Bulls labor with modest profit-taking against technically limited upside and sterilized historical tendencies. As of 11:45 the SP-500 (SPY) is off 0.10% as a confident run squares off with resistance and complacency.
Stimulus is back on the table for this week’s FOMC meeting following Friday’s dismal jobs data, but an appreciative two session gainer of nearly 2.5% in the SP-500 to fresh four-year highs is finding some modest technical stalling Monday. Intraday, a daily doji decision candlestick is forming against bearish September seasonality, up-channel resistance and investor behavior that’s quickly turned from being ‘fearfully good’ a handful of sessions ago, to the less sturdy type associated with the fear of missing out.
Across both ponds, China’s announced ‘roads and rails’ infrastructure spending program has continued to assist contracting outfits and basic materials plays (XLB, FCX, FLR, RIO, BTU) to relative strength gains for a second straight session. The bid comes in the face of a flurry of mixed economic reports, but spearheaded by weaker-than-forecast industrial production of 8.9% which has traders optimistic the data will prompt additional stimulus action by China’s central bank.
In Europe, reports and data have also proven mixed. France, the Eurozone’s second largest economy saw industrial and manufacturing production top estimates. At the same time, officials cut growth targets on the country’s 2013 GDP from 1.2% to 0.8% as President Hollande spoke of a new EUR 30.0B program which will include new taxes and spending cuts.
For the embattled Debt PIIGS, a report overnight showed Italy’s GDP slipped by one-tenth of a percent and reflecting a contraction of 2.6%. And discussions between Greece and the Troika are purported to be of the tough-going variety. Apparently though, someone forgot to deliver that memo to bulls in the Global X FTSE Greece 20 ETF (GREK). Intraday, shares of GREK are up nearly 5% on top of last week’s 14% gain.
In those other intertwined markets of influence, the EUR/USD is off narrowly by 0.05% but looking prone to profit-taking. Technically, today’s candle is confirming 200SMA resistance tested over the past two sessions as the instrument strikes key short-term up-channel resistance and a longer-term weekly downtrend line.
Eurozone country ETFs (EWP, EWI and EWG) are all showing modest topping style losses of 0.5% to 1.10% after significant price runs last week.
After breaking significant weekly channel support and gapping decisively lower from a small price consolidation wedged beneath its 200SMA, the US Dollar (UUP) is bid by 0.15% in an inside candle. Short-term, the action could resolve itself by filling in the gap to test the prior support.
The US Oil Fund (USO) is mostly flat and more or less on par with the broader market. Technically, shares of USO remain a laggard wedged beneath its 200SMA in price action which could be viewed as a potential bearish 'canary in the oil patch.'
The Dow Jones Transports (IYT) is up 0.55% and finding relative strength from the likes of United Continental (UAL), Delta (DAL) and UTI Worldwide (UTIW). Monday’s bid has the IYT challenging its 50 and 20SMAs from below within a typically neutral, but bearishly-positioned symmetrical triangle.
Finally and in those sometimes accurate heat-seeking option markets, the VIX ($VIX) is up about 1.5% near 14.70%, but not before rearing that ugly mean-reverting head of bullish complacency. Session lows just below 14% pushed the 10SMA spread differential in excess of 15%.
Readings of 15% or greater are typically prone to seeing the euphemistically called Fear Gauge moving in the other direction to neutral extremes in short-term sentiment. As absolute levels are just removed from one month and five-year lows and historically cheap; this past couple sessions ode to the fear of missing out looks well-positioned for that other type of fear to make a more grizzly appearance.
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.
