Friday, 8 June 2012

PRE-MARKET (June 8th 2012): What To Make of the Afternoon Sell-Off

PRE-MARKET for US trading on June 8th 2012.

So, a tale of two markets in yesterday's session - the Dow and S&P rallied towards the previous swing highs in the morning, ahead of Ben Bernanke testifying at 3pm (GMT). Then, barely moving an eyebrow, his wording caused risk assets (gold seemingly included again) to sell off in the afternoon. Is this significant for today's SHORT TERM analysis?
Chart courtesy of the excellent StockCharts

The candle formed on the S&P yesterday was particularly bearish, indicative of Wednesday's rally fading and sellers pushing the market to hand back its gains for the day. Our theory from the previous day - and of course, we could still be wrong - was that we were riding on momentum from short-covering, oversold conditions, speculation on the Fed and typical volatility around the 200MA. We still don't know if buyers will come in and help push us higher again - but yesterday's action was not a great sign for bulls.

Our plan for today will be keeping an eye on how the major US indices react when they open. On the downside, 1300 is a pivotal level for the S&P, and below that the 200MA at 1287. On the upside, 1336-1340 will be worth watching, the Daily kijun-sen and Weekly tenkan-sen respectively.


Trading in Asia and Europe overnight has continued the downwards momentum from the S&P's afternoon sell-off. There is no really significant data to watch out for, either to move the markets or to affect our MEDIUM TERM market/econimic analysis today. Being the end of the week, we'd watch out for how both Europe and the US closes - depending on today's price action, traders might not want to hold short positions into the weekend, in case we get "good news" out of Europe.


Note: If you're new to Big Macro Picture, check out how we look at the markets on different timeframes (LONG, MEDIUM and SHORT) to identify the different trends  that form our Big Macro Picture. Our review of leading economic data tends to help us get a lead on the month-to-month cycles of the market in the MEDIUM TERM category.
We believe that on-balance, the data is still pointing to a MEDIUM TERM (month-to-month) bearish phase for forward-looking economic trends, something it has gradually indicated since February 22nd. During these trends, we look at new data every day to judge whether on-balance that argument is strengthening or reversing.
As we commented in yesterday's pre-market release, none of the three leading indicators released yesterday are especially influential on our thinking, but they form a part of it nontheless.
Firstly, UK Services PMI - unlike UK Manufacturing PMI, this has put in a good reading this month compared with expectations. We have failed to make a new lower low and this indicator has stabilised since peaking in early February. However - there are no immediate signs of a new bullish trend forming, and the data is overshadowed by the terrible UK Manufacturing PMI data. CONCLUSION: mixed result.

Next up, US Weekly Jobless Claims - a good reading this week considering how bad NFPs were last week. We might look at the chart and say "in the long run the trend is much better than 2011 still". Then we'd say "since February, the trend has been up". And after that, "But we're not making higher highs, we're lower than last week and it's not as bad as April". CONCLUSION: mixed result again. We really would want to see this gradually trending back down for it to contribute to MEDIUM TERM bullish argument, until then, it's quite bearish Feb-onwards on that timescale.

And finally Canadian Ivey PMI. As we've mentioned, this isn't the most stable of indicators, but you can still see it has some value for identifying these cycles. It follows the other indicators that recovered in 2011-2012 but fell back. This reading was a good one - we've beaten expectations and improved on the previous month, despite not being out of that downward trend. CONCLUSION: yet another mixed result, but this one is leaning towards being slightly more bullish. A new trend could be forming on this indicator - but for now, the overall trend is still down.
Overall the net effect is a very slight improvement on that MEDIUM TERM scale - but admittedly from indicators less influential to our views. The majority of leading indicators are still clearly in a bearish MEDIUM TERM trend - but we're always looking for signs of this reversing, especially from any indicators in Europe, the heart of the current concerns. While we have no interest in predicting what could cause that trend to be halted, significantly lower oil/raw material costs and a more appropriately priced Europe may start to act an automatic stabiliser before people expect. We wait for any signs of this in the data.
There are no new indicators released today that we're interested in at Big Macro Picture - so we wish you a profitable day and an enjoyable weekend.

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