Earnings: The Devil In The Details?
Submitted by Nic Lenoir of ICAP
Most market commentators attribute the sharp reversal of fortunes of the equity markets in the afternoon to a downgrade of WFC by Bove. That definitely is a factor, but what is a bit puzzling is that every bank earnings coming out are usually put under a lot of scrutiny, maybe not on CNBC, but definitely amongst the financial community. Today's late sell-off is more reflective of the paper thin liquidity out there and how trading is become a ping-pong match between high frequency traders.
Now this is interesting, how we handle 1,070 through 1,075 will be key, we tested the area into the close, and the market should in theory range between 1,074 and 1,082 in the early part of the night session. The question is what happens when Europe walks in. The Dax as can be seen on the 30-minute chart is set to retest my key pivot at 5,750. We had a strong bounce after testing it this morning. Should we open there or below in the morning I would be very cautious. There is a gap to fill at 5,650 below and then straight onto the huge medium term support at 5,540. The way we closed I expect we will in the near-term try to nake a run for it, but that all depends about tomorrow's open. As seen on the weekly chart so far we have been capped by the 50% retracement of the entire bear move, and that big medium term resistance combined with heavy divergence of short-term indicators does bodes for lower prices.
Is there also a level at which commidities become a threat to recovery? It seems nothing but a bust will stop the boom in this market. Copper exited a bull flag to the upside and posted a bullish engulfing candlestick. That in theory would mean we will go challenge 330 or even 350, and that's a big buy signal for all the trend followers. There will be a point where demand and price are reconcilied, and the higher the price goes the more the demand goes... the other way. Let's face it, the rise is not really due to a shortage.
The choppy conditions observed in trading and correlations breaking down as we are near the highs of a 60%+ rally have the sweet smell of exhaustion. I would expect more chopping with little advance and finally a break unless we do get the greenlight at the open tomorrow trading through 1,070/1,075 and 5,750 in the Dax (touching or breaking this level has been an automatic 100 points move). Either way this time we will get the move to 1,035 in S&P futures, where the market will decide weather this is a big clearing sale coming up or just a bargain discount before the holiday shopping.
Good luck trading,