You might be able to see from the series of profiles here the unbroken action in the run from SPX 2830/ES 2840 to our present perch at 2907.41. You will also see that we just broke out of a balancing range that starts on 5 April and goes for five RTH sessions. The overnight and cash market sessions are both sort of funny looking and that is to be expected on that kind of velocity upward. Friday's sector profile was initially scattered and evened out later in the day but the constant was the lead by the financials. US Treasury note futures declined overnight and that drop held during the cash session with yields up 4 points for the 2-year at 2.39% and 6 points for the 10-year at 2.56%. The long bond yield was up 3 points to 2.97%. Weekly indices.
Opinion
Short term traders watching intermediate term factors will ask: do lower earnings estimates matter or is this mostly about central bank policy and the potential reinstitution of global trade routes. Or more specifically: how will central banks adapt to a US administration that might take advantage of higher equity prices in their quest to fulfill their stated goals. In a previous post I mentioned the unspoken agreement that the market needs to be as far away from 2800 as possible so that investors stop thinking about long stays in bear market territory. That's a cynical way of suggesting that politicians, monetary policy makers and influential market participants are in sync as never before. The relationship could range from loosely tacit to downright incestuous but either way they can still work together to exploit things until such time as they can't.
When the Federal Reserve and others did the about face that RBA's deputy governor noted in Wednesday's speech -- giving politicians what they needed to stay in power and large funds what they needed to stay afloat -- it effectively ensured round two or three of the equity market equivalent of 'fake it until you make it'. The syndrome has become so institutionalized that one notable economist recently said that we are no longer prone the typical business cycle! If we surpass and maintain all-time highs, will we promote the global stability that ensures secure underpinnings to the capital markets? The head of JPM was out today post earnings giving his affirmation that things are going very well. Those trading in quarterly time frames don't much care about the answer to that question…but they do influence price and the natural deviation from value that we trade.
Central bankers are clearly betting that the equity markets are so integral to the greater economy that one can no longer differentiate between the two when making interest rate and balance sheet policy. The politicians they involuntarily sustain are only as good as their base humanity, capacity for forethought and mental health -- and it is clear that seamless policy integration is the antidote for the nightmarish scenarios that medium and long term bears envision. Can we maintain SPX 2800 and fulfill the average investment bank's calls for year end? If that is the fortunate side effect of what it takes to keep us from a hard cycle end landing, it shall be done and fully exploited by those who make their living on the coattails of policy makers. But how bare is the cupboard of those contingency measures that would mitigate errors in judgement by pols or investors?
In considering these things we are not moving too far away from what matters for short term traders. We trade moves based on perceptions and the acute consequences of sudden realizations. Our method becomes very tricky when those perceptions are based less and less on trustworthy, tangible policies and honest reporting of the macro 'realities'. Trading technicals becomes even more difficult when words become more influential than actions. At present we are being led by a new breed of western politician who make their livings keeping everything unchained and in flux. Those pols are in turn being supported by people who seek to excise existential threats without causing a meltdown in the process. If that sounds too dramatic it might be because we are so trusting of the institutions that enable such a clown show to go unpunished in the immediate term. You've seen seals playing near white pointer mating grounds? Like some of us, they live in the moment. There is some sense of universal grace that gives us confidence in a satisfactory outcome.
Enough of that futile sound and fury - I know you experienced traders have a hundred ways to make lemonade out of lemons and that we ultimately control our exposure to whatever the market dishes out. Many of you opt for TA only. With TA based on macro that doesn't suit our philosophy, we simply adjust position size so that we don't lose too much of what keeps us in business if some hidden truth is suddenly exposed; if the playful seal misinterprets the vacant eyes of the white pointer. The difference between us and those cute critters is that we don't put it all on line. But like them, we can suspend our interpretation of reality for the sake of the immediate thrill.
Back to the short term. The futures chart I posted above shows that action really began a few minutes after 18:00 AET. It carried over to the opening bell where the futures got as high as 2914.75, but NYSE breadth was about +3:1 positive and A-D lines/breadth slowly declined from +1473 to end just above neutral at +781 and +1.67:1. NASD breadth ended at +1.72:1. That is pretty normal after a large gap up and even though Chinese data and bank earnings confirmed the overnight action, cash market participants were not going to chase too far above that gap as historically it's the wrong move to make --especially on a Friday. Still, the finish was solid for an end of week session.
Now traders will try to mesh that futures breakout with next week's earnings. The idea is being floated that this slate of earnings don't matter as much as much as macro data and central bank adaptation. We shall soon see. We are now just over the rising channel on the SPX and just over 1% from the intraday all time high as well as just under a percent from that of the NDX…and there are more bank earnings before the open on Monday. It is common to fall back from 100% retrace levels but uncharted territory seems to be not so scary anymore. The collective intentions are clearer than the sum of the parts.
(20min delay)