The equity markets finally reacted to the broader economic picture after the large gains of the past few days. <\/p>\n
The ADP employment report which included a steep correction to April\u2019s number, coup led with weaker ISM index of non-manufacturing activity <\/p>\n
led to a large gap down open in equity markets. News of disagreement about the policies of the ECB in tackling the financial crisis strengthened the dollar. <\/p>\n
A larger than expected build-up of oil inventories added to the sell-off in crude oil. To top it all off, Fed Chairman Ben Bernanke warned about the risk posed by rising deficits, affirming that any talk of inflation is rather premature. <\/p>\n
This also led to a sell-off in Gold and a bid in treasury bonds.<\/p>\n
Inflation and the Anti-Dollar Play<\/strong> <\/p>\n The problems plaguing the financial system stretch to most of the developed world, and the effect of Fed\u2019s monetary policies are being exaggerated. <\/p>\n <\/p>\n The Euro specifically is the default beneficiary of the anti-dollar trade, even though the schisms created by multiple political stake-holders tugging the ECB are hindering appropriate policy response. The trade reversed today, with the Euro taking a significant tumble along with oil. Though this is certainly not the end of the bullish run, it does highlight how chasing a crowded trade can hurt investors. <\/p>\n <\/p>\n Bullish Sentiment Intact: 200 Day SMA Holds<\/strong> it did so today. <\/p>\n The bulls will take heart th at buyers emerged when the SPX approached the 200 Day SMA <\/p>\n at 923, and equities finished strong, wiping out a significant portion of the intra-day losses at the close.<\/p>\n It is fairly common for instruments to straddle the 200 Day SMA for many days, as the market tries to resolve its future direction. <\/p>\n This average is sloping downwards and the average will continue to decline for some time to come. As a result the market can continue to remain about the technical level, even when it moves sideways or downwards.<\/p>\n Ever since the market closed above the 875 level on May 1, it has not fallen below it. <\/p>\n As long as that level holds the bullish sentiment will remain intact. <\/p>\n <\/p>\n My Portfolio: No New Positions<\/strong><\/p>\n Though I had planned to open new long positions when the market tested the 200 Day SMA, I did not do so. This w as bec <\/p>\n ause the strongest sectors so far, energy and materials showed a strong pull-back today. The anti-dollar trade is likely to be unwound further, and these sectors will continue to remain under pressure. As I had written yesterday, the chart of oil last year should be a reminder to anyone who wants to chase commodities, when the global macro picture is clouded.<\/p>\n Refiners Sell Off<\/strong><\/p>\n Unfortunately, my long call position on the refiner TSO, took a big beating today as the entire sector was sold off due to concerns about capital needs and earnings. VLO has suffered from refinery shut-downs leading to a loss, which they pre-announced today, prior to a secondary equity offering to meet some urgent capital requirements. Refiners continue to trade at attractive valuations to their book value. However their earnings continue to remain volatile. <\/p>\n They are great take out candidates for larger integrated oil companies but until that becomes a reality their share price will continue to be volatile. TSO closed below its 50 Day SMA today (15.78) and is likely to test its 200 Day SMA currently just above $14. That may provide a good longer term entry point for long positions.<\/p>\n Tomorrow\u2019s Outlook<\/strong> <\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" The equity markets finally reacted to the broader economic picture after the large gains of the past few days. high quality cytotec The ADP employment report which included a steep correction to April\u2019s number, coup led with weaker ISM index … Continue reading
\nIn yesterday\u2019s review I had written that the anti-dollar trade was going beyond what the macro-fundamentals suggest. <\/p>\n
\nIn yesterday\u2019s roundup, I had expected the SPX to test its 200 Day SMA from the upside, and <\/p>\n
\nI expect cautious range bound trading tomorrow in front of the non-farm payroll report due on Friday. The market will likely consolidate it gains around the 200 Day SMA, perhaps retesting it. <\/p>\n