How This Recession Was Different
The December S&P 500
futures (SPU and ESU) finished higher last week after achieving new
highs for 2003. Overall, the moves higher continue to benefit from a shortage
of sellers, rather than explosive buying intensity. One of the major catalysts
was the ability of financial shares (BKX), which have lagged for many weeks, to
break out of a textbook daily triangle pattern and lead the way higher (see
chart). Also, the unwinding of many bearish put option bets helped to establish
a floor underneath the equity indexes.
The December S&P 500 futures closed Friday’s
session with a loss of -4.25 points, but finished up for the week with a gain of
+16.50 points. Volume in the ES was estimated at 583,00, which was behind
Thursday’s pace, but still above the daily average. On a daily basis, the
contract is forming divergence and closed on previously broken resistance, which
now becomes support, at 1,033. The weekly chart is also forming divergence and
the contract is just 2% below the 38% Fib retracement of the March 2000 through
October 2002 decline (see chart).
Given the events of the past few months, one has
to be impressed with how the major equity indexes have reacted. Through the
U.S. dollar’s decline, the rally in gold, the sharp rise in bond yields, higher
oil prices, and the continued deterioration of the labor market, the indexes
have withstood everything that’s been thrown at them and have kept moving
higher. Without a doubt, much of the move higher stems from the Fed’s
aggressive monetary actions to head off a deflationary spiral. Whether the
economic recovery could be more sustainable than originally anticipated still
remains to be seen. While historically the stock market has been a good
forecasting tool for the economy, all of the pieces of the puzzle eventually do
need to come together. The past recession was unlike any other in that, in a
nutshell, it was caused by companies buying too much computer and telecom
equipment. Sooner or later, companies will need to start spending again, which
we still really haven’t seen any indication of happening.
Looking ahead this week, the economic calendar is
quiet until Thursday, when we have the Durable Orders report for August, and
then Friday’s Q2 GDP and Michigan Consumer Sentiment Index.
Daily Pivots for 9-22-03
| Symbol | Pivot | R1 | R2 | R3 | S1 | S2 | S3 |
| COMP | 1905.12 | 1914.32 | 1922.93 | 1932.13 | 1896.51 | 1887.31 | 1878.70 |
| INDU | 9647.02 | 9683.88 | 9722.95 | 9759.81 | 9607.95 | 9571.09 | 9532.02 |
| NDX | 1394.04 | 1404.83 | 1417.41 | 1428.20 | 1381.46 | 1370.67 | 1358.09 |
| SPX | 1036.16 | 1040.43 | 1044.56 | 1048.83 | 1032.03 | 1027.76 | 1023.63 |
| ESZ | 1033.83 | 1038.17 | 1043.33 | 1047.67 | 1028.67 | 1024.33 | 1019.17 |
| SPZ | 1033.57 | 1037.63 | 1042.37 | 1046.43 | 1028.83 | 1024.77 | 1020.03 |
| NDZ | 1394.33 | 1404.17 | 1413.83 | 1423.67 | 1384.67 | 1374.83 | 1365.17 |
| NQZ | 1394.33 | 1404.17 | 1413.83 | 1423.67 | 1384.67 | 1374.83 | 1365.17 |
| BKX | 901.92 | 905.77 | 908.92 | 912.77 | 898.77 | 894.92 | 891.77 |
| SOX | 461.65 | 465.35 | 469.91 | 473.61 | 457.09 | 453.39 | 448.83 |
| DIA | 96.56 | 96.90 | 97.34 | 97.68 | 96.12 | 95.78 | 95.34 |
| QQQ | 34.60 | 34.84 | 35.10 | 35.34 | 34.34 | 34.10 | 33.84 |
| SPY | 103.89 | 104.38 | 105.09 | 105.58 | 103.18 | 102.69 | 101.98 |
| SMH | 37.60 | 37.89 | 38.23 | 38.52 | 37.26 | 36.97 | 36.63 |
Fair Value & Program Levels
Fair Value — (1.90)
Buy Premium — (0.94)
Sell Discount — (2.80)
Closing Premium – (3.40)
Please feel free to email me with any questions
you might have, and have a good trading day on Monday!