No Major News On the Horizon. Tight Trading Range Will Last At Least A Week

February 15, 2012

If you took my advice yesterday, you scored twice. You took your sweetheart out to lunch and the market staged a strong rally into the bell.

This tight trading range is for the birds. The news calendar is very light and we can expect lackluster price action for at least a week. Flash PMI’s from Europe and Asia will be released next week and that could spark a little movement.

Industrial production was slightly below expectations. Empire Manufacturing was better than expected and the two releases negated each other. The FOMC minutes will be released this afternoon and they should be positive.

Euro zone GDP’s were released and they were in line. France and Germany were slightly better than expected, but peripherals were very weak.

Credit concerns have subsided and the market completely ignored Moody’s when it downgraded nine European sovereigns. This news was already priced in.

The situation in Greece continues to deteriorate and they will default in 2012. European officials are starting to see that this hole is just too deep. Every day we hear about a new wrinkle and traders are getting numb to the news.

China is promising to help out Europe, but they have not provided specific plans. The ECB will provide another liquidity injection in two weeks and the demand should be high (if banks can find collateral to pledge). This should keep a bid under sovereign debt auctions.

Earnings season is winding down and profit growth is at a two-year low. Here is an interesting statistic. If you strip out Apple’s earnings from the S&P 500, profits only grew 2.8% year-over-year. Next week retailers will post results and I feel profit margins will be down. Stores were open longer than that increased expenses. Huge discounts will also bite into profitability.

Tomorrow, initial claims, the Philly Fed and housing starts will be released. The numbers should be decent, but not enough to spark a major rally. Outside of the flash PMI’s next week, the economic releases are very light.

I believe we will be stuck in this tight range for at least a week. We are due for a pullback, but Asset Managers are waiting to scoop up stocks on a dip. Conversely, good news is priced in and each time we rally up to major resistance, profit-taking sets in.

We need a major news event to shake us out of this range.

I am long calls on strong stocks and I am long VIX calls as a hedge. My risk exposure is very small since this market could break either way.

Look for quiet trading with a small push higher after the FOMC minutes.
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