More glad tidings were expected today as finance ministers, ECB officials and our U.S. Treasury Secretary Timothy Geithner began gathering in Europe. The U.S. Treasury Secretary met with Germany's finance minister. He was also scheduled to confer with ECB President Mario Draghi. While in Germany, the ECB president reportedly also hopes to convince Bundesbank's President Jens Weidmann of the efficacy of a program of ECB bond purchases.
That constitutes a lot of visiting back and forth before the ECB meeting scheduled for August 2. Presumably, when Draghi talks to Weidmann, the tidings aren't quite so glad as those market participants apparently expect to hear. Some verbal arm twisting might even be employed.
Last night and this morning, watching our futures in conjunction with overnight trading alerted U.S. traders to exercise care when planning their own celebrations. While many frequently watched Asian bourses gained, our futures slipped lower. That was the first sign that U.S. market participants might not show up for the party today.
Market watchers attributed the overnight gains on many Asian bourses to hopes of more glad tidings this week. The FOMC, Bank of England, and ECB each have meetings. The gains certainly could not be attributed to glad tidings about economic conditions in some Asian countries. Japan's preliminary industrial production disappointed, dropping 0.1 percent rather than rising 1.6 percent as had been forecast. Moreover, the prior reading was revised lower, to a drop of 3.4 percent rather than the prior drop of 3.1 percent. The drop was pegged on slowing automobile sales. Despite that disappointment or maybe because it supported the idea that more global easing was necessary, the Nikkei 225 gained 0.80 percent. The Hang Seng gained 1.61 percent, and the Straits Times, 1.14 percent.
U.S. futures were not the only securities who sent their regrets rather than attended the celebration. The Shanghai Composite dropped 0.89 percent. China's regulators had also strengthened delisting standards, and that change hit foreign-denominated shares. Some investors feared that the new regulations would force the delisting of companies deemed in weak financial states. That change, more than skepticism about the efficacy of any concerted global reaction, might have been responsible for that bourse's decline.
Spanish bond yields had responded to the assurances from ECB President Draghi and others by dropping back below 7.00 percent. An auction of 10-year Italian bonds this morning resulted in higher yields and a lower bid-to-cover rate for those bonds than the most recent auction. However, the yield stayed below 6.00 percent and was well below the late-June high. Those were the glad tidings that European markets wanted to hear. European bourses were all solidly higher as our open approached.
However, our futures traders just couldn't be coaxed into attending the party.
U.S. investors might not have been in a celebratory mood, but European ones certainly were. Not a bit dismayed by our glum lack of participation, European bourses continued to rise after our open. The FTSE 100 closed higher by 1.18 percent; the DAX, by 1.27 percent; and the CAC 40, by 1.24 percent. Madrid's IBEX 35 closed higher by 2.78 percent. Spanish 10-year yields closed at 6.613 percent, down 0.131.
The U.S. had no important scheduled economic releases today. Fortunately, we had story stocks to distract us from the rhetoric beginning to heat up as professors of economics, politicians and bloggers galore weigh in on what central banks would, could or should do later this week. The truth is that we don't know what they will, can, or should do, and they may not yet know what is possible or needed in a shifting landscape of risk.
Not all stories related to stocks refocused attention away from the ills of the market. Europe's largest bank, HSBC, reported. HSBC reserved $700 million against possible fines and other costs related to the shifting of funds from countries facing dangerous conditions, such as Mexico. Recent Senate hearings had addressed the issue. The losses likely will grow larger, Chief Executive Stuart Gulliver told reporters. Gulliver mentioned setting aside $1 billion as compensation for U.K. customers sold inappropriate loan insurance and $237 million to compensate small businesses in the U.K. who were sold complex and inappropriate derivative products.
The bank also faces scrutiny in the Libor-fixing scandal. Reuters reported today that some as-yet-unnamed banks suspected of manipulation in the case have agreed to cooperate with EU antitrust regulators. The cooperating banks allegedly seek leniency when fines are assessed.
Stock stories today included Chicago Bridge and Iron's (CBI, 34.94, down 5.76 or 14.15 percent) intended acquisition of Shaw Group (SHAW, 41.49, up 14.80 or 55.45 percent) at a premium to Friday's close. The acquisition, expected to close early next year, will be financed by the cash held by the two companies. The acquiring company plans to operate the acquired company as CB&I Shaw, retaining the Shaw brand recognition.
GM (19.36, down 0.31 or 1.58 percent) figured in Sunday's news. Yesterday, GM announced that its global marketing chief Joel Ewanick's departure from the company would be immediately effective. The company has appointed an interim replacement.
JP Morgan Chase (JPM, 36.14, down 0.75 or 2.03 percent) declined after a downgrade by Deutsche Bank.
Today was not a good day for several pharmaceuticals. Investors in thinly traded Acura Pharmaceuticals (ACUR, 1.96, down 1.12 or 36.36 percent) sold the stock. They reacted to a Friday report that Pfizer (PFE, 23.71, down 0.12 or 0.48 percent) had discontinued the license for three products in development that had employed Acura's technology. Two other pharmaceuticals--Salix (SLXP, 46.25, down 6.94 or 13.05 percent) and Progenics (PGNX, 5.39, down 5.41 or 50.09 percent)--also saw share prices drop heavily. They announced Friday that the FDA had asked for more clinical data on a product being tested. Raptor Pharma (RPTP, 4.81, up 0.14 or 3.00 percent) got better news, with the issuance of a new patent by the European Patent Office.
Roper Industries (ROP, 99.64, up 1.05 or 1.07 percent) reported today, pleasing investors--or scaring shorts--by its Q2 profit report, its raising of FY2012 earnings and its intended acquisition of Sunquest Information Systems. After an initial gap and run-up, however, ROP's price pulled back well off its day's high and closed below recent resistance. In after hours, the stock dropped 1.44 to $98.20.
Investors weren't pleased with Diebold's (DBD, 33.01, down 3.31 or 9.11 percent) report. DBD lowered its FY2012 profit target and disappointed on the current report.
Martha Stewart Living Omnimedia Inc. (MSO, 3.25, up 0.02 or 0.62 percent) beat on earnings per share as its loss narrowed more than expected. Analysts had expected a loss of $0.07 per share, but the company reported a loss of only $0.04 per share. Higher sales of merchandising revenue helped narrow that loss. The company was characterized as missing on revenues, however, and a decline in publishing revenue was partly to blame. MSO said that it would continue with plans to introduce new products with JCPenney in the first quarter of 2013, as had been previously planned before a judge temporarily blocked those plans.
Anadarko (APC, 71.75, up 0.34 or 0.48 percent) also reported earnings, with this report coming after the close. After-the-close values were rising, to $72.25 as this report was prepared. This oil-and-gas, exploration-and-production company reported a loss of $380 million or $0.76 per share, with the loss attributed to a reduction in the value of coalbed methane properties. However, it reported an adjusted net income of $0.85 a share, beating the mean estimate of $0.78 a share by that measure. It missed on revenues, though, with revenue falling to $3.22 billion against expectations of $3.4 billion.
What's a discussion of the day's story stocks without a mention of AAPL (595.03, up 9.87 or 1.69 percent)? Rumors circulated that September 12 might be a day for investors to note, one on which the company introduces a new iPhone and a mini iPad. Search the Internet and you'll find reputed pictures of the new phone. These rumors floated around while AAPL investors also cheered the beginning of company's patent battle in court with Samsung Electronics. Jury selection was scheduled to begin today, with the trial expected to take at least four weeks. The gains continued after hours, with AAPL up 2.17 more points to $597.20 as this report was prepared.
We also should acknowledge the continued fighting in Syria and the instability that might cause markets while not ignoring the human cost.
Also in Monday's news was a Labor Department clarification relating to the 401(k) fees that companies charge employees. Companies have until August 30 to disclose those fees, but plan administrators had vigorously opposed one aspect of those disclosures. It had appeared previously that employers who provide brokerage windows beside other investment choices, allowing employees to choose among investment vehicles such as stocks or mutual funds, must disclose fees on those self-directed investments, too. According to a Reuters article discussing today's clarification, employers would not be required to monitor and disclosing the fees associated with those self-directed choices that are accessed via a brokerage window along with other designated investments. However, many plan administrators of small plans were no less outraged by today's clarification. According to that same article, if a plan offers only a brokerage window and no other "designated investment alternatives," that employer may be looked at askance, as if the employer might be attempting to avoid a fiduciary duty to employees, with this information coming from the Labor Department. Those with small plans might have to expand their offerings to employees. It looks as if the Labor Department is now going to have to issue a clarification of its clarification.
If you have read this "how I use charts" description in prior weeks, you can jump straight to the charts. I set up nested Keltner channels on my charts. It's a run-of-the-mill channeling system like the more familiar Bollinger Bands. As with those more familiar BB's, channel boundaries are often targets for upside or downside moves. They also mark levels where prices might find support or resistance on closes. When several channel lines converge, that potential resistance or support might appear stronger, just as it would if 20-, 50- and 100-sma's all converge in one spot.
For the benefit of subscribers, I mark potential upside and downside target/support/resistance levels with ovals, usually green for upside and red for downside. Orange ovals are sometimes used when the darker-colored ones would not allow for a clear examination of the next target. I will mention the nearest potential support or resistance level in the discussion on the chart but usually not the further-out ones. They can be located on the charts if price breaks through the nearest levels on consistent daily closes. If an interpretation such as "support levels appear stronger than resistance, so up looks more likely than down" is possible, I'll tell you. Often we traders must be able to defend our trade against a move in either direction.
As with any type of potential support or resistance, those with profits should be protective of those profits as support or resistance is tested. If prices find support and climb, look to the next higher oval, even one just broken through, as potential resistance. Do the reverse when resistance is breached. Hopefully, this format provides you with the information you need without requiring all night to read.
Annotated Daily Chart of the SPX:
The SPX's violation of price channel support was temporary and perhaps due to the way the channel was drawn. The SPX charged higher after testing the channel support. It has set a potential upside target that ranges from about 1404 up to the top of the rising price channel. However, today's candle indicates indecision of the type that has led to pullbacks on the last three spikes higher. SPX traders should remain aware that the SPX has not reached the top of that channel in the last two tests, failing in those efforts to reach upside targets.
A congestion zone below current prices could offer support at any number of marked levels. The way the SPX chops back and forth across the 9-ema, as compared to the way it mostly finds support or resistance at that level on trending moves, proves that the SPX is not trending. Not yet. Any direction remains possible. It's impossible to assign significance to a drop below the red 9-ema or historical support/resistance near 1360 or even 1350 when such moves are just moves within a choppy congestion zone.
Consistent daily closes below about 1338, confirmed by a decline below last week's low, will be needed to set up a new downside target near 1295.
Annotated Daily Chart of the Dow:
It's tempting to redraw the Dow's channel, but because it was drawn at the same time as other price channels, it helps us examine relative weakness and strength. The Dow is showing more coherence to Keltner channels than it is to the price channel. It's been producing most daily closes within the smallest Keltner channel. We should therefore be cognizant that it's again facing the possible strong resistance at the top of that Keltner channel. A sustained upside breakout, however, sets up a potential target anywhere from the 13230 zone up to the top of the rising price channel, a feat that the Dow hasn't achieved since it last hit it in the middle of June.
Any drop below about 12940 drops the Dow into a congestion zone, where potential support could kick in anywhere. Potential support ranges from about 12600 up to the rising 9-ema. A sustained drop below about 12600 sets up a retest of last week's low, and possibly, a downside target near 12200.
Annotated Daily Chart of the NDX:
The NDX also shows some coherence to the Keltner channels. Those channels are flattening out rather than rising. Sustained breakouts above about 2670 set up a potential upside target from about 2717-2750.
Today, the NDX pulled back from expected resistance. Further pullbacks will drop it back into a chop zone where support seems strongest from 2570-2610. However, it's impossible in a chop zone to say any of those support levels is more likely to hold that another. Setting a new downside target requires sustained daily closes below about 2540 and maybe below last week's low. That would set up a potential downside target near 2450-2470.
Annotated Daily Chart of the RUT:
The RUT broke down out of its rising channel, hinting that this channel was indeed a bear flag. As sometimes happens, the RUT bounced right back up to test the bottom of that channel, a test to determine whether old support will now serve as new resistance. So far, that resistance did hold. The shape of price action on the chart supports an ultimate bearish view. However, sustained daily closes above the Keltner channel line likely to be at 803-805 tomorrow sets a new upside target at the midline of that rising channel, at about 825-828 by the time it could be tested. Remember the emphasis on "sustained" daily closes in this market environment, however.
Everything between last week's low and that 803-805 zone is congestion, a choppy zone where support or resistance might be found anywhere and might mean little. A break below about 783-785 supports the idea of retest of last week's low and maybe even of the next downside target, near 745-748.
Dollar-denominated entities such as U.S. equities and crude and gold futures paused today. All charts point to markets waiting for the next news bite, the next central bank decision, the next glad or disappointing tidings. Dollar futures currently trade in opposition to the equity, crude, and gold charts. Confirmation of further U.S. easing may send U.S. dollar futures lower again, providing the boost that sends (dollar-denominated) U.S. equities higher. Confirmation of calamity in Europe may send the safe-haven U.S. dollar higher, sending the price (in U.S. dollars) of U.S. equities and some commodities lower. These relationships among the various markets sometimes shift and can't always be used for market timing. However, it remains useful to watch the U.S. dollar's behavior to provide warnings or confirmations of equity moves.
Annotated Daily Chart of the Dollar:
Tomorrow's Economic and Earnings Releases
Of course, the most important developments this week are likely to be those related to the various central bank and ECB meetings. Our central bank's meeting begins tomorrow and concludes Wednesday. Market participants will be watching closely for any development that could influence the FOMC members. They will likely drive markets hard if such an event develops.
Wednesday, China will report July's manufacturing data. This number will be watched and could be market moving. It is due Wednesday in China, but that means it will be released before Wednesday's open here.
While the focus moves away from earnings and onto the FOMC, ECB, BoE, IMF and EC, U.S. companies continue to report. Companies reporting earnings tomorrow include AET (6:00 am ET), CMI (BMO), DISCA (7:00 am ET), ETR (BMO), FWLT (BMO), GNW (AMC), GT (BMO), HBI (AMC), LPC (BMO), LXRX (BMO), MPC (BMO), MLM (BMO), OKE (AMC), PZZA (AMC), and PFE (BMO), among others.
What about Tomorrow?
Because of the size of recent moves, I continue to look at the two-hour intraday charts in an attempt to eliminate some of the noise. On those charts, we'll see that the SPX and Dow appear to have broken out and found tentative support above a key Keltner level, while the NDX and RUT appear to have found resistance at the same Keltner configuration. This proves nothing yet, but certainly hints of a move toward the more staid stocks and away from the higher-beta or riskier ones. That action suggests market participants are uncertain and a bit worried.
Annotated 120-Minute Chart of the SPX:
Friday afternoon, the SPX broke out of the middle-sized Keltner channel and has since then been holding above it on two-hour closes. Those long upper candle shadows certainly don't provide much confidence in the breakout, but the holding of support must be honored, too. There's a tentative upside target set above 1400, marked on the chart. However, sustained 120-minute closes beneath the red 9-ema would question the breakout. Unfortunately, even on this chart, the big moves have churned the support and resistance lines, so that it's impossible to pinpoint anything meaningful other than potential support near 1337-1341. Sustained 120-minute closes beneath that level set up the next potential downside targets, marked on the chart.
Annotated 120-Minute Chart of the Dow:
The Dow's setup echoes the SPX's. There's a breakout, with all the same questions about sustainability due to the upper candle shadows. Still, the new potential upside target near 13260 must be acknowledged. Traders should be able to defend their trades up to that level. If the Dow instead declines and sustains consistent 120-minute closes beneath the 9-ema, I would consider that upside target less likely.
Beneath the current price level are the same scrambled Keltner channel lines that don't provide any weighting of support versus resistance strength. A decline could be a shallow drop or a sharp fall. If the Dow should drop hard, I would certainly watch for potential support on 120-minute closes in the 12555-12630 zone. Failure to hold that support on sustained 120-minute closes sets the next lower target.
Unlike the SPX and Dow, the NDX has found resistance at the configuration where those indices found support.
Annotated 120-Minute Chart of the NDX:
The NDX has not yet set a new potential upside target on its chart, but that target is there, near 2700, if the NDX should break out with sustained 120-minute closes above the marked resistance.
If the NDX should continue declining instead, it's difficult to ascertain which of the scrambled potential support levels would hold. They're marked on the chart. If the NDX sustains 120-minute closes beneath about 2590, a retest of last week's low may be the next potential target. Be protective of bearish gains near 2550-2560, however, where support may hold. If not, next potential targets are marked on the chart.
If the NDX looked as if Keltner resistance was holding, the RUT most certainly showed resistance holding on 120-minute closes.
Annotated 120-Minute Chart of the Russell 2000:
The RUT looks as likely to drop toward 787-789 as it does to bounce back up to 796-797 or perhaps back up to the marked trendline and potential Keltner resistance near 790-792. The chart setup does not provide a weighting of support versus resistance, so it's not possible to say that up looks more likely than down or vice versa.
Potential support is beginning to converge on the RUT's chart, so if in profitable bearish positions, watch for potentially strong support on 120-minute closes from 783-797. It will look meaningful if the RUT produces consistent 120-minute closes beneath that support now down to 783. That action would suggest a retest of last week's low, although traders should be protective of bearish profits near 772-773. Further downside targets are marked in case potential support does not hold.
What do I think? If we can hark back to "the old days," equity markets used to clamp down into ever-narrowing triangles leading into the FOMC decision. By mid-morning of the first day of a two-day meeting, directional trades were kaput until after the meeting, for example. Chart setups now suggest that either another day of clamping down or a down day are the most likely next developments, so there's some chart support for that old-time clamping-down behavior. This would also fit with tomorrow being the last day of this month, so that all the month-end buying may already have occurred.
However, these are not "the old days," and we have forces at work that can change the markets in a heartbeat or, in the flutter of an eyelid while we're all asleep. Charts have been set up this way before when some glad tidings sent prices soaring up out of the bearish formation, with short-covering adding to the upward velocity.
Be prepared for anything the next several days. If this were the mid-2000's, I'd tell you to step away from the computer tomorrow if you could and ignore whatever was going on because we were likely to just see some tight zigzags that meant nothing. I can't tell you that any longer if you've got open positions. Instead, if you have open positions, be able to defend them or close them if there's a big move either direction. We don't know what kind of party fare the ECB, EU, BoE and FOMC will cook up, and whether it will induce hilarity or a bout of ptomaine poisoning. If you can't hedge your trades, consider whether you're comfortable with the money you have at risk. Should you reduce the size of your trade, even if that means locking in a loss on the portion you reduce? I can't tell you the answer to that because my crystal ball clouded up a few weeks ago, but I can tell you that's a perfectly viable and sometimes extremely sound market decision that I have, at times, employed.