Option Investor
Market Wrap

This is our moment, this is our time!

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While Asian markets finished Wednesday's session higher, European and U.S. equity markets traded lower after a historic presidential election.

It was a moment and a time for bulls to take profits as economic data and earnings remained lackluster.

US Market Watch -

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The closing ticks on the U.S. Market Watch don't tell the entire story, but by the close, when the U.S. voted "blue" (democrat), the markets saw red by the close.

Yes, the Dow Jones U.S. Home Construction Index (DJUSHB) started out fractionally lower, but by mid-session was up better than 4.00%, which gives pause to the thought that market participants were very disappointed in the election outcome.

Pulte Home (NYSE:PHM) $10.66 -5.66% (see last Wednesday's Wrap) participated in the sector's gains early as it neared the $12.50 level with a session best $11.91, but in the recent market environment "be careful my pretty, don't eat it so quick, too much of this cooking, could make you sick," I thought it best to raise bullish stops rather aggressively to the $11.50 level in order to protect such handsome gains.

Pulte Home (PHM) - Daily Intervals (~11:30 AM EST)

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This is the same chart we looked at in PHM last week, but I did add the PINK retracement in recent OptionInvestor.com Market Monitor observations so that we could tie this stock in with the DJUSHB and give technical reason for raising a stop.

It's been a volatile market of late, and when you've got gains of +10%, it's hard to not protect it. I think a lot of market participants are doing the same.

Add in a less than spectacular Mortgage Banker's Association weekly survey, which revealed a weak purchases index, and there was plenty of "reason" to protect gains in the builders.

MBA's Weekly Application Survey Table -

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The MBA said its seasonally adjusted Purchases Index fell 13.9% to a reading of 260.9. The gains in the DJUSHB and PHM in early morning trade seemed almost "too good to be true!"

The MBA said the average contract interest rate for a 30-year fixed-rate mortgage increased to 6.47% from the prior week's average of 6.26%.

The "242.20 +1.4%" was the level the DJUSHB was trading just as I posted the above table in the Market Monitor at 09:37 PM EST this morning. That's when we really started to raise our stop gain in PHM.

All I hope to do with the above commentary is give an example of what I think traders are doing, or should be doing with some of their trade management. It should also instill the "easy come and easy go" for bullish and bearish biased traders.

You don't think there weren't some SHORTS in PHM in early October than saw $12 to $8, then right back to $12 do you?

Anyhow, the MBA purchases data was NOT what I think a bull wanted to see.

Wednesday's Global Economic Calendar -

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In recent week's I've noted that the yen's strength has seemingly coincided with some VERY BEARISH trade in Japan's Nikkei-225 ($NIKK), which actually posted a +4.46% gain today.

Go back up to the U.S. Market Watch and you'll see the Yen CurrencyShares (FXY) $101.57 +1.69% having a strong session today.

I want us to be a bit careful as to what we do read, or do NOT read into today's equity action as to Obama's win.

There were some gains in Asia the last couple of weeks and they didn't get "sold," (Wednesday) and despite today's gain for the yen, the Nikkei-225 held gains.

I'm going to try and show you how I'm tying some of this together with the Pivot Levels, where it sure seems like institutional computers are feeding off this relationship.

As it pertains to economic data here in the U.S., the ADP Non-Farm Employment Change showed U.S. private employers cut 157K jobs in October, suggesting Friday's more comprehensive non-farm payrolls will show weakness.

Consensus for Friday's non-farm is -200K, which would be further weakness from October's -150K.

Stocks did recoup some of the opening session losses at 10:00 AM on the release of the ISM non-manufacturing.

Thirteen (13) industries reported contraction (Arts, Entertainment & Recreation; Real Estate, Rental & Leasing; Management of Companies & Support Services; Accommodation & Food Services; Construction; Retail Trade; Agriculture, Forestry, Fishing & Hunting; Educational Services; Professional, Scientific & Technical Services; Public Administration; Finance & Insurance; Information; and Wholesale Trade).

Only three (3) industries reported growth in October according to the NMI composite index. Listed in order are: Other Services; Health Care & Social Assistance; and Utilities.

The only item I gleaned from the report that seemed positive was that some wholesale trade respondents said they saw a "general pick-up in business in spite of all the bad economic global news."

But no sooner had the S&P 500 Index (SPX.X) rebounded back to its QUARTERLY S2 (996.26) and MONTHLY Pivot (991.86) did we get the weekly EIA Inventory data at 10:30 AM.

S&P 500 (SPX.X) - 15-min intervals

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Hang in here with me. QUARTERLY S2 and MONTHLY Pivot. We'll get to my "tie" with the Yen, and even the Market Volatility Index (VIX.X) in a moment.

Just want to show you a "zoomed in" 15-minute interval chart.

IF McCain had won the election (some believe Republicans a bit more "pro business") then yesterday's close may have hinted of some market bias. Still, HUMANS must have kept the SPX from trading WKLY R1 (1,016.50).

Election results know, economic data revealed, SPX can't get back above QRTRLY S2 (996.25).

I placed the "cursor box" at the 10:30-10:45 interval. That's when the EIA data was released.

EIA Inventory/Refinery Data - Market Monitor Observations

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I'm showing some of my comments/observations from this morning. I should say that there was nothing I saw as "unusual" or notable in the EIA inventory data today. A slight dropoff in demand (crude oil inputs), but that's about it.

You can go back up to the U.S. Market Watch and see how things changed from there.

OK, I've got to get a move on, or I'll miss deadline, but here's the FXY (yen).

Yen CurrencyShares (FXY) - Daily Intervals

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Some analysts are thinking/saying that the STRENGTH in the Yen is a "flight to safety" signal, and it looks like it. I would also note that the BOJ has their key interest rate at 0.30% and they can only cut to 0.00%.

BOJ's Shirakawa had little "positive" to say in regards to economic trends. He also said he thought the BOJ needed to be careful in lowering rates too aggressively.

That's a bit perplexing to me, consider their rates are at 0.30%.

So, perhaps the Yen just so strong as market participants figure rates there can't go too much lower. Often time, currencies move in UNISON with monetary policy.

Again, yen is just above "par" with the U.S. $, but Yen seems to be moving COUNTER-TREND to U.S. stocks.

SPX - 60-minute interval chart

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Keep an eye on the FXY and this chart of the SPX. IF the yen just hanging out, or near $105 and SPX dips back near 880-ish, look LONG the SPX, perhaps all major U.S. equity averages.

Do you see how today, BULLS simply may have wanted to "lock in" what they had? Didn't get the further break higher, so take some profit.

Bears could have pressed the issue to, with a tight stop above the QRTRLY Pivot/MNTHLY Pivot overlap.

We had a nice BULL trade in the DIA on 10/28/08.

Sometimes the MARKET gives us a 2nd shot.

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