Wednesday, 11 July 2012

PRE-MARKET (July 11th 2012): Can We Break the 4 Day Losing Streak?

PRE-MARKET for US trading on July 11th 2012.

Yesterday saw US indices post their fourth consecutive day of losses -- courtesy of profit warnings from some big industrial names in the States, giving the market more reasons to worry about the growth outlook for 2012.
This slow/no growth scenario has been reflected in the leading economic indicators for several months, with the most worrying deterioration coming from Europe and China. These were cited in the profit warnings along with "weak demand". After another disappointing jobs report last week, along with the first sub-50 reading of ISM, we believe there is significant reason to be concerned about the US economy - namely that it is finally starting to feel the effects of the slowdown overseas.
Chart courtesy of the excellent

The market on Monday managed to bounce from the support between 12680-12705. Yesterday it wasn't so fortunate however, and we saw continued selling pressure down to 12600 before a brief respite in the last half hour of trading. The area of 12680-12705 now becomes crucial as an area of resistance - which the market will need to close above for any bullish SHORT TERM argument to remain intact. We find ourselves at a pivotal level, where the market should, if genuinely strong, find support at the various levels below (12600, 12500, 12450, 12433).

Our plan for today will be to cautiously avoid being too exposed to short positions if the market holds its key levels. On a longer term timescale however, we might expect a re-test of the 200MA in July. With the FOMC Minutes being released at 7PM (GMT, 2PM on Wall Street), it would be wise to watch out for volatility as traders read between the lines of the Fed's last meeting.


As mentioned today sees the release of the FOMC Minutes, and traders will be looking for any hints of further QE from the Fed. At Big Macro Picture, we are focused on economic data rather than speculation on how the Fed might improve that data in the future - however, it's foolish for market participants to just ignore Fed policy. In mid-2010 when QE was resumed, the leading economic data looked poor, and only improved as the year went on. However, the market reacted immediately to the expectation the data would be better - making our kind of analysis difficult in that situation.
Our plan, if easing programmes are initiated by the Fed, will be to avoid being significantly net long or short in our portfolios until the economic data reflects any improvement. We take this precaution because there is no guarantee that action by the Fed will improve real economic conditions as it did in 2009 and 2010 -- but at the same time want to avoid serious drawdown on short positions if the market rallies.
Asides from the FOMC Minutes, Trade Balance data for the US might cause the futures to move before the open. There is no economic data out today to change our MEDIUM or LONG TERM views, but watch out for volatility around those FOMC Minutes.


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.

In terms of data itself yesterday presented no changes to our views. However, two interesting reports we believe are worth reading, reflect some of our bearish MEDIUM TERM views on the market/global economy, and our concerns for the 2009-present bull run. Whether you see them as ammo for the Fed to act, or signs of difficulty ahead in 2012/2013, the reports are interesting reading:

Markit Global Business Outlook Survey

NFIB US Outlook and Trends for Small Businesses

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