Thursday, September 22, 2011

"Risk Off!" as Fed Admits to Some Reality, and European and Chinese Economic News is Poor

I wrote at the beginning of the week, on the back of a 6% move up, that the action in the market remained unhealthy.  I probably sounded a bit daffy at the time, considering up is "good" and down is "bad".  But gapping up and down 1-2% each day, reacting viciously to headlines (or conference calls), and begging troikas or central bankers for handouts/bailouts/et al, is not healthy.  It just feels so when the action is up rather than down.

In a matter of 3 sessions (Tuesday thru this morning) we are going to rescind that entire move of last week, nearly 100 S&P points.  This reinforces my point that it remains unhealthy out there.  The direction of the moves is quite irrelevant to that thinking, it is the type of 'action' which marks health.

Technically after bumping into resistance again Tuesday near 1220, we are going to open somewhere in the 1120-1130s area.   Readers will recall 1120 has been a line in the sand for the past few months.  The S&P 500 has only broken that level once, and that was on Fed announcement day when we saw a break to 1100 intraday, before a bounce.

Yesterday in the FOMC statement there seemed to be some reality in the economic prognosis.  Apparently when all the data points to weakness (along with copper) market participants can sort of pretend it is not there.  But when Bernanke says it, then its real.  Of course this is the guy with one of the worse economic prediction track records in the business.  Watching the market take its cues from 'sunny side up' Federal Reserve forecasting is all a bit bemusing.

Meanwhile back in the world outside of ivory towers, both China and Europe reported disappointing economic figures overnight.  Not surprisingly, overseas markets are being walloped.
  • A preliminary index of China purchasing managers was 49.4 this month, according to HSBC Holdings Plc and Markit Economics. A reading below 50 indicates contraction.  
  • The PMI figures pointed to further slowing ahead. Both the new orders and new export orders sub-indices fell further below the 50-point mark in September.
  • Euro-area services and manufacturing output also contracted in September, for the first time in more than two years, a report from London-based Markit Economics today showed. The composite index declined to 49.2 this month from 50.7 in August. 
  • The PMI reading for the services sector plunged to 49.1 from a reading of 51.5 in August, while manufacturing PMI dropped to 48.4 from 49.0

Commodities are being crunched - even gold, which is down nearly 3% as of this writing.  Copper continues to plunge - down nearly 6%, and oil is down over 3%.  The latter being the one piece of good news for the U.S. (and global economy).

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