The “risk off” or “fear of missing out” trade is back following confirmation of fresh ECB market support and better-than-forecast US data. As of 11:45 ET the SP-500 (SPY) is up 1.85% and confirming a tricky Tuesday, a “wins-day” for hedge hogs and a less sketchy start to September.
Bulls are sporting a “risk off” mindset Thursday after ECB President Draghi established a new bond program confirming this week’s ebullient trader chatter of “unlimited and sterilized purchases” for maturities up to 3 years, but stressing participating countries must continue to abide by existing strict conditions laid out by policymakers.
Stateside, a strong-looking triple sneak peek at the US labor market in front of Friday’s BLS nonfarm payrolls data is likely assisting in Thursday’s decisive and much more optimistic-looking action despite reducing bulls’ bear killing, quant easing quiver. Better-than-forecast reports from ADP, Challenger survey and weekly claims showed private payrolls rising by 201K versus a forecasted 143K, claims dropping to 365K and lighter job cuts of 32,239, the lowest since December.
Separately and making the case of stronger economic data being more important to bulls than additional financial aid from the Fed, ISM Services data for August improved and beat forecasts with a reading of 53.7 compared to estimates of 53.0 and July’s figure of 52.4.
In those intertwined markets of influence, the EUR/USD is up marginally by 0.15% but eking out fresh highs within its existing up channel as bulls try and support today’s latest “do whatever it takes” maneuver to keep the euro intact.
Eurozone ETFs are cooperating a bit more enthusiastically in leading the US market higher. Following yesterday’s bullish technical omen from the Global X FTSE Greece 20 ETF (GREK) which managed a near 5% breakout and continues to follow-through with a 1.5% gain; both Spain (EWP) and Italy (EWI) are sporting strong gains of about 5% while taking out their respective 200SMAs.
Germany, the region’s largest and most robust economy is also enjoying a good reaction technically in its iShares MSCI proxy (EWG). Intraday, EWG is tacking on 3% and clearing pattern congestion which found leading relative strength support off its 200SMA.
The 20-Yr (TLT) is off 1.5% as investors rotate into riskier assets now perceived as less so; and finds pressure from today’s “stimulating” data suggesting the Fed can continue to sit on its thumbs.
The US Oil Fund (USO) is up a sympathetic 1.15% on increased optimism an uptick in demand will be forthcoming after today’s pledge from the ECB and strong economic data. Technically, USO remains a laggard caught below its 200SMA within a two to three-week congestion pattern.
On the corporate confessional side, bulls appear to be appreciating the slogan, “Keep on trucking, baby” in shipping outfit UTI Worldwide (UTIW). Shares are up nearly 11% and in a testing position of the 200SMA despite missing top and bottom-line views and management’s cautious message regarding a weak freight environment unlikely to improve this year.
Bulls and bears are also trying to squeeze into Men’s Wearhouse (MW). Shares are up 14.50% after gapping aggressively above its 200SMA and thrusting higher. The clothing retailer announced, much to the chagrin of its 9% and 10 day short-cover ratio bearish audience, a bottom-line beat and upside, above-views EPS guidance for Q4 and FY13.
Finally and in those sometimes accurate heat-seeking option markets, the VIX ($VIX) is off 9% near 16.25% as Thursday’s increased optimism manifests itself in the market’s most notorious sentiment gauge. Currently the index is testing its 30SMA and roughly 5% below its 10SMA.
Traders looking to monitor the VIX for investor confidence turning too complacent will want to keep track of any 10SMA differentials greater than 15% and the August lows which took the index to its lowest readings in five years.
Chris Tyler
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
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The information offered here is based upon Christopher Tyler’s observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual.
