Risk On. Risk Off. Risk On. Risk Off.
Wax On. Wax Off. Wax On. Wax Off.
The bipolar market with the attention span of a flea, and no memory from day to day, continues.
Each day is its own entity without memory of the last. Twice in the last 2 weeks (including Monday) have we had nasty intraday reversals down in the closing hour (which are traditionally bearish for the next day), only to be forgotten by the next morning as premarket magic makes everyone forget. Weak retails sales Friday were forgotten within an hour as the market regained all losses. The weak unemployment data a week ago friday was forgotten in 2 sessions. We've now had something like five 2.5-3% rallies in single days in the past 3-4 weeks. Within a greater downtrend no less. I am still unclear what exactly caused all the great cheer in markets Monday and Tuesday aside from a Euro bounce.
As I said yesterday today was the one day the economic news could actually matter and thus far it has. Housing starts have faltered as the handouts by government slow down (no surprise in an economy totally based on government steroids), and a disappointing guidance by FedEx is also not helping.
- Builders broke ground on fewer U.S. homes in May than anticipated after the expiration of a government incentive.
- Housing starts fell 10%, the biggest decline since March 2009, to a 593,000 annual rate, from a revised 659,000 pace in April that was less than previously estimated
- Building permits, a sign of future construction, unexpectedly fell to a one-year low.
- Single-family starts suffered the largest drop since 1991.
Overseas we hear Spain (after denying it would request any help) might be tapping an emergency line.
- El Economista reported the International Monetary Fund, the European Union and the U.S. Treasury are putting together a credit line of as much as 250 billion euros ($307 billion) for Spain.
All that said.... it can all be forgotten by tomorrow morning since the market has no memory from day to day. Or maybe in an hour from now.
We peaked our head over the 200 day simple moving average yesterday, and of course this will continue to dominate traders visions (and they seem to be the only one's left in the market) - today's "gap down" will need to hold S&P 1108 by the end of the session. If it does, nothing today matters since our memory no longer lasts more than 24 hours. Big picture, if the 200 day moving average holds all dips are 'buying opportunities' and if not, you should be selling long exposure into the gift the market has given the past week. As an aside, yesterday's volume was particularly weak - continuing the tradition of rallies on weak volume, and selloffs on heavy volume; another anomaly of the past few years.
As for the Euro, apparently the most important driver in HAL9000's programming.
- The euro dropped for the first time in three days against the dollar on speculation Europe’s sovereign-debt crisis is worsening in Spain. Arne Lohmann Rasmussen, chief currency analyst at Danske Bank A/S in Copenhagen. “Most of the euro’s recent gains came from short covering, and the move up is petering out,”
- “The rebound we’ve seen in the euro is purely a correction,” said Ian Stannard, an analyst in London at BNP. “We’ll soon head lower again.”