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Market Wrap

Central Banks Battle to Revive Global Economy

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You never forget your first "Battle Royal" and after witnessing global credit markets seizing in recent weeks, Central Banks from around the world and the Federal Reserve made a rare and somewhat coordinated move.

The move seemed delayed when on Monday; Australia's Reserve Bank slashed its Cash Rate 100 basis points to 6.00%.

The Fed reduced its key rate from 2.00% to 1.5%. In Europe, which has been hardest hit by the financial crisis, the Bank of England cut its rate by half a point to 4.5% and the European Central Bank slashed its rate by 50 basis points to 3.75%.

The central banks of Sweden, Switzerland and China also cut rates. The Bank of Japan said it strongly supported the actions, but with rates already at 0.50%, could do little but watch the action.

The Bank of Canada lowered its overnight rate by 50 basis points to 2.50% from 3.00%.

Global Economic Calendar

Stock futures were hovering near their overnight lows as the clock struck 07:00 AM, as Asian and European markets were under selling pressure.

Japan's Nikkei-225 ($NIKK) had finished down 9.38% at 9,203, while Hong Kong's Hang Seng ($HSI) had fallen 1,372 point, or 8.17% at 15,431.

e-mini S&P 500 future -

The knee-jerk reaction saw S&P futures pop just more than 55-points as the news hit the wires, and for about an hour, it was "every trader for him/herself."

Still, the major averages are well off Friday's settlement/closes and would still suggest that there are some bullish/longs still looking for the exits, even on the smallest of bounces.

While traders were battling thing out on the trading floors and electronic networks, the National Association of Realtors (NAR) said pending sales of existing U.S. homes unexpected rose 7.4% in August to the highest reading in over a year.

The NAR said signed contracts rose to a measure of 93.4 from an upwardly revised 87.0 in July. August's reading was 8.8% higher than a year earlier and was the highest since 101.4 in June 2007.

The association's senior economist Lawrence Yun said, "Home buyers in July were hampered by overly stringent lending criteria in the months before the government takeover of Fannie and Freddie," in early September.

August's data certainly suggests some unleashing of pent-up demand.

We also had the Mortgage Banker's Association reporting its figures from last week. Not much here, but steady after the last two week's sharp declines due to tight credit. The MBA's purchases index edged up 3.2% to 314.5, the refinance index was up 0.9% at 1,345.80. The average contracted interest rate for a 30-year fixed fell to 5.99% from the prior week's 6.60%, while the one-year ARM remained unchanged at 6.60%.

At 10:35 AM, the energy complex saw some volatility as last week's EIA inventory figures were released.

EIA Inventory and Refinery Data -

Refiners continue to come back online after Hurricane Ike as capacity utilization rises to 80.93% from 72.27%, with crude oil inputs into refiners rising by 1.57 million barrels/day to 14.02 million b/d. For the week ended September 19, percent utilization of operable capacity fell to 66.71%, which was a level I had looked for after the Katrina/Rita experience from 2005.

Tankers are back to port and dropping off the black gold, and today's 8.12M barrel build was well above forecast, even when we back out the last week's reported DOE disbursement of 2 million barrels.

For those subscribers that have been waiting to "lock in" for this winter's heating oil contracts, I'd suggest getting on the phone with your contractor this week.

Nymex Nov. Crude Oil (cl08x) settled down $1.10, or -1.23% at $88.95, while Nov. Heating Oil (ho08x) was off $0.0112, or -0.45% at $2.4945. Nov. Unleaded (rb08x) settled down $0.033, or -1.60% at $2.0298 and nears the $2.00 level for the first time since October 3, 2007. Nov. Nat Gas (ng08x) settled down $0.026, or -0.38% at $6.742, its lowest settlement since mid-September of 2007.

Closing U.S. Market Watch - 10/08/08

While I have been telling clients to AVOID the insurance sector, especially health insurers since the beginning of 2008 due to great political risk, the S&P Insurance Index ($IUX.X) 149.93
-8.72% was certainly helping pace this afternoon's late-session retreat and was "thrown from the ring" once again today.

While the commodity of gold as depicted by the StreetTracks Gold (GLD) $89.42 +2.46% (approx. $894.20/oz spot) has been trading strong from the $73.00 ($730 spot) level of 09/11/08, the "distaste" for anything equity/stock related can be seen in the AMEX Gold Bugs ($HUI.X) 299.49 +18.71%, which traded as low as 240 on Tuesday, but snuck out from under the mat today and was clearly the sector winner.

Today's 18.71% gain may seem "overdone," but this is a pretty good representation of what a bounce, be it "dead cat" or start of something greater looks like initially, but when bulls and bears get on the same side of a trade, the up move can be as powerful as when the market was selling.

Today's lowering of the Fed funds target to 1.50% has me now making an IMPORTANT adjustment to passed comments regarding the 13-week Treasury Yield ($IRX.X), where yesterday I thought there were some signs of "unclogging" in the credit markets, as the 13-week yield did rise to 1.10%, before edging back lower.

With the Fed Funds target now at 1.50%, I would be VERY surprised to see a 13-week yield move above that level, let alone reclaim 2.00% anytime soon.

Late, we'll want to start monitoring charts of the 2-year, 5-year and even the longer-dated 30-year YIELDS to look for signals from the bond market that the hunger for any type of yield, or place to stash some cash instead of lending it, starts to loosen up.

Amex Gold Bugs ($HUI.X) - Daily Intervals

BUYERS of equity isn't just "BULLISH" buyers, but "BEARS" that
cover positions and lock in gains when they think enough is enough. It has been a VERY negative sign that even the $HUI.X has been hitting new lows, even as the commodity gold has been trading higher.

I place some "???" on the $HUI.X as conventional retracement shown, doesn't "explain" technically why the $HUI.X found some support buying at those levels.

I have not calculated MONTHLY/QUARTERLY pivot levels for the $HUI.X, which may "explain" institutional computer support.

One PRIMARY point from today's move in the $HUI.X is if your looking to initiate a NEW short in many things, plan and expect some sharp moves should shorts and any bottom-fishing bulls get on the same side of the trade. Even for a day.

In the U.S. Market Watch, I note the $80.00 for GLD, which happens to be this month's "Max Pain" theory tabulation.

StreetTracks Gold (GLD) - Daily Intervals

I'm starting to lose track of all the various dates of "intervention" by the Fed and Central Banks, and various bank failures and rescues. There were reports in August and September of "forced liquidations" of just about anything commodity, as cash had to be raised to offset losses in equities and bonds, but in a way, isn't that why commodities like gold will be purchased? To "hedge" such events and provide a hard commodity to sell in order to provide capital/cash under times of duress.

Gold has gapped to a higher open the last three days and does suggest and EAGERNESS to get long. I've suggested trader's hold the Nov. $82 Puts that trade $2.60 bid for one more day, see if we don't get some "sell the news," and a quick reversal back lower.

By observing the 21-day SMA (pink) and various simple moving averages in both GLD and the $HUI.X (which does contain some non-gold miners), its evident that the commodity itself is trading stronger.

10-year Treasury Yield ($TNX.X) - MONTHLY Intervals

It was MODESTLY encouraging that the 10-year YIELD didn't PLUNGE
further lower after today's broad Central Bank and Fed rate cuts, but there's a LOT of work to be done, and it will likely take a MINIMUM of 3-months for things to even begin to settle down.

Still, there are some very aware equity and credit/bond market traders that will be monitoring some of the moves in YIELDS, especially in some of the longer-dated maturities, that were moving INVERSE today's monetary moves.

This could be the "chart of the week."

S&P 500 Index (SPX.X) - Daily Intervals

In the HUI.X chart, I made some "???" as to wonder why the HUI.X found buyers at a level that wasn't explained by the current fib retracement.

Now look at the SPX.X as we continue to "drag down" to lower end of our retracement.

See This!!! at the 07/15/08 low?

As I "drag down" the low end of the fib retracement, NOW the current 38.2% is at 1,202.13, ALMOST AN EXACT match to what could have been a "???" on the SPX chart.

What this observation SOMETIMES suggests is that PRICE has reached a near-term PRE-DETERMINED level and a near-term REVERSAL could be seen.

The 21-day SMA is still quite a ways up at 1,164, and today we did see the HUI.X rally rather quick to its 21-day SMA.

Expect ANY type of rally to 1,202 to be RESISTANCE. There are still a lot of MUTUAL FUND EQUITY bulls that have been "holding on" and watching things get hammered, and I would EXPECT more REDEMPTIONS back near that level.

That would currently be a 20% bounce from 1,000.00.
 

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