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.