Market Outlook: Risk On Thursday

Well, miracles do still happen, that dog of a stock for the last (too long to count) actually beat for the quarter, yes I am talking about Cisco. Cisco quarterly reports often send the market down 200 points; they have woefully underperformed the market by a large margin. Not only did Cisco have a good quarter in this environment, but they raised their dividend by 75%. Can you say short squeeze tomorrow? If all goes well in the conference call with reasonable guidance, and given the preview on CNBC, expect a big Risk On day tomorrow for equities. 

In fact, because we are right up against resistance in several markets such as Oil, Bonds and the S&P, the volume should finally pick up and some key resistance levels could get blown through on Thursday. Cisco is one of those bellwether stocks that either lifts or plunges the rest of the market; expect a nice pop at the opening as shorts are pushed a little outside their comfort zones on Thursday.

The next question is whether tomorrow`s potential rally if it does play out as I anticipate will be a rally that can finish the day on the highs or is a prime candidate for the fade team to come in at the highs and sell into with gusto. But hey one miracle at a time, what`s next HP beating and having a good quarter as well? That`s probably too much to ask for but if they do the shorts could get a much higher entry point.

Oil Markets 

Other things to watch out for on Thursday are if Crude Oil can take the next leg up after a bullish inventory report. If WTI breaks above $95 on Thursday then the $100 level is in play again with that range being from $92 to $99.70 yes remember that range. Gas prices have been going up, not sure who is buying all this gas, but inventories are starting to get stretched.

My first impression is that the US is now exporting more gas than previously as an arbitrage play with cheaper WTI versus Brent being attractive for exports in the southern region of the US. But whatever the case, whether Iran Oil has really been off the grey market it cannot be denied that US refineries are running like crazy and we have lopped off 20 million barrels off the Oil inventory picture in short fashion.

So watch Crude Oil, as Brent is already moving towards pricing in an Iranian escalation of tensions and seems headed towards $120 a barrel relatively quick. Some trial balloons in the media seem to be taking hold coming out of Israel, stay tuned to this circus show as it could get quite scary and provide some interesting election fodder for the candidates.

Bonds

Well, the 10-year is bumping up against the 1.8% area, let`s watch tomorrow for some continuation of this move with traders getting pushed to some extent, and does a big move tomorrow push some safe haven capital into riskier assets on Thursday. The bond market could steal the show at the opening as that trade is so crowded I would hate to see even a glimpse of what that repositioning might look like with its derivative effect playing out for Risk Assets.

All in all, we should expect much higher volumes on Thursday with some key levels tested in some pivotal markets, much better than the snooze fest of the past three days. When in doubt follow the price!