We get the Budget report at 2pm today and we know this country is incapable of restraining its spending so let’s not pretend to get all shocked when it comes out.
I’ll be watching to see how the markets react to this non-event but the real data days start tomorrow with Import Prices that will be higher, Retail Sales that are a wildcard, Business inventories likely to be lower, Crude inventories that could go either way and the Beige Book, that will rock the markets at 2pm.
Needless to say we will continue to remain cautious today!
The Shanghai finally got its act together today, with both A and B shares notching gains of about 2% but we decided yesterday that we don’t care about them anymore (what can I say, I’m fickle) and we are a lot more concerned about how we’re going to attract some money flow from Europe.
Dr. Brett Steenbarger over at TraderFeed points out that we had a pretty sharp drop off in money flow this month and it may be very hard to get to new levels if we can’t get some new capital into the market. I noted last week that we should be very concerned at any sign of the slowdown in M&A activity and here, in week 2 of few deals, we are already seeing the effects.
Even the energy sector was not spared from the drop-off in monetary inflows, yet you would think it was from the way it mysteriously failed to have a natural pullback as the funds dried up but that gives us yet another opportunity to lay down some puts as T Boone and company make the rounds pretending they are still gung-ho on oil while they are pulling their money off the table.
Speaking of cons, China is learning the western ways faster than we thought as their headline inflation rate touched a 2-year high (up 3.4%) but they have decided not to worry about it since "the big price gains remain maining in food and haven’t spread to a broad range of consumer goods." Food prices, in fact, jumped 8.3% from a year ago. 3.4% average inflation (and don’t forget there are 1Bn people in China who make less than $2,000 a year so food is pretty much all they buy) is about .35% more than they get for putting money in the bank, adding pressure to consumers to play the markets to stay even.
Elsewhere in Asia, the Nikkei dropped 100 points just after the open, finishing down 73 points on the day while the Hang Seng struggled to get back to even. The markets were led by rising oil and mining shares which my readers know is nothing you want to base a proper rally on these days. Europe is trading down ahead of our open, which isn’t looking too thrilling in the pre-markets despite a very strong Q2 report from LEH.
We’re a lot more concerned with rolling our callers for the next few days than we are with taking up new positions but both the SOX and the Transports are ready to fall out of our comfort zone and that will affect the depth of the July calls we look to sell:
|
|
|
Day’s |
Must |
Comfort |
Break |
Next |
|
Index |
Current |
Move |
Hold |
Zone |
Out |
Goal |
|
13,426 |
1 |
12,468 |
12,600 |
13,000 |
13,500 |
|
|
2,855 |
6 |
2,825 |
2,900 |
3,000 |
3,250 |
|
|
1,509 |
1 |
1,430 |
1,460 |
1,500 |
1,550 |
|
|
9,841 |
15 |
9,218 |
9,465 |
9,600 |
10,000 |
|
|
2,572 |
-1 |
2,454 |
2,500 |
2,600 |
2,750 |
|
|
486 |
-2 |
477 |
490 |
500 |
560 |
|
|
833 |
-2 |
803 |
820 |
850 |
900 |
|
| Hang Seng | 20,636 | 20 | 20,200 | 20,600 | 21,000 | 22,000 |
| Nikkei | 17,760 | -73 | 17,400 | 17,500 | 18,300 | 18,500 |
| BSE (India) | 14,130 | 47 | 13,200 | 14,000 | 14,725 | 15,000 |
| DAX | 7,669 | -36 | 6,900 | 7,000 | 7,400 | 8,000 |
| CAC 40 | 5,924 | -15 | 5,650 | 5,800 | 6,000 | 7,000 |
| FTSE | 6,556 |
-10 |
6,325 | 6,450 | 6,600 | 7,000 |
TXN is bound to get the SOX off on the wrong foot so they will be our primary indicator today but the Nasdaq has a lot of cushion before it gets in real trouble (and that IPhone is still coming). Europe and Asia continue to look stronger than us but the Hang Seng is at a critical juncture and these levels are getting stale so we’ll get to the bottom of this trend over the weekend.
Happy Trading and I were not impressed with yesterday’s SOX move and we can only hope 475 holds again as we are very likely to have a retest there:
That makes the IGW $65 puts at $1.05 a good momentum play to the downside. You can also trade the full $485 SOX puts (SXXRQ) at $3.75 but they are very risky with the SOX at $486.37 and should be taken only by experienced momentum traders.
Oil will do whatever it does ahead of the inventories tomorrow and we are determined to go with the flow in that sector. Tom O’Malley is sending chills up the backs of US refiners by talking about increasing capacity in Europe (Oh joy – more stuff we will be importing!). Take this guy very seriously, the refiners in this country have raised margins to the point where there is no problem getting investors together to mount some serious competition. Since becoming chief executive of Petroplus Holdings AG nine months ago, he has more than doubled the Swiss-based company’s refining capacity, with one acquisition completed and two more under way.
We’ll be keeping our eye on the 10-year note, last seen at 5.18% and rising fast – 5.25% would be BAD.
Be careful out there today!
