Friday, September 28, 2007

October 2007 Monthly Pivots

Below are monthly support and resistance pivots for October. Currently, the selected indices each sit just North of their respective pivots going into the new month, as follows:

S&P 500/ GSPC (SPY)-
Close: 1,526.75
Resistance: 1,542
Pivot: 1,503
Support: 1,463

Dow Jones Industrials/ DJI (DIA)-
Close: 13,895.63
Resistance: 14,023
Pivot: 13,641
Support: 13,241

Nasdaq 100/ NDX (QQQQ)-
Close: 2,091.11
Resistance: 2,114
Pivot: 2,049
Support: 1,980

September 2007 Rewind - Ben's Emotional Rescue

This September, equities logged their best monthly performance since April, and their best September since 1998. Once again, Ben Bernanke and the Federal Reserve came to to our "emotional rescue" with a surprise 50 b.p. reduction in the Federal Funds Rate. The markets haven't looked back since (the Nasdaq 100 in particular), and once again the indices sit near their respective prior highs. Meanwhile, the dollar continues to plummet as commodities explode higher.

By the end of the month we were in a "bad news equals good news" environment, with every little disappointment signaling the possibility of further rate cuts ahead. Today, the Fed's William Poole threw a little cold water on that expectation, but that apparently is part of his job description. Looking forward, it seems to me that the market may be setting itself up for a small pullback presently based on the recent strong gains, increasingly negative news cycle, and local resistance at the prior highs.

The Standard & Poors 500, Dow Jones Industrial Average and Nasdaq 100 may be traded through ETF proxies, including the SPY or IVV, DIA and QQQQ, respectively.

Volatility: Reduced (VIX 17-28)
Direction: Positive

[Click to enlarge]

Xinhua China Index - Blowin' in the Wind?

The FTSE/Xinhua China 25 Index is up over 63% year-to-date and 21% month-to-date. Just as the index ascends new heights, I am seeing a disproportionate number of China ADR short setups. Where will the index head next? It is usually a very, very bad idea to fight such massive momentum. In addition, the country's long-term prospects certainly look good. That said, I have to think that the coming technical answer, my friend, is "blowin' in the wind."

The FTSE China 25 Index may be traded using the iShares 'FXI' ETF.

Saturday, September 22, 2007

Why the "Rear-View Mirror" Tag Line?

A new reader asked me, "why the 'rear-view mirror' tag line?"

Well, it's a little nod to my prior life in the consulting business, where we joked that 80% of our reports constituted "rear window watching." The second half of the joke was that we "charged by the pound," so the more rear window watching the better!

Let's face it, 80% of stock commentary falls into the same realm, and in the context of this Blog's premise, it seemed a good fit. If the markets are a discounting mechanism, developing an intuition for how they may respond to news within a given sentiment and volatility regime is as critical as respecting observed price action.

This week's Super Fed Tuesday action in the SPY was just the latest example:

While a number of talking heads predicted a major decline in the event of a 50 b.p. reduction, one had to think that there was an equal to better chance that there were going to be just a few too many scared shorts for that to happen given the market's August 17th response to the window reduction of the same magnitude, at least on "event day."

August 2007 Rewind

Saturday, September 1, 2007

August 2007 Rewind - Housing & Liquidity Concerns Persist

This August, once again the equity markets struggled with housing and liquidity concerns. At their lowest point, the major indices logged a near 10% correction off of their July highs, only to then reverse strongly mid-month on a Federal Reserve induced rebound. In July, it was easier to pronounce the price declines a "market phenomenon." By the end of August; however, the case for potential economic weakness ahead was difficult to ignore.

The Standard & Poors 500, Dow Jones Industrial Average and Nasdaq 100 may be traded through ETF proxies, including the SPY or IVV, DIA and QQQQ, respectively.

Volatility: High (VIX 20-31)
Direction: Rangebound

[Click to enlarge]

Welcome to "Market Rewind"

This is my first foray into the "blog-o-sphere." It is easy to call oneself a "student of the market," but much harder to find a compact history relating daily market changes to current events for actual study. So, to fill this gap, I welcome you to "Market Rewind."

Each week, I will post a recap of daily price changes for the major U.S. equity indices along with a one line synopsis of corresponding market moving events. I will also provide daily analysis of the current and future outlook for select indices tradable through Exchange Traded Funds (ETFs). With that in mind, the caveats at the bottom of this blog always apply! I am a CFA® charterholder, a licensed attorney, and manage an incubated hedge fund.

Enjoy - Jeff