed an oversold bounce to take place, which now looks weak. There is little on the economic docket that is likely to break price ranges on Monday, outside of a visit to the tele-prompter by the Treasury Secretary or President.
S&P 500 Correlations:
Daily trading range on S&P 500 is 40 points, which is way above the historical norm and indicates that volatility is increasing, in low-volume markets. S&P 500 50 and 100-day Simple Moving Averages (NYSE:SMA) are at 1310. S&P 500 price action has a 36-month 75% correlation to crude oil moves, and a 90% correlation to the aussie (Aud/Usd) currency pair.
S&P 500 Technical Section:
S&P 500 futures have tested 1080 support and held steady in the near-term. However, the amount of energy used in getting lower is unlikely to allow upwards bounces to easily hold. If a Weekly chart cannot close out above 1215 the path of least resistance will be for tests of 1145, 1070, and if momentum builds the ultimate mid-term target will be 950.
The 1250 and 1190 price points were called out as areas that were likely to be tested technically and then remain in play through most of the summer. The lack of momentum, low participation, and very mixed sentiment reads are not allowing a clear technical picture to form, in-line with a mixed fundamental outlook.
No mid-term long signals will form on ES until a Weekly chart closes above 1215. No mid-term short signals will form until a Weekly chart closes below 1070. Clients will be updated if either move looks sustainable, and have to accept that a 4% trading range is what the S&P 500 is offering. Selling previous session highs and buying previous session lows is the near-term plan.
Market mechanics are not revealing which direction will offer the path of least resistance, and August is unlikely to form a sustainable long trend without a huge increase in daily participation levels.
Daily Client Note