And 2011 Walked Out of My Life Forever

2011 was far from dull. We saw the year that began with a revolutionary wave of demonstrations and protests occurring in the Arab world, a spike and then a large drop in both oil and gold prices, the Tohoku earthquake and tsunami in Japan, Osama bin Laden's death, sovereign debt contagion in the eurozone, the debt ceiling negotiation debacle, a Standard & Poor's downgrade of the AAA debt rating for the U.S., epic flooding in Thailand, Occupy Wall Street, and the start of the 2012 presidential campaign.

We were optimistic and we were fearful, but when the final bell rang on 2011, the S&P 500 closed flat on the year. I will be posting my thoughts on what to expect in 2012, but for now I will leave you with the following video from Reuters, a look back at 2011 in 60 seconds:

Where to Look for Support

Market is in sell mode now after seeing a rally in the after hours session. The brief but significant rally was in reaction to news that the ECB loaned banks a combined EUR 489 bln at its 3-year long-term refinancing operation (LTRO). That was well ahead of expectations, which were closer to EUR 300 bln. The positive reaction was quickly reversed and the negative sentiment has continued this morning.

There are two support areas to look for long entries today. The first one is 1222-1223 ES and the second is 1217-1218 ES.

Only considering quick trades or scalps if the ES doesn't trade that low.

Strong Buying Overnight Signals Strength

Markets see strong buying overnight as Dollar sells off and Euro see a bid. This signals that a bottom is now in for the year on the ES. It is doubtful we will see any slight lower low at this point.

Officially biased to the long side now heading into 2012, will look at dips as buying opportunities into the end of the year. If the ES sells off back down towards the 1200 area today it will be a buying opportunity.

Support levels to consider long entries today at 1208-1209 and 1202-1203 ES.

Price Levels Beginning to Look Attractive for Long Entries, But Slight Lower Lows Likely

We got the lower low that I was waiting for on the ES, though the SPY hasn't quite filled its gap from 11/29 (about 1190-1191 on the ES). The ES is now flirting with what I expect to be the lows for the remainder of 2011. That being said, there is no sign that the lows are in yet. I think a better long entry will come between 1185-1192 on the ES. From there I will be looking for about 30-40 points to the up-side. EDIT: SPY actually did fill the gap from 11/29. I meant that if you look at the chart in terms of the ES, the closing price on 11/29 is at 1190.

The bigger picture is still looking bleak. Mario Draghi and the ECB have been reluctant to fix the Euro Debt situation with more money printing. This is basically the same as saying that the acceptable alternative is deflation. Draghi has made it clear that he prefers finding a solution to fund the EFSF in order to pay off debt for countries like Italy, Spain and the other PIGs. The problem is, there has yet to be a viable proposal as to how to make this happen. The result has been obvious; the Euro has sold off, the dollar has seen a bid as a safe haven alternative and Equity markets around the world have declined.

We will eventually see some form of money printing in my opinion, but things might have to get worse first. Central Banks understand that printing money will be frowned upon and viewed as a catalyst to inflation. It will likely send the prices of gold, silver and commodities through the roof. So, when they do print money, it will be a clandestine effort.

In any case, I think the markets are due for a bounce into the end of the year. I like longs at 1185-1190 ES.

Market Declines As Expected, Preparing for Long Entries

The market has moved down as predicted in my previous couple of posts. Since breaking below 1200 overnight, the ES is up over 1% this morning including a 5 point rally following a better than expected jobless claims number. Although new jobless claims declined, I am not expecting a continued rally from here. Not quite yet anyway. I expect some consolidation now with resistance above at 1220-1221 and support below at 1203-1205. If we make a slightly higher high this morning, look for more resistance above that at 1225-1227.

I will be looking for one more lower low under 1200 ES. At that point I will be looking for positions to the long side.

Market Doesn't Waste Time Consolidating. Sellers Move Price Down.

So far things playing out perfectly in line with expectations. ES now approaching target area of 1212-1217. Although there is some interim support now at 1221-1225 that could see a brief bounce higher, expect that support to eventually break down. I will continue to hold shorts until the target area is reached. I will then consider long entries. ES could trade down as low as 1190, but I will look for long entries before that. There may be some good range play possibilities in the 1200-1220 price area as I will look for the market to consolidate there.

These are my expectations, we'll wait for the market to confirm it.

ES Saw a Bounce As Expected. Now Preparing For Short Entries

ES (December Contract) has found resistance now right in my 1255-1260 zone. This is 1250-1255 on the ES March Contract.

I will speak of price in terms of the March contract (ESH12) going forward.

I prefer short entries now and expect that the ES has topped, or will top, in the 1250-1255 range. I am looking for the ES to now resume its move down to the 1212-1217 price target. We don't yet have confirmation of a top, so trades will be intra-day or scalps until a clear topping signal triggers. At that point I will look to hold short until ES trades down to the target below 1220.

ES Has Begun its Move Down to 1217-1223

That being said, I believe there is potential support here around 1237 on the ES. I like Longs from here. I would like to see a rally back up to 1255-1260 before the end of the week on the ES. From that point I will like short entries and will anticipate a move down to the lower 1220s.

If the ES hasn't yet bottomed here at 1237 (today), I like support to hold at 1232-1233 and like longs again from there. If 1232 doesn't hold, then the selling will continue. If you are not already short by that point, then the best bet is to wait for the next best long opportunity around 1217-1223 ES.

NOTE: I am referring to price on the December Contract ESZ

Strength Remains

Last week the market rallied over 100 points. There was a good chance of a pull-back off the 1245-1250 resistance level on the ES, but sellers did not enter the market. I covered my short on Friday morning.

Reports that the European Central Bank is preparing to inject 1 trillion euros into its financial system for use in bond buying, and that officials in Italy have established a new austerity plan have produced confidence. Combined with the bullish market action, there is no reason to be thinking short at this point.

I do believe there will be an opportunity to get short for one more decent sell-off (30-50 points) before the year is out and that will only set up another nice buying opportunity. My immediate bias however, is neutral to bullish. ES could easily trade up to 1290 at this point. Short entries will only be scalps or day trades for now. ES could see a small move down this morning off the 1262-1264 resistance. Will consider long entries off the 1251-1253 level on the ES.

No telling signs at the moment, not looking to take any significant positions until better signals present themselves...

Short ES at 1245.25

We are now up almost 100 points off the low from last Friday. Happened a lot quicker than I thought it could or would. Regardless of the bullish price action, I have to step in here and put a short on the table.

We have hit the prior support of the triangle pattern that broke down on 11/17. Not a bad play in terms of risk here. I expect a move back below 1230 ES. This is an aggressive trade because there is no confirming signal yet of a reversal... To enter this trade you have to be willing to take heat. I am willing.

We may consolidate up here for a bit before turning back down, but I do expect some profits to be taken off the table sooner rather than later...

Market Surging This Morning on Coordinated Central Bank Action

The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing coordinated actions to enhance their capacity to provide liquidity support to the global financial system. The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity.

Result: Market up, Dollar down.

This is what I was referring to in the last paragraph of my previous post.

First Target Reached, Anticipating the Next Move...

First target of 1198-1200 ES reached. You can see how that area has acted as pretty good resistance. The ES has traded down almost 10 points off that price area 4 times now.

I expect that my second price target of 1218-1220 will be reached next. The key is choosing the best price point to look for long entries to try and catch this move. Ideally, an opportunity will present itself to enter long down around 1178-1179 assuming the ES trades that low. I will of course be careful defending long entries. Keep in mind, a daily close below 1171 will likely send the ES down to revisit the lower 1150s.

I will consider short entries at or above 1218-1220. The key is to wait for a good short entry signal. Maximum upside potential (in the next 5 trading days) according to my analysis is at 1245. I don't think we will trade that high, but it is possible. As long as we don't see a daily close on the ES above 1231-1232, I will like shorts at those price levels.

IN THE NEWS
Even though the market is up, there continues to be a lot of negative news.

• As final details of the EFSF come out, it is clear that it is not the solution to avert a crisis in the European debt situation.
  
• There are talks of a contingency plan to dissolve the Euro.
  
• Global GDP is declining while debt burdens become untenable.
  
• Standard & Poor's cuts ratings of Bank of America, Goldman Sachs, Citigroup and many other banks.
  
• Today, for the 4th time, the ECB failed to sterilize its ECB bond purchases. The ECB said that 85 banks bid a total of EUR 194.2 bln for seven-day term deposits. It had aimed to drain EUR 203.5 bln.
  

The reason I expect further upside amidst the negativity is because the market is expecting a plan to recapitalize the banks and to make sure bond interest rates don't spiral out of control in Europe. Whether money comes from the IMF, the ECB, the Fed, China or somewhere else is not important. Whether or not it actually happens is not important. What matters in the short-term is what the market expects. For this reason as well as for technical reasons, I expect we will see further upside in the market. As always, only time will tell...

Rumors IMF will Provide 600 Billion Euros to Prevent Italian Default. Markets Move Higher

Reports state that the International Monetary Fund is preparing a 600 billion euro ($799 billion) loan for Italy in case its debt burden worsens as a result of Bond yields continuing higher. This has put a bid under world markets. S&P 500 futures have been up over 2% so far in overnight trading.

I stated in my previous two posts that 1150 would hold as support on the ES and so far it looks like that is going to be the case. If you didn't get long on Friday, I don't know if it is the best idea to chase the market now. Waiting to buy a dip is the smart play. There is a chance that we see this morning's gap get filled down at 1153. However, there are no guarantees we will get another buying opportunity like that in the near-term and if it does happen, it will likely be on some sort of negative news.

My bias is to the upside and I believe the bottom is likely in for 2011. However, if reports refute the IMF loan to Italy, we could see more selling enter the market. Otherwise I will be looking to buy dips for the remainder of 2011.

We must keep in mind that the IMF Loan to Italy is not a sure thing. Lets not forget that a short while ago, political leaders in Europe said the EFSF would be leveraged to One Trillion Euros to safeguard against countries that might be at risk of defaulting on debt obligations. It later became obvious that there was nobody actually willing to provide this leverage to the EFSF. So while we may see some buying come in here on rumors again, that doesn't mean the trend is going to remain up.

First target is 1198-1200 ES.
Second target is 1218-1220 ES.

1152 remains a key level. My bias remains bullish as long as the ES does not see a daily close below 1152.

Market Breaks Down Further

I have not had a chance to post other than my comments on Monday. The 1180s support has obviously broken down since then. There were some nice opportunities to trade the consolidation range on Monday and Tuesday. Sellers ultimately maintained control with the looming debt problems in Europe and budget discussions here in the United States. Its not that the news is anything new, its just the fact that there have not been any positive counter-punches by policy-makers of late. So though the news supports the selling, it is highly technical as the market now heads toward the 61.8% retracement from October lows.

I like longs in the 1150-1156 zone on the ES. First test of this price range should provide a high odds chance for a bounce. A close below 1152 would be very weak and force me to rethink my long bias. By long bias, I believe the market will soon make a bottom in terms of trading for the remainder of the year. I am waiting to see signals that will confirm when this happens. Market remains weak in the immediate-term.

I will post more soon...

Volume Finally Comes in to Drive Price Down

Its been a tough few days as the market has chopped up and down in as misleading a way as possible. With low volume, there was just not enough participation to drive price lower. Bears needed to have conviction to profit in the past few days, and there were plenty of reasons to be confident on the short side. Specifically, bond yields in Italy and the rest of the PIGS are presenting warning signs that a default will be inevitable without intervention by the European Central Bank.

My first target on the ES of 1226-1227 should be hit this evening (up-trending support is actually at 1229 now). We may get a bounce from there, but I maintain my short bias and expect a move below 1200 is on the horizon. Next target is 1184-1186 ES. From there I expect support to hold. Maximum downside potential is around 1150 and if price does get that low, I will get long with confidence. At that point (when support confirms), I will be looking to buy the dips for the remainder of 2011.

Market Rallies This Morning After Comments by Chicago Fed's Evans

ES Rallied 9 points following comments by Chicago Fed's Evans who said he expects policy rate to stay "low for longer than mid-2013." For the short side to remain in play today, 1252-1254 needs to hold as resistance on the ES.

Italian bond yields are back above 7%. Yields this high are not sustainable in terms of Italy being able to meet their debt obligations. I remain biased to the short side.

Market Tries to Move Higher But Will Likely Move Lower First

The market behaved a little differently than I expected last week when the ES rallied off the lower 1220 support. I had mentioned in an earlier post that if the up-trending support (1218-1223) on the ES was tested for what would be and what was a sixth time, that it would likely not hold. I expected further selling to push the ES down into the 1180s. This did not happen (yet) and we saw buying move the markets higher to end the week.

The current rally has not changed my overall sentiment and I continue to be bearish in the near-term.

Resistance above on the ES at 1263-1264 and 1268-1270

1st target to the downside: 1226-1227
2nd target to the downside: 1184-1186

I am biased to the short-side and will look to sell rallies unless the ES can close above 1270. If that happens, the ES will likely test the 1290 resistance next.

Italian Bond Yields Continue to Soar. Markets Sell-Off

10 year Italian bonds now trading at 7.34%. The 3-10 year yield curve on Italian bonds is now inverted. Inverted yield curves almost always precede recessions. Contagion now has Spanish yields trading almost as high as 6%. Money has moved into the US dollar and US treasuries as their safe-haven status continues to be applied. Futures are gapping down significantly this morning.

Amidst this negativity though, it looks like a nice buying opportunity is presenting itself. I like long entries in the 1238-1240 price area on the ES. Be careful defending any longs if price goes below 1236 ES.

News that Berlusconi Will Resign Moves Market Higher

Berlusconi apparently will resign following approval of new budget law/austerity measures. As if the resignation of Berlusconi is the answer to Italy's financial troubles. Either way the market likes it in the short-term as the ES has now rallied a quick six points following the news.

ES has broken above the 1258-1262 resistance and looks like it will now hold above that level. There remains resistance at 1267-1272 above. As I have said, I expect choppy markets until ES tests the 1290 level or the 1180s. Seems likely the 1290s will be tested first...

Market Outlook Looking Forward

European situation ugly:

Finding the proposed $1 trillion Euros to fund the EFSF is in doubt. China would have the ability to make it happen, but there is no sign yet that they will commit to buying the EFSF bonds. Other Sovereign States and the Private sector could also contribute, but it remains to be seen how or who will finance the bailout fund. This does not even take into account that everybody knows the proposed $1 trillion is not even sufficient.

Italian bond yields continue to rise. The ECB hints at ending the purchase of Italian bonds if the Italian government does not do its part in promised budgetary reforms. Italian Prime Minister Silvio Berlusconi in jeopardy of being forced to resign. Portuguese, Spanish, French and Belgian bond yields also rising.

Unemployment continues to be a concern in the United states:

Unemployment fell in the US by .1%, but still remains over 9%.

U-6 (Total unemployed), plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force is at 16.2%

US employment is actually lower than it was 10 years ago

US Wages are rising slower than Core Inflation

Although the US labor force rose by 181,000 last month, the overall situation does not look great as the world economy is in a funk. I don't know where the employment opportunities can come from to put any significant dent on the current unemployment rate.

Amidst the negativity however, stocks are holding up well. Market has not yet seen a significant move to the downside following record gains in the month of October. It appears the October lows will hold up as support into the end of the year. Without significant new negative developments out of Europe, any dips will be buying opportunities throughout the remainder of 2011.

Right now:
Until price on the ES can confirm above the current 1258-1262 resistance, I favor the short side. We have up-trending support at 1220 ES which has been tested 5 times in the past month. I expect that a sixth test of this support (currently 1218-1223) will not hold. Therefore the next best long opportunity will present itself in the 1180-1190 range on the ES.

In terms of resistance above, I am watching the 1258-1262 price-area to begin this week. If buyers can move price through that, I like longs from there as price should move up to test the 1267-1272 resistance and then up to the previous highs. The best short opportunity will come if ES trades up to 1290. I will be looking to get short at the first test of this 1290 resistance. This should provide a minimum of a 40 point short play. Depending on news out of Europe, we could see a further move to the down-side. We'll have to wait and see.

To sum it up: I am slightly biased to the short side in the immediate-term. I expect a choppy market until the ES either trades up to 1290 or down to 1180. I will be a confident buyer down in the 1180s and will be a confident seller at the first test into the 1290s.

ES Hits Important Short-Term Resistance This Morning

Consider taking profits on any longs now after ES moves into 1245-1255 range. Although reaction has been strong to news out of Europe, I can't ignore the short term technical levels that should provide some selling opportunities. I prefer shorts today as long as we don't get a confirmed move above 1255 ES.

Watch FOMC Press Conference Live

Stream videos at Ustream

Not expecting significant reaction to the FOMC meeting today. Statements released so far are more or less in-line with previous statements. No new measures have been announced, though Chicago Fed President Charles Evans dissented by requesting more accommodation.

Some selling has followed the announcement.

In any case, Bernanke will speak live at 2:15pm EST. You can watch it live above.

European Headlines Drive Markets Again

The enthusiasm over the European debt deal was clearly over blown and following 4 straight weeks of gains, an overbought market has finally exhaled a bit.

Resistance held in the upper 1200s on the ES (as expected) and market sees nice decline to begin the week. ES down over 5% from Thursday's highs and is now hitting solid support in the 1208-1215 range. This is definitely a price-point to consider taking profits from any short positions. I like longs down here in the 1208-1212 range. But I'm not overly enthusiastic yet as concerns in Europe are forcing a risk-off mentality. Be careful defending any long positions as sentiment remains negative

A close below 1209 would be very weak and suggest further downside.

News influencing the current decline:

Greek Prime Minister Papandreou calls for Voter Referendum on EU Debt Deal forcing uncertainty over the legitimacy of the EU Bailout.

Italian bond yields soar to 6.1% bringing them back to levels seen in August when the ECB intervened. Looks like they have to intervene again?

China Purchasing Managers' Index (PMI) lowest since early 2009. You can blame this on weak European and US economies. A perfect illustration of the contagion effect on what is really a global economy.

I like the potential for a short-term rally down here off 1210 on the ES. However, we must be careful amidst the market negativity. The headlines out of Europe can make this 1210 support meaningless.

Expect Consolidation Today

I don't expect any big moves today and will be surprised if we don't see a consolidation day after the recent up swing. I like shorts on any retests of yesterday's highs.

Preparing for Short Entries

The market has now reached the price zone where I will begin to consider short entries. Intra-day action is obviously very bullish. Market is reacting positively to latest developments in the Eurozone financial rescue plan.

In the plan:

Creditors will cut all Greek debt in half.

The EFSF bailout fund will be leveraged to $1 trillion Euros

The ECB will continue to defend Italian bonds

Banks will be required to raise $106 billion Euros in new capital by June

The first two items are what have sent the markets soaring today.

ES has reached an intra-day high at $1275.75 so far. This is key resistance and right at my target high-zone prediction in the market. Jumping into shorts now, however, would be very aggressive. Although I like shorts here, any short-side trades will be scalps. I am not expecting any significant sell-off to start just yet. Will need to see some sell signals before committing more heavily to the short side.

Market Awaits News Out of the EU Summit

Markets saw some selling yesterday. Some contributors to the negativity? Rumors that today's EU summit would be canceled or postponed? Very low consumer confidence rating in the US? Ultimately it was just corrective action following a nice run-up in price. The ES didn't quite get to my 1258 target (3.5 points shy) and the fact that the move above 1237-1240 did not confirm with a consecutive higher close, suggests we may see a little bit more selling before continuing higher.

Overall I continue to be biased to the upside as I think the downside potential is limited. There is pretty good support currently in the low 1220s ES. If that breaks down we could see a move to 1210 and potentially as low as 1200, but that is a price level I will look for long opportunities.

In reality though, these levels don't mean too much as the catalyst to market action will be driven by information coming out of the EU summit later today. Look for headlines to break at or after 1:00pm EST. It is still too soon for any substantial plan to be finalized, so the key will really be to see how much cooperation and agreement there is between Eurozone financial leaders and the level of optimism at reaching a solution.

I'm on the fence right now as to how optimistic the headlines today will be. I think there is a chance that contentious viewpoints may result in more market uncertainty. Ultimately a solution will be reached, I just don't know how close they will be to that solution after today's meeting.

My overall bias continues to be bullish. I think a move down into the 1200-1210 range on the ES would be a nice buying opportunity. Looking ahead, I see a potential topping point around 1270-1275 ES where I will begin to consider short positions. We'll see how things play out.

Just want to mention the surge in the price of Gold yesterday. This is very bullish for the yellow currency metal as it closed above 1700 and above key resistance at 1688. This bullish action in Gold may be speculation that the ECB will print Euros to help fund the EFSF bailout fund. In any case, support will now have to hold in the 1680s before Gold can continue higher.

Market Remains Bullish, Though Lack of Resolution at Wednesday's EU Summit Meeting Could Derail Sentiment

My first target has been reached with the ES crossing above the 1237-1240 level overnight and again this morning. The ES is trading above the 61.8% retracement from the October 4th lows to the July highs. Friday's close was quite bullish as the ES closed above last week's consolidation range. If the ES closes above 1240 today, I expect bullish action to continue with the next target being 1258 ES.

No substantial agreements were reached at the EU summit over the weekend. The next meeting will be on Wednesday and without something positive coming out of it, look for a possible short-term sell reaction in the markets in the second half of this week.

Lower 1190s Support Continues to Hold on the ES

Headlines out of Europe act as puppet masters over traders. Yesterday began with selling as markets reacted to talk that this weekend's EU summit might be delayed. As the the ES ticked down towards the lower 1190s support, more news came out of Europe suggesting that Sarkozy and Merkel would meet on Saturday in Brussels to resume talks about a European bailout plan. The S&P 500 reacted by rallying 20+ points off the lows. Futures are up again this morning as headlines report that Germany and France now agree on key points of the European Debt plan ahead of next weeks EU summit.

The European Debt talks are making for some great trading opportunities, but I don't know that they are doing anything to solve the banking crisis and debt concern in Europe. I expect continued choppy action and knee-jerk reactions to news out of Europe, but I also continue to expect higher highs ahead. I like buying the dips. Next target on the ES remains at 1237 and I expect upper 1250s to follow.

Rumors that France and Germany Reach an Agreement on Bailout Plan

Market surges again on news out of Europe! This is becoming too normal. Turns out the 1190 support on the ES held up, I didn't expect such a fierce rally, but regardless how price went up, it went up... I'll comment more as I get more information...

Keep in mind, resistance remains overhead at 1230 ES, but I continue to expect 1237-1240 to be hit next...

Markets Sell a Bit Off Upper Range Resistance. ES Down 40 Points From Yesterday's Overnight Highs

I don't believe the Schaeuble comments yesterday were an accident. The markets have moved very far, very fast following statements on Oct 4th that Europe would commit to recapitalizations of financial institutions. Because markets around the globe have seen significant gains since then and because European leaders know that they have no plan of substance to back-up the comments to provide liquidity, it was probably smart of the German Finance Minister to issue a warning that it is unrealistic to expect a definitive solution to the euro zone debt crisis at an EU summit this weekend. Better to dampen sentiment a little bit now rather than wait till after the summit. We'll likely have to wait till the first week of November to hear a more detailed plan.

The S&P 500 is still up more than 10% off the closing price on October 3d and overall, expectations remain that the EFSF will indeed provide the liquidity needed to prevent contagion from Greek Bond defaults. For this reason I continue to be bullish overall and look at higher highs ahead. That being said, we still have the chance to move lower before we move higher.

As I mentioned in my comments from yesterday, I was watching the lower 1190 support on the E-mini S&P 500 futures (ES). So far we are maintaining that support as the ES has now rallied 10 points off this morning's lows. Waiting for confirmation before entering any swing long positions. I will be watching for a pull-back to 1188-1190 before considering a long entry. Any longs will be scalps or intra-day trades until support is confirmed. A daily close below 1190 would set my next price target at 1174 ES. I like longs if the ES trades that low.

In other negative news, Moody's warned it may issue a negative outlook on France's AAA credit rating in the next three months if the costs for helping to bail out banks and other euro zone members stretch its budget too much. That news could weigh down markets further.

Bullish Sentiment Not Finished Yet. Expect Higher Highs Ahead

Markets have continued up and then continued up higher. The bullish move in global markets is based largely on information that the European Union plans to pump liquidity into the banking system in efforts to avoid a Greek default and prevent contagion. The Euro moved higher as confidence in the Eurozone increased and the dollar sold off as it was no-longer the defacto safe haven bet.

This morning, US markets are seeing some selling following comments out of Germany that European Union leaders will not provide the complete fix to the Euro-area debt crisis. The plan for the EU is to write down Greek bonds by up to 50%, make sure the Banks have capital to continue lending and to strengthen the EFSF in terms of its ability to lend. There is still no new publicly available details as to how this will be accomplished.

The negativity this morning is mostly in reaction to the less than optimistic comments out of Germany. I do not expect selling to continue for long however, and currently I see dips as buying opportunities. Obviously any negative news out of Europe will influence selling, but aside from those occasional news bites, I see the market moving higher into next weekend. E-mini S&P 500 futures (ES) broke above the previous range high of 1224 to trade above 1230 in the overnight session. Once the market finds support, look for the next move up to find resistance around 1237-1240. I will begin to consider shorts if/when the ES manages to trade up around 1270. We'll see what the market timing is when this happens and what news comes out of Europe at that time.

Some thoughts behind my bullish sentiment: The charts are technically bullish in the short-term (though we may see a small decline off the upper range resistance before continuing up). European finance leaders will continue to meet to solidify a plan to terminate the sovereign debt crisis and they have every motivation to give the market participants what they want to hear. The consensus view is that failing to agree on a strategy (to put it simply, provide liquidity to the Euro banks) will endanger the global economy. Political leaders will do their best to prevent this from happening. This is why I am bullish right now.

Slovak Parliament Rejects Plan to Expand EFSF

Will post more in the comments when I know more

The Slovakian Vote

Slovakian vote on EFSF expansion will be delayed as parliament will continue discussions into the evening. The vote may even be delayed until later in the week. This means they have yet to get a "Yes" vote. The extension of the meeting is likely an attempt to try and change the minds of the "Nays". I suppose Merkel, Sarkozy and other European leaders are fearing the fallout of what a "No" vote hitting the wires will do to the markets.

Without the vote, looking like we won't see any significant action for the remainder of the day in US markets.

Looking at how to play the Slovakian EFSF decision:

The market is short-term overbought already with more resistance overhead so I don't think a "Yes" vote will be able to carry the Indexes too much higher. I will look for opportunities to sell the market regardless of the Slovak vote. However, if the vote is a "Yes", I might wait and sell a rally following the decision...

In any case, we won't get the decision during today's market session so we'll just have to wait and see...

Market Rally Awaits Further News on Bank Recapitalization Plan

The E-Mini S&P 500 Futures are currently trading at key resistance following the bear trap that played out last Tuesday. If the ES can close the day above 1174, I would expect that a move back above 1200 ES will be in the cards.

This latest rally began on news that Europe would recapitalize the banks. The continuation of this rally rests on further news that this indeed will be the case. German Chancellor Merkel and French President Sarkozy agreed to a plan over the weekend, but as of yet there are no actual details. Merkel said European leaders will do “everything necessary” to ensure that banks have enough capital. Sarkozy said they would deliver a plan by the Nov. 3 Group of 20 summit.

This is a positive sign for now and most markets around the globe were positive overnight.

Part of the plan to recapitalize the banks will depend on getting a loan from the European Financial Stability Facility (EFSF). However, this must be ratified by all 17 Euro governments and so far Slovakia is offering resistance to the idea. Any negative news in regard to the recapitalization plan this week will likely be met by selling in the markets. Watch for the results of the Slovakia vote tomorrow.

All signs eventually point to the recapitalization plan going through. Even Russia has apparently offered help. The chief economic aide to Russia's president Dmitry Medvedev said today the country, along with other major emerging economies, could help Spain and the European Union with its debt crisis, if asked.

This is good in terms of adding support to the financial markets, but ultimately it is just financing debt with more credit. It prevents contagion from a Greek default in the short-term. It prevents more banks from failing. It delays greater economic pain. In terms of the markets, it puts a floor under them... for now. We'll see if any negative news hits the wires. i.e. Slovakia vote tomorrow...

Huge End of Day Rally on Euro Bank Recapitalization Plan

Markets rally following Financial Times story that EU officials are looking at a bank recapitalization plan (ES rallies almost 50 points in last hour of trading); comments from EU's Rehn, Germany's Schauble and U.K.'s Osborne were all supportive of a plan to be put in quickly to ease market concerns...

This rally is very reactionary and if you are aggressive, a move like this can be sold. Just know what your exit strategy is, i.e. no defense against a continued move higher...

S&P 500 Closes At Lowest Level in Over a Year

The last time the S&P 500 cash index (SPX) closed this low ($1099), was just after QE2 was announced last year. It has been argued that Quantitative Easing has only benefited the big banks and inflated stock prices, while paving the way for inflation. Scratch off inflated stock prices, they are now back to the level just after QE2 was announced.

In terms of trading, today's lower close is very negative. I had anticipated a potential bear trap was likely and that the markets may rebound after a fake-out to the downside. Today's price action is not reminiscent of a fake-out however and suggests lower prices are in the cards. Too early to confirm anything, so we'll see...

Where Will The Market Head Next?

The bottom of the trading range on the S&P 500 looks like it will be tested this week as the ES closed with weakness on Friday. I expect the 1104-1106 (ES) support to be tested. I like longs here, though I won't defend entries. If 1097 is breached it will setup the potential for new lows to be made. I don't expect that we see lower lows this week. A move below 1100 ES will setup a nice bear trap in my opinion, I believe market sentiment is overly bearish and usually when everybody is predicting lower lows, the reverse happens.

Regardless of technicals and sentiment though, all it takes is for one significant European bank to fail for chaos to ensue and for global markets to continue their sell-off.

The Franco-Belgian bank Dexia was put on a negative downgrade watch today by Moody’s. Liquidity problems in banks will have a detrimental effect on the markets, so it is important to be aware of the potential for this. Remember 2008? Remember Bear Sterns? Remember Lehman's? Remember that the crash of 2008 followed the failings of these banks? Remember AIG? AIG got bailed out. If liquidity issues become a problem again, expect more bail-outs.

U.S. Treasury Secretary Timothy F. Geithner has warned that failure to bolster European backstops would threaten “cascading default, bank runs and catastrophic risk” for the global economy. James Bullard, St. Louis Federal Reserve President said that “the Fed has potent tools at its disposal and is not now, or ever, out of ammunition. Should further weakness develop, monetary policy will need to respond appropriately.”

Bernanke already pledged to fund as much money as is needed to prevent bank defaults around the world. If more money is printed, what happens to Gold and Silver? They go up. Gold and Silver have already been beaten down. What is the significance? The precious metals present potentially great buying opportunities at their current corrected prices (keep in mind though, I'm not saying the precious metals can't go down further from their current prices, I'm just saying they are setting up to be good buying opportunities). I am currently long Silver and you can read my comments about that trade here.

Overall in regard to the market indexes, I am not going to try and guess the next direction. We are currently trading in a range (roughly 1100-1200 ES) and until the markets confirm something different, that's how I will continue to play it.

Equity Futures See Some Gains While Precious Metals Continue Lower

Equities see a bit of a relief rally overnight as ES futures trade up above 1150. The beat down on the metals however has continued. Gold Futures traded as low as $1535, experiencing a remarkable range of more than $131 in a volatile overnight session. Gold has since rallied to trade back above $1600. Silver Futures also saw a continued smack-down trading as low as $26.15. Silver futures have not seen the same recovery as Gold and currently trade down 8% off Friday's close. Silver is now down over 42% off the April Highs and more than 35% off the high on August 23d.

The key to trading in times like these is to make sure and have cash on hand to be able to take advantage of potential lower prices. If you trade on leverage and get into a losing position, you get into trouble. The market will present rallying opportunities and it is necessary to have cash on hand to take advantage of cheaper prices.

I am currently long SLV. You can follow that position here.

Market Consolidating After Decline

Unless you are trading the precious metals that is. I have to say I am shocked to see Silver down 15%!!! In any case, Silver just hit some very key support. This is a buying opportunity. I am long Silver via the SLV at $29.55

Note: See comments below to follow this trade.

Sell-off Continues, Is it Time To Buy?

Markets have sold off down toward the bottom of the recent trading range as I predicted yesterday. We are now hitting some support (ES currently trading just below 1120). Didn't take long to get here. I had said that I would be getting long when that happened. However, I just want to make it clear that I am not bullish here. Not a bad spot to get long, but you don't want to defend the position. Any longs right now will be scalps or day trades. No signs of a significant reversal yet. Bonds continue to be strong on the heels of the Fed announcement yesterday as Operation Twist is successfully bringing down longer-term yields. US dollar the current safe-haven currency. Everything else pretty much getting killed...

What to Expect from Bernanke and the FOMC Announcement

The FOMC began its two day meeting this morning and will make its announcement on monetary policy tomorrow (Wednesday) at 2:15pm EST.

I am expecting volatility following the announcement. It is a gamblers game to try and predict how the market will react, but often times the initial move is the false move and will be followed by a reversal. We already know what the Fed's longer-term game plan is. To put it simply, the Fed wants to keep interest rates low and devalue the US dollar. This is nothing new. Low interest rates encourage spending and a devalued dollar makes US exports more affordable for foreign importers. This in theory will increase employment and stimulate the economy. At the same time it will decrease the existing US debt by essentially making that debt worthless. If the dollar is worth half as much as it once was, that makes the debt only half as large as it should be. This is good for an insolvent government, but bad for its people as their ability to purchase real assets decreases.

That describes what the Fed wants to do. Now the question is what will they actually announce tomorrow?

OPTION A)
More Stimulus in the form of a QE3 type of measure:
There are some economic conditions, at present, that could warrant this type of action. The US has seen zero job growth and flat retail sales in August. Commodity prices seem to be in a downtrend which provides additional support that inflation is not a problem. That being said, I don't see QE3 (or something similar) as an option. Expanding the balance sheet to buy more bonds will send more money into the precious metals market and drive commodity prices higher. The Fed and Central Banks around the world do not want to see the price of Gold increase further. They want to continue to deceive the uninformed public that fiat currency is legitimate tender. Depreciating currencies will eventually lead to the adoption of a gold standard or something like it and that would prevent the Central Banks from being able to print money at will. QE1 and QE2 can already be viewed as failures and launching a QE3 now would be ill-advised. It will likely happen down the road, but the time is not now.

OPTION B)
The Fed will announce a plan to sell short-maturity Treasury debt and use the proceeds to buy longer-term bonds:
This is what many expect the Fed to do, an action popularly coined "Operation Twist" because the goal is to bend the yield curve. Currently the yield curve shows 3 month treasury yields at 0.1% and 30 year yields at 3.2%. By selling short-term bonds and buying longer-term bonds, the Fed will attempt to flatten the yield curve. Flat yield curves generally precede economic slowdowns, but low yields across the board generally promote spending through borrowing. So in reality, "Operation Twist" seems more like rhetoric from the Fed than anything else. In any case, unlike quantitative easing or QE, the "Twist" (good or bad) can be done without increasing the money supply.

Implementation of "Operation Twist" alone should not have a large effect on the markets. In fact, that news alone would likely send the markets lower as I believe it is already priced in. The FOMC's 2-day meeting is a break from the standard 1 day meeting and suggests that the Fed has something else up its sleeve...

What else could the Fed do?
Below I have included some additional options (taken from David Rosenberg and commented on by Mish Shedlock):
-------------------------

1. Eliminate the interest paid to commercial banks on excess reserves (to try to spur lending).
   
2. Announce an explicit ceiling on the 10-year note yield (say 1.5%), which the Fed has done in the distant past. Based on Bernanke's prior rhetoric, this would seem to be a preferred strategy (though the Fed relinquishes control of the balance sheet).
   
3. Buy foreign securities (bail out Europe and weaken the U.S. dollar — talk about killing two birds with one policy stone).
   
4. Announce an explicit higher inflation target or perhaps a lower unemployment rate target (i.e. reinforce the DUAL mandate).
   
5. As Mr. Bernanke stated for the record in November 2002, the Fed does have broad powers to lend to the private sector indirectly via banks, through the discount window. It could offer fixed-term loans to banks at low or zero interest, with a wide range of private assets (including, among others, corporate bonds, commercial paper, bank loans, and mortgages) deemed eligible as collateral. For example, the Fed might make 90-day or 180-day zero-interest loans to banks, taking corporate commercial paper of the same maturity as collateral. Such a program could significantly reduce liquidity and term premiums on the assets used as collateral. Reductions in these premiums would lower the cost of capital both to banks and the nonbank private sector.
   

Read Mish's entire article here.
-------------------------

Whatever the Fed announces, expect volatility. I will most likely stay away from trading the initial reaction. For me it is best to try and digest the announcement and wait for the market to settle down and give a more realistic indication of the next direction.

What I foresee is initial selling pressure that could take the markets down significantly. This will signal a buy entry for me as I believe the goal of whatever the Fed announces will be to stimulate the markets. We'll have to wait and see what unfolds tomorrow... Could be some fireworks...

Gapping Down to Begin the Week as FOMC Meeting Looms

Following positive gains for five consecutive days last week, the markets gap down significantly this morning. The negative sentiment follows similar action in global markets as all the major bourses are down to begin the week.

I like long entries around 1180 ES today.

The big event this week will be the 2-day FOMC meeting which begins tomorrow. Expect volatility. I will publish more detailed thoughts on this topic this evening.

European Central Bank Offers Liquidity to Euro Banks

The ECB has announced liquidity measures resulting in a surge in early morning trading.

The Governing Council of the European Central Bank (ECB) has decided, in coordination with the Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank, to conduct three US dollar liquidity-providing operations with a maturity of approximately three months covering the end of the year. These operations will be conducted in addition to the ongoing weekly seven-day operations announced on 10 May 2010. These will all take the form of repurchase operations against eligible collateral and will be carried out as fixed rate tender procedures with full allotment. Further information on tender procedures can be found on the ECB's website. -Briefing.com

This should only add fuel to the buying we have seen over the past 3 trading days.

This week's bullishness contradicts my anticipation of further weakness. I expected some more selling before seeing the rise we have witnessed over the past 3 days. I continue to anticipate a downturn, but I am not looking to get short this market yet as bulls have the momentum. Sometimes it is best to sit and watch rather than force a trade. I will be patient and wait for the market to provide a better trading signal. We may continue to chop around in the current trading range until the FOMC meeting next week.

Volatility in the Stock Market Will Continue

The market has seen a volatile mix of selling and buying over the past month and a half. I have been a confident buyer during each major decline throughout the month of August right up through the first week of September. After beginning on a down note last week, the ES rallied up to 1200 as expected. This week however, I am not a confident buyer. The up-trending support (between 1140-1150 ES) has already broken down.

Much of the negativity this morning comes on the heels of selling pressure in Europe. European debt remains a major concern. The latest rumors suggest that Moody's may downgrade French Banks at any time.

This morning we are seeing support come in off 1124 ES. The current bounce may have a little more juice, but I like shorts between 1140 and 1150 ES.

The next attractive long entry will be somewhere between 1097-1106 (ES). From there we could see a nice rally back to the mid 1100s or even as high as 1170-1180. Whether the ES rallies back up to 1150 or 1180, I expect selling pressure will again push markets lower. There will likely be enough momentum to move price below the August 8th low. The next downward target from there is 1000 ES.

While I believe there is a high potential for lower lows, there will be plenty of opportunities to get long in the process. My overall bias, however, is to the short-side.

I will try and post some trades this week...

Declining Market Should Present a Nice Buying Opportunity

Markets gapping down this morning in the US on the heels of sharp losses in Europe on Monday. The quick descent we have seen over the past few trading days has brought price back towards attractive levels. The latest decline is setting up to give us a higher low in what is still an upward channel off the early August lows. Support, of course, must hold in the lower 1130s (ES) for this to hold true. As long as we don't see a daily close (today or tomorrow) on the ES below 1133-1135, I like long entries and will expect to see a rally back toward 1200 (ES) and higher.

In the News:

A commitment by Switzerland to set a minimum exchange rate target for its franc at 1.20 per euro and purchase foreign currency in unlimited quantities was met with a positive response in Europe, but pessimism has prevailed as stocks have now sold further there. I expect the news to push European markets higher though once it is digested further. The Swiss Market has jumped 4% on the news while the Franc is down over 7%.

Tomorrow (Sept. 7th) the German courts will decide on the legality of the Greece bailouts. Global markets may see continued volatility as the courts make a decision. Ultimately I believe the courts will rule in favor of the bailouts which will be positive for markets...

More Hints of Additional Easing by the Fed?

The FOMC minutes today revealed that some members expressed the view that additional accommodation was warranted because they expected the unemployment rate to remain well above, and inflation to be at or below levels consistent with the Committee's mandate.

Current Market Action and Bernanke's Jackson Hole Speech

We saw some interesting action on Friday as Bernanke's Jackson Hole Speech was released at 10:00am. The markets were already selling off from Thursday's highs and although Bernanke's speech didn't reveal too much more than what we already expected, the market saw significant volatility. We saw the ES trade down to 1132.75 and then rally with tremendous strength. If you want to disect the news, we could attribute the initial selling to the reaction that no additional stimulus was announced. Then you could look at the subsequent rally as a reaction to Bernanke stating that the FOMC meeting in September would extend to two days from the typical one day meeting to allow a fuller discussion. This brings anticipation that perhaps a new form of stimulus or quantitative easing will be announced in September.

Regardless of that news it looks like the market has put in a temporary bottom below 1100 (ES) and a new up-trend is upon us. I am looking for last week's high of 1188.50 (ES) to be taken out this week. Expect some brief resistance at 1220 followed by a move to 1240. I will consider unloading any long positions above 1240. ES could make a run toward 1300, getting as high as 1270-1280, but I will be looking to get short at that point if it makes it that high. What happens from there will be too speculative for me to write about now. We'll see. But for the next month I see a choppy market that will move higher before it moves lower. I expect some selling as we approach the September 20-21st FOMC meeting and we'll see if the Fed can push the market higher from there.

IN SUMMARY:
I am biased to the long side as I expect the S&P 500 to head toward the mid 1200s. 1140 ES must hold as support this week for my long bias to remain intact.

Market Sees Some Gains This Week Ahead of Jackson Hole

The beginning of the week did turn out to be a solid buying opportunity as the E-mini S&P 500 Futures traded up almost 80 points off Monday's low. The market has since sold back off yesterday and heading into this morning.

We now await Bernanke's speech at Jackson Hole Wyoming at 10:00am EST.

It will be interesting to see if Bernanke says anything significant enough to influence high volatility in the market. I don't expect there will be any mention of QE3, but only more of the same talk of keeping interest rates low and yield curves low. The Fed has already declared they will keep interest rates low until the middle of 2013 and have also said that "appropriate measures will be taken when they are required". I think things need to get worse before those measures are indeed required.

While I don't expect huge volatility following Bernanke's speech, I will be watching for continued selling into the morning session (high volatility or not). You often will see a fade of the initial reaction following Fed news. There should be an opportunity to buy into support (I will be watching 1130 ES if the market trades that low) as I expect us to finish the day with buying momentum. Lets see how the news streams out of Jackson Hole before predicting where the exact buy entry will be...

Approaching Lows, Be Afraid or Be a Buyer?

There is plenty to fear in the markets. Not only are the debt concerns of countries like Spain, Portugal, Greece, Ireland and Italy a worry, but the financial institutions that hold that debt are an even bigger worry. There are so many bad loans out there which would suggest that many of the biggest banks around the world could be essentially insolvent. That wouldn't be good news for the overall markets.

Many analysts are projecting lower lows are ahead of us and traders around the globe are fearful based on the rapid decline the markets experienced in early August. Another factor that keeps fear in the air is that the market hasn't seen this much selling since the crash in 2008.

All of these signs make me a go-against-the-grain buyer down here in the vicinity of 1100 ES. I think the odds of a reversal back upwards in the current trading range of 1100-1200 (ES) is more likely than an unrelenting continuation down. That being said, I won't defend any long positions if the 1080-1100 (ES) support does not hold. In the longer term I think a move down to 1000-1020 ES is very possible. For now though, I am looking for buying opportunities.

The big event to watch for this week will be Ben Bernanke's speech this Friday at the Fed's annual retreat to Jackson Hole, Wyoming.

Sell the Rallies in the Continuing Bear Market

Initial claims and continuing jobless claims both came in lower than expected, but the market doesn't care. Positive news like this is insignificant in today's bear market conditions. ES traded lower than yesterday's lows after a brief rally in overnight trading was rejected. Although it appears that the market is trying to make a base here around 1100 (ES), I'm not convinced it will hold. I expected Tuesday's rally to have a bit more strength, but the ES wasn't able to move to my 1200 target. While still a possibility, I see it as less likely now.

A new low is a significant possibility today. If the ES closes below 1077 (whether today or in the coming days), 1000-1020 is likely the next buying opportunity.

I will consider buying dips and selling the rallies as long as resistance remains strong in the mid 1100s and support holds in the lower 1100s. I expect to see support break down first.

Will Yesterday's Rally Have Any Legs?

I am looking for a continuation of yesterday's gains in the short-term. I think this morning's weakness is a bit of a shake-out. However, buyers will need to step in after the opening bell for me to maintain my stance.

Long ES at 1115

Will not defend below 1100, Looking for a surge upward following the initial sell reaction against the FOMC announcement...

Notes from FOMC Announcement

Reiterates 'transitory' comment: Temporary factors, including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply chain disruptions associated with the tragic events in Japan, appear to account for only some of the recent weakness in economic activity.

Downgrade on inflation- Today: inflation has moderated as prices of energy and some commodities have declined from their earlier peaks. Longer-term inflation expectations have remained stable... June 22: Inflation has picked up in recent months, mainly reflecting higher prices for some commodities and imported goods, as well as the recent supply chain disruptions. However, longer-term inflation expectations have remained stable.

This statement is the biggest suggestion that more QE may be forthcoming: Moreover, downside risks to the economic outlook have increased. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate further.

And more suggestions off new tools being used: The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate. The Committee discussed the range of policy tools available to promote a stronger economic recovery in a context of price stability. It will continue to assess the economic outlook in light of incoming information and is prepared to employ these tools as appropriate.

-from briefing.com

ES Sees 71 Point Trading Range in the Overnight Session

After falling below 1080 last night, the ES has caught a bid trading back up as much as 71 points off the lows. This move followed similar action in Asian markets.

Watch for FOMC minutes this afternoon (2:15pm EST).

I will be looking for opportunities to buy this market if we can get any pull back in morning trading. Its hard to tell if the market will continue higher or if this is just a bear market rally that will quickly be followed by more selling. If ES can confirm a move above the 1148-1152 price point, this rally may have some legs.

Long ES at 1152

Taking a stab at a trade here. I will stop out if ES moves below 1140...

EDIT:
See comments for additional thoughts and trading action

Nation in Panic Mode. Time to Buy?

S&P downgraded US debt on Friday evening and the markets gapped down big to open the Globex session last night. The final day of trading last week saw the largest volume since the 2008 financial crisis and that was on top of huge volume already traded in the preceding days. What popped out the most in my mind though, was that the markets finished almost flat on the day. This means that there were almost as many buyers as there were sellers when it was all said and done. That's a lot of buyers in what appears to be a doomsday market environment. I see this as a sign of pretty significant support forming.

Talking to people in the streets, panic is clearly in the air. I returned a rental car today and the gentleman behind the counter asked me if I heard anything about the markets. He was nervous the world was coming to an end, or at least the financial stability of the United States.

With fear in the minds of the masses along with the current market action, I can't help but feel there is a buying opportunity upon us. I will be looking for long opportunities today. There is currently support below 1170 on the ES. I still see 1150 as a potential level that could be hit. If that happens and support holds, I will be very quick to get long. I won't defend longs however if a rally doesn't begin soon after. That's what I am looking at as I write this, let's see how the market opens this morning...

Gold and Silver Futures looking strong as well. This is no surprise as rumblings come out of Europe that the Central Bank will buy Italian and Spanish bonds in an attempt to curtail the sovereign debt debacle (Europe's version of QE). Will the money printing ever stop? Probably not until fiat paper is worthless...

Buy an Oversold Market? Not So Fast...

It is tempting to want to jump in here and buy this decline as we hit some key support levels. However, I don't see any convincing signs that would suggest an imminent reversal is in the cards. There was huge volume in the last two days, but I don't see it as the capitulation variety just yet.

I expected to see 1180 (ES) back in March following the quake in Japan, but the market managed to rally a little earlier than I anticipated. Now it seems the 1180 target will be hit. Also looking at 1150 as a lower potential target.

There will be plenty of short-term bounce opportunities, but the current overall market sentiment remains weak. In the bigger picture, I continue to expect lower lows. The question is, how low is low enough before the Fed steps in and announces the next round of stimulus. I am cautious amidst the current volatility. I will post when I see (what I consider) a high-odds-for-success long opportunity.

The Manipulation Makes My Stomach Turn

I don't have the facts yet, but seems we have more margin hikes on the precious metals. Perfect timing as the market hits a critical low. Force money out of the metals so it can flow back into equities. More on this later... Just thinking out loud without all the facts.

The Senate Will Vote Today to Pass a Debt Ceiling Deal That Nobody Likes

I have been travelling of late and so have not been posting much. However, I wanted to comment on the Debt Ceiling.

Yes, the debt ceiling will be raised following the Senate's approval, no surprise there. Economic data, however, remains weak and the debt ceiling deal is no solution.

Growth rate estimates for 2nd quarter GDP show an abysmal rate of 1.3%, unemployment continues to be a problem, the ISM manufacturing data was terrible as released yesterday, personal income and personal spending levels have come in lower than expected, and looking back to 2008, all prior stimulus programs have thus-far been failures. The current debt deal does nothing to solve any of these problems. The bill does propose to cut $2.4 trillion in Fiscal spending over the next decade, but none of these cuts go into effect until 2013. The popular phrase of late, "kicked the can down the road," applies here. The majority of the bill is just rhetoric. Spending cuts are in the writing, but that doesn't mean they will be executed. In the end, the US government is enabling the country to go into more debt. Of course it would, the United States would not be solvent otherwise.

In any case, market is currently weak. Markets should see a short-term rise from over-sold levels following the rise in the debt ceiling, but overall the market is showing significant weakness and I expect lower lows on the horizon. Its a volatile summer. Be careful if you are trading on highly leveraged accounts. You don't want to be forced out of a solid position because of a margin call.

On a side note, gold and silver continue to hold up well amidst the uncertainty. South Korea’s central bank bought 25 tons of gold over the past two months in its first purchase in more than a decade. South Korea has joined a growing list of Central Banks who are purchasing gold as a hedge against inflation. Interesting to think about for those who consider precious metals a bubble commodity.

Conflicting News on a Possible Debt Ceiling Deal

Market is gaining on news that Obama and Boehner were close to a major budget deal. We are seeing some volatility now as more news came out indicating that White House Press Secretary Carney was denying the report of a possible budget deal, (Boehner has subsequently agreed with Carney that no deal exists). Expect volatility to continue over the coming days as more news crosses the wires. Market should break the highs from May when resolution on the budget deal is reached and the debt ceiling is raised.

I continue to see choppy markets ahead, but I probably like buying the dips a little better right now in anticipation of a higher debt ceiling. Opposing news will make me a confident seller of any rallies...

Up, Down and Repeat... Will There Be a Sustained Move and in Which Direction?

As long as there continues to be uncertainty in regard to the US Debt Ceiling, QE3 and the risk of default on sovereign debt in the PIIGS, the markets will continue to swing up and down with speculation, optimism and fear.

There will likely be uncertainty around these topics throughout the summer. The reason I expressed concern (in the previous post) that the market could see another leg down, is because the commodity complex continues to have the potential to correct further. It would be in the Feds best interest to see this happen because it would support their case that inflation is not a problem and that, in fact, deflation is the concern. Falling commodities and a weakening stock market would be the easy catalyst for the Fed to move ahead with more stimulus. It doesn't mean another move down is inevitable, but it presents the possibility. If so, it will be a buying opportunity. The market will eventually move to new highs, but until we see some sort of confirmation that the debt ceiling will be raised and/or that the Fed will confirm another round of stimulus, the timing of catching the move will be uncertain.

Worth Mentioning
In the FOMC minutes from yesterday, some participants supported that there could be a need to provide additional monetary policy accommodation. Reaction sent the markets ripping higher yesterday morning, but the gains were not held as the choppy action continues.

Precious metals also ripped higher in reaction to the Fed comments. The difference with the metals is that they have been holding their gains. Bernanke and the Fed would prefer this not happen as they will have to find new ways to skate around the fact that inflation is not a concern. Good luck with that. With sovereign debt fears in Europe, inflation fears in China and Brazil and a continuation of loose monetary policy by the Fed and other Central Banks, global interest in the precious metals is only growing. The metals can be a risky and volatile asset to trade, but looking into the future, they are the safest asset to own. I like buying the dips in the metals for as far as I can see.

Current overall market bias: Expect choppy action to continue.

Rough Seas Ahead

The choppy price action that I am expecting for the month of July has begun. This morning the S&P 500 Futures are already trading down 30 points from the Friday morning highs. I exited my swing long position at the close of trading on Friday as I will be expecting opportunities to be both long and short in the coming weeks.

Following the disappointing Employment Report Friday morning, the ES dropped more than 20 points within 5 minutes. That was a pretty extreme move and showed that the market was vulnerable following such a swift run-up. Traders were far too ready to take profits.

I have entered a cautious stance looking forward through the remainder of July. I will be expecting choppy markets as I watch for signs on how the market will trade heading into the fall.

There are several themes that could play out in the coming months. I have some concerns that the market could actually head down to lower lows this year before reversing back upwards. I will describe some of the reasons for this in my next post... For now though, I will be looking to buy dips and sell rallies as the market will likely see a choppy July

We Got the Big Market Rally, But Will it Continue?

The S&P 500 has rallied over 70 points in the past 5 trading days. My prediction that the market bottomed on June 16th proved to be on the money. My subsequent suggestion that the market was set to rally within the next week took a couple of extra days to play out, but nonetheless has done so. Last week the S&P 500 saw gains every trading day of at least 0.75%. Its only the 8th time in the index's history that this has happened. I remain long the market, but I will be looking to take more profits given the recent run-up.

My overall outlook remains bullish. I continue to expect new highs this year, however, we could see some choppy action over the course of July. I don't expect the market to continue straight up. For that reason, I will consider closing out my swing position soon and adapt a strategy that will take advantage of a range-bound and/or choppy type market action. That being said, I continue to be long the e-mini S&P 500 Futures (ES).

Today I wouldn't be surprised to see limited consolidation action following the big move last week. We are approaching solid resistance overhead and I don't expect the market to ignore it...

Cautionary Stance Building...

The lack of a sustained rally over the past week of trading has forced my defensive awareness to be on the rise given my overall long bias going forward. There is no need to be fearful yet, but if you are currently long like I am, you must consider what to do if the market continues lower to begin this week. There is still support from the 6/16 low and from the lows of March that will provide some potential areas for longs to step in and buy. However, any move below 1255 will trigger some hedge plays for me (i.e. you could consider buying the US dollar or US treasuries to hedge any long positions). Another approach would be to exit some long positions if the underlying support breaks down. This would be insurance against a precipitous fall. If the selling turns out to be short lived, and the market rebounds after a pierce below the 6/16 and/or the March lows, then you can always get back into your long positions. Whatever your strategy, you have to plan for a potential further decline.

I continue to expect that a rally is coming, but the odds have been reduced a bit now after the previous two rally attempts have been rejected. The odds that the market will now make a lower low have likewise increased.

Its a tricky situation and one must exude caution. History shows that large run-ups in the prices of energy and food are followed by major slow downs in the economy which also means lower stock and commodity prices. I suspect that the current correction is only a precursor to the bigger correction which will be down the road. While I do expect another run higher before this happens, I have to now be ready for the alternative, a continuation down.

Lets see how the week begins...

Fear in the Atmosphere Gives Way by the End of the Day

The early morning sell-off in equities today struck some fear into the minds of a lot of bulls. Even so, The ES couldn't trade down to its Monday lows.

The news that Greece agreed to a set of austerity measures provided the catalyst for the late day rally.

Based on the action, it looks like this latest reversal might have the momentum to officially push the market into its next leg up. I expect the S&P 500 to be heading back above 1300 in the next day or two. If you were carrying a long position without substantial conviction behind your trade, you probably got shaken out today.

I remain biased to the long side. It may be a choppy summer, but I expect new highs on the S&P 500 this year.

Watch FOMC Press Conference with Ben Bernanke Live Here 6/22/11

Click here for the latest FOMC Announcement post.



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The FOMC Announcement will be at 12:30 pm EST today and will be followed by the 2nd ever FOMC press briefing with Ben Bernanke at 2:15 pm EST where he will discuss the FOMC's latest quarterly economic projections. The purpose of the briefings is to provide additional context for the FOMC's policy decisions and to allow for Q&A with the press. According to the Fed, the "introduction of regular press briefings is intended to further enhance the clarity and timeliness of the Federal Reserve's monetary policy communication."

I don't expect any significant information to be revealed. The fact that the economy is in a "soft spot" (or some other euphemism) will be acknowledged, but ultimately, as was said in the last Fed meeting, easy monetary policy will continue until there is evidence that inflation has truly become a problem. The market is already down significantly since early May. There may be some brief volatility this afternoon, but I expect the rally that began yesterday to continue in the days that follow.

Check back here at 2:15 pm EST to watch the Press Conference live.

Market Set to Rally...

The past week of price action has been typical of a shakeout. Fear has been prevalent, the AAII Sentiment Survey showed the lowest number of bulls since August of last year. The market is down more than 7% since the highs in early May. However, as the market continues to threaten to sell-off further, buyers have continued to step in over the past week to prevent a continued slide. Slightly lower lows following each sell-off have managed to shakeout the weak-handed longs. At the same time, the previous two days have seen capitulation-type volume. Odds suggest a strong reversal is imminent. If it does not begin today, I expect a significant rally within the next week.

I am currently long. Unless the S&P 500 breaks down below the March lows, I am a very confident bull. The markets may remain choppy until there is confirmed resolution on raising the US Debt ceiling (deadline is August 2), but regardless, we could see at least a 50 point rally (ES) in the near-term.

How Low Can We Go?

While I have been patiently waiting for the markets to regain some momentum to the upside and continue the climb to 1400 on the S&P, I have to at least be cautious that this correction may continue down a bit further in the short-term. The continued weakness of late and failure of buyers to follow-through on the bid has to be acknowledged if you are bullish. And when I say acknowledged, I don't mean feared.

It seems that most people are bearish with the recent weakness and that often times enforces my conviction as a bull. So though I am cautiously aware of the weakness in the charts, I am still confident in my long position. With a poor ADP payrolls number on Wednesday, I feel that the negativity in terms of the employment situation has already been priced into the market. Consensus estimates for this morning's employment report at 8:30am EST have now been lowered, so we will need to see terrible data to instigate another sell-off.

Another major reason for weakness over the past few days is the continued contention in congress over whether or not to raise the debt ceiling. I am in the camp that believes that the debt ceiling will have to be raised. There can be debate, but in the end, the US will need to expand its balance sheet even more. This, of course, will be to keep interest rates low and ultimately will keep the markets from falling too much.

In any case, I am not overly concerned of a major market sell-off yet. I see choppy markets that will eventually give way to higher highs. For this reason I am willing to continue to manage my long position.

Market Continues Strength on News of Greek Bailout Plan

Since the market traded to new lows on Tuesday night/Wednesday morning, buyers have maintained control to give the market its largest gains since before the highs on May 2nd. The move has coincided with my expected reversal on the dollar.

This morning we are seeing continued strength as the S&P 500 looks like it will gap up over 10 points from last Friday's close. Its a strong move, but it is not so strong that this gap cannot be filled today on a reversal back down to 1330. In any case, I believe this is likely the beginning of the move back up to retest the highs (1373.50 ES) and beyond.

The move higher follows strength in European markets on reports that Germany has drafted a new bailout plan for Greece. Asian stocks also higher.

There is solid resistance overhead at 1345 (ES) and again at 1350. I wouldn't be surprised to see a bit of selling to come into the market at some point this morning. That being said, I am currently long the market, I would look at a move back down to 1333-1335 (ES) to be a buying opportunity.

More Fear in the Markets as Futures Sell-Off

Seems that fear is spreading around the world in regard to the financial markets. Futures sold off pretty hard just before 9:00pm EST last night. It has been suggested that the cause of the quick decline could be attributed to a rumor that a snap election will be called in Greece. But, the sell-off is more likely a correlation to the sell-off in Asian markets in reaction to news that earnings for companies on the MSCI Asia Pacific contracted an average 11 percent last quarter, the first drop in at least six quarters, according to a Bloomberg article. Another reason for the weakness could be that investors are pricing in the effects of a potential European airport shutdown if ash from the recent Grimsvotn volcano eruption in Iceland impacts flight safety.

Even with the current weakness and fear that is spreading across the markets, I bought the ES this morning. You can follow my position here.

I expect the 1300 level on the ES to hold today, but with negative news around the world, we could see a further move down. I'll be on a plane this morning, and I don't plan on managing any positions from the sky. We'll see how the day unfolds. Its a dangerous way to trade and you shouldn't do it unless you have a very specific trading plan.

The key thing to watch looking forward is the current rise in the US dollar. I expect the dollar to find resistance soon and turn back down toward the lows. If this does not happen, equities will likely continue their slide even lower.

I close with a video showing giant ash clouds from Grimsvotn as seen from the sky:

Markets Continue Slide

The market picks up this week where it left off on Friday, with selling. The E-mini S&P 500 Futures (ES) appear to be heading toward 1308 or gap fill from April 19th.

I would have liked to see buyers push the market higher last week, but this further push down is not a big surprise. Even so, it is best to proceed with caution on the long side right now.
Manufacturing data in Europe and in China is making negative headlines and markets are down globally this morning. The fact that S&P downgraded Italy's credit outlook to neutral on Saturday has not helped sentiment.

I will consider long positions below 1308 on the ES today. "Sell in May and go away" is proving to have been good advice so far.

Although I continue to be bullish overall, I am planning for the possibility that the markets could consolidate for an extended period of time before resuming the overall up-trend.

Levels to Watch Today on the ES

Gravity looks like it may still have some pull on the markets. There is likely further downside left to go. A close today above 1339 would counter that view and be a bullish sign. If ES does trade below 1310, I will consider long entries...

Levels to watch today on the ES:
Resistance above at: 1331-1332, 1336-1337
Support below at: 1320-1321, 1314-1315, 1308-1309

Up and Down Action

It has been an up and down market over the past week and though I continue to be bullish overall, I am anticipating the possibility of a subsequent move lower. Technically, the ES has been range bound in the lower 1330s to the lower 1350s all week. With the weakness in commodities and strength in the US dollar, it has been difficult to get any follow-through to the upside. Today's action represented the third time in the last 6 trading days in which the sellers rejected a bid to move the markets higher. This increases the chances that the market breaks down further from here. I am watching the 1330 level on the ES, a confirmed break of this level will likely push the ES down towards support at 1307-1309. This does not change my overall outlook on the markets, which is bullish.

I am currently long the ES (you can follow my position here) and will remain long. In the event the market does trade lower next week, I will continue to add to my position by buying the dips. If my sentiment changes based on further price action or news, I will update my view...

Levels To Watch Today on the ES:

Levels to watch today on the ES:
Resistance above at: 1351-1352, 1355-1356
Support below at: 1343-1344

Levels to Watch Today on the ES

Levels to watch today on the ES:
Resistance above at: 1345-1346, 1351-1352, 1355-1356
Support below at: 1332-1333, 1329-1330

A Week of Weakness. Digesting the Current State of the Market

I haven't had much of a chance to trade the markets this past week so I'd like to update my current view on the action. I was overall bullish to begin the week and in favor of buying the dips. So far however, the market has been making lower lows with the ES down as much as 47 points off Monday's high. That low showed signs of capitulation as we saw a reversal on heavy volume that moved the ES back up 25+ points or a 50% retracement to Monday's high. The fact that those gains were not held gives me some concern, but in reality, today's close is just high enough to leave room for optimism going forward. I remain bullish overall though there is certainly a possibility to see another lower low on the ES. This latest down move could be an indication of a period of larger swings both up and down over the coming months. We may not see persistent grinds upward like we have become used to since the market lows in 2009.

Reasons for the sell-off this past week:

Poor ADP Jobs numbers and jobless claims ahead of Friday's employment report. New jobless claims came in well above expectations on Thursday and the ADP report suggested that job growth was slowing. The negative implications of those numbers is now priced into the markets. The employment Situation released today showed some signs of strength as April job growth showed the highest monthly increase in payrolls since the "recession ended" with 268,000 jobs added versus estimates of 200,000. On the downside, the unemployment rate increased back up to 9.0% from 8.8% in March.

Margin hikes in silver have limited the inflow of purchasing power to the already over-extended (arguably parabolic) move in silver. Silver has since collapsed more than 27% and taken Gold, as well as the entire commodity sector down with it. With the dollar approaching the lows of 2008, this gave an opportunity for capital to flow from commodities into the currency markets (which have very low margin requirements by the way). The US dollar benefited from this capital flow and helped fuel the bearishness in US equities.

Ultimately though the dollar is still looked at as a weak currency. While I believe the dollar will see a significant rebound at some point this year and equities will likely turn down when that happens, I think the process will take some time to play out. I believe the dollar will go on to make another lower low before seeing a larger move to the upside. So with a weak outlook on the dollar and continued easy monetary policy in the US, I see another move higher in equities. I expect the S&P 500 to pass 1400 this year and will become more cautious once that happens. Hence, I continue to be bullish overall amidst the current down-turn.

Levels to Watch Today on the ES

Levels to watch today on the ES:
Resistance above at: 1373-1374, 1376-1377
Support below at: 1363-1364, 1361

I will consider long entries in the lower 1360s

Bull, Bid, Buy and Up Goes the Market

Last week saw a follow-through to the upside as the S&P 500 rose 29 points. Ben Bernanke confirmed that easy monetary policy would continue into the foreseeable future giving market participants the go ahead signal to continue buying equities. The dollar continued its trend and made new lows. It looks like the dollar index is headed for $72.

What I am looking for as we trade into the first week of May:
Possible scenario is that the S&P 500 heads up to 1400-1420 while the dollar index moves down below $72. I expect the dollar will likely see a short-term bounce at that point (NOTE: Everybody is looking at the support dating back to the 2008 lows on the $DXY, so expect the unexpected regarding how the dollar will trade as it approaches $72). However it happens, I will be looking for a correction to the down-side in equities to coincide with a rebound in the dollar. Thus, I am bullish equities up to 1400-1420 (on the S&P 500 Cash Index) and bearish on the dollar to $71-$72 ($DXY). I will be looking to play the markets accordingly.


Daily Chart of the Dollar Index. I will be looking for a bounce to the upside after a pierce of the $72 price point on the $DXY



Daily Chart of the S&P 500 Cash Index: I am bullish up to a break above the 1400 price point. I will be looking for a possible correction in equities to coincide with a rebound in the US dollar.

Any correction will likely be a small one as I presume that equities will remain bullish overall through the summer (with dull, low-volume trading).

Notable Comments from Bernanke's Press Briefing

Major reaction by the markets following the FOMC announcement and Bernanke's comments was a major bid that pushed the market to new highs.

The most significant thing to come out of Bernanke's statements was that the Fed would continue easy monetary policy. That is positive for US equities as interest rates will remain low and the the stock market is certainly a better alternative to grow your money than any interest bearing account.

NOTABLE COMMENTS:

On GDP Projections being lower:
Fed expects weaker number as well, maybe under 2%. But this should only be a transitory phenomenon.

On when Fed will consider Tightening Monetary Policy:
Fed watching to be sure recovery is sustainable. Wants to see continued growth and job creation. At the same time Fed is monitoring inflation. Believes rises in energy and commodity prices are only transitory.
Until these conditions are violated, Fed will continue with easy monetary policy.

On weakening US Dollar:
Dollar fluctuation is normal. The weakened US dollar is the result of an unwinding of the safe haven carry trade that pushed the dollar higher following the financial crisis in 2008.
Strong and stable dollar is in the best interests of Americans and global economy. US monetary policy is aimed at maintaining low inflation, trying to acheive max employment and a stronger US economy. This will generate fundamentals that will help the dollar.

On gas and food prices rising and what can Fed do about this?
Gas and energy price increases due to supply and demand due to emerging markets growth as well as to disruptions in supply as a result of unrest in the MENA region. Not much Fed can do about gas prices w/out derailing growth. View is that commodity prices will not continue up.

On QE2 being unsuccessful:
It was never intended to be a panacea. It takes time, but program has been successful based on gains in the stock market and reduced spreads in the credit markets. Easing financial conditions should lead to better econ conditions based on decades of experience
Easing should remain constant after June

On US Debt and S&P downgrade:
This is nothing new, it is well understood that the United States debt levels are a concern.
It only reinforces that we need to address it. This is constructive.

Watch FOMC Press Conference With Ben Bernanke Today at 2:15pm EST Here

Click here for the latest Fed Posts



Video clips at Ustream

Chairman Ben S. Bernanke will hold press briefings four times per year to present the Federal Open Market Committee's current economic projections and to provide additional context for the FOMC's policy decisions.

In 2011, the Chairman's press briefings will be held at 2:15 p.m. following FOMC decisions scheduled on April 27, June 22 and November 2. The briefings will be broadcast live on the Federal Reserve's website. For these meetings, the FOMC statement is expected to be released at around 12:30 p.m., one hour and forty-five minutes earlier than for other FOMC meetings.

The introduction of regular press briefings is intended to further enhance the clarity and timeliness of the Federal Reserve's monetary policy communication. The Federal Reserve will continue to review its communications practices in the interest of ensuring accountability and increasing public understanding.

Markets Hold Bid

Earnings results continue to be better than expected in most cases. Amazon was an exception as earnings disappointed yesterday afternoon, though the markets showed little reaction.

Markets very bullish after making new highs yesterday and showing continued strength this morning. I like buying the dips. However, I will be waiting for the FOMC announcement at 12:30 EST. The news is being released early to make way for a Q&A session with Ben Bernanke at 2:15pm EST. It will be interesting to see what is said about a potential QE3 or no QE3. One thing is certain, any further easing measures will not be referred to as QE3... In any case, today's announcement has the potential to move the markets and will be the most interesting news of the day...

Levels to watch today on the ES:
Resistance above at: 1346-1347, 1350-1351, 1353-1354
Support below at: 1343-1344, 1340-1341

Assuming there is negative reaction to the FOMC announcement, the 1334-1335 support could come into play...

Where Might the Market Be Headed Next?

Markets pretty much flat to begin this week. I don't expect too much action today, but I do expect that a little bit of a retracement to the downside is coming, at least to 1319-1320. The question is, will we make a slightly higher high first.

Levels to watch today on the ES:
Resistance above at: 1337.50-1338.50, 1340-1341
Support below at: 1330.50-1331.50, 1327.50-1328.50, 1323-1324

Some points to observe regarding the US Dollar:

The dollar continues to make new lows and looks terrible. It has looked terrible for a long time so that is nothing new. But as the dollar continues its weakness, that supports a rise in equities.

The Central Bank of China said publicly last week, that Chinese foreign reserves exceed reasonable levels. "The amount of foreign exchange reserves should be restricted to between 800 billion to 1.3 trillion U.S. dollars," Tang Shuangning, chairman of China Everbright Group, told a forum in Beijing. China currently holds $3 Trillion in US debt. This new policy would suggest that China could dump $2 trillion of that debt. That would not not help the already weakening global confidence in the dollar. Something to think about...

There is still major support on the dollar index dating back to the lows of 2008, so I expect that the dollar will see a bounce to the upside when that support is tested. Maybe at that point, we will see another sell-off in equities that will simultaneously price in the fact that there will not be a QE3, at least not in the near term...