Holy Turnaround
Stock index futures staged late
turnarounds and finished the session in intraday cup-and-handle patterns,
suggesting a continuation of the late rally Friday. The index futures had
traded lower in the early going, due to more poor earnings news and analyst
downgrades of key tech stocks: (
(
IBM |
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PowerRating),
(
SONS |
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(
CSCO |
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PowerRating)) all
closed negative on the session after leading the market lower.
But round numbers provided support in the
two most active contracts, acting as psychological lines in the sand. S&P futures
(
SPZ1 |
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traced double bottoms at the 1000-even level and Nasdaq 100 futures
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NDZ1 |
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PowerRating)
also held in a probe below, and then a successful test of 1110.00. The SPZ
mustered a gain of 8.00 to 1022.50 while the NDZ erased a 40-handle deficit
to close down 11.00 at 1148.00.
The entire
yield curve rallied today, sending interest rates on the short end to their
lowest level in 40 years! Five year notes (FVZ1),
for instance, rallied out of a pullback from high formation to close at a
contract high, and closed up 6/32 at 108 13/32. And the Dec fed funds
futures
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FFZ1 |
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PowerRating) closed at a contract high, suggesting overnight bank
lending rates — those the Fed targets — will fall an additional 75 basis
points by Christmas.
From the Momentum-5
on the longer end,
10-year notes (TYZ1)
traded to a contract high as they made good for a third day on their
Pullback From Highs set up. But beware in the 10s tomorrow as they set up a
possible Turtle Soup Plus One Sell Reversal (for more on this setup, see
TradingMarkets Futures Education section).
Long bonds benefited the most as the decline in oil prices continued to
remove some of the inflation fear-fed sell off we’ve seen recently. December
T-bonds
(
USZ1 |
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PowerRating) closed up 25/32 at 105 10/32.
A Weak Yen
A weak yen remains one of the few policy options available to
for monetary officials to bail out a failing Japanese economy. Interest rates
cuts will be ineffectual as they were cut from 25% to .15% a week ago, in
coordination with the Fed and ECB. How much closer to free money can you
get?
Officials have to do something and the Japanese do not want a high yen
to impede an export-led economic recovery. So for the sixth time in just over a week,
the Bank of Japan intervened in global currency markets overnight, selling
yen. The BOJ also apparently acted in a coordinated manner, with the help of
other central banks. Coordinated action works better than any single central
bank acting alone. Prime Minister Koizumi also made comments implying the
government stood by the ready to keep the yen strong if such action were
required.
After the
disappointing impact to their fifth intervention yesterday (the yen closed
down just .0020), the BOJ needed to show they are serious, or lose
credibility. After gapping down, a short entry was possible when the yen
retraced to two ticks above opening levels. Pit traders often get short (or
long) at extremes such as the high of the opening range or at the highs and
lows of the session.
When
you see multiple gaps, laps and expansion bars as a market moves
off a low, the commodity is talking. Take cocoa (CCZ1).
Since hitting triple bottoms on Sept. 5, the futures has left four gaps and
four expansion
bars. That’s been done in just 13 trading days and
represents a critical mass of at least five such signals within a 21-day
period. Collectively, this is a sign of a runaway market. The important
London cocoa market saw a jump in prices as well as world cocoa rallies, on
perceptions of a deficit in supplies of the bean from the world’s largest
producer, Ivory Coast.
Cocoa is on
the Momentum-5
and New
10-Day Highs lists and made good on an Off
The Blocks entry in shortened trading.