Futures Market Blog

S&P Daily Commentary for 3.3.09

The S&P futures are up slightly after Monday’s intense sell-off as investors await Pending Home Sales and Fed Chairman Bernanke’s testimony before Congress.  U.S. equities came under intense selling pressure yesterday despite slightly better than expected ISM Manufacturing PMI and Consumer Spending data.  Investors were locked in on the government’s most recent bailout of AIG after the insurer posted a horrible earnings loss.  The term traveling around town is ‘systemic risk’.  In other words, companies such as AIG and Citigroup may be too big to fail, posing substantial risk to the entire financial system.  Citigroup logged another 20% loss while BofA lost another 8% and change.  Furthermore, corporate behemoths such as U.S. Steel, Alcoa, Dow Chemical and GE continue to post significant losses which are overshadowed by the situation of the U.S. banks and insurers.  Additionally, we can’t forget GM and Ford are around $2/share.  Once one steps back and takes a look across the board, the problem is much bigger than the banks.  If the sell-off should continue, we could soon see Dow, GE, and Alcoa each trading under $5/share.  The concept is a bit extreme, showing the significance of the economic contraction taking place.  Not only are investors pricing Citi and BofA for broke, soon they could be pricing the core of the American economy for bankruptcy.  The longer Citi, AIG and the lot stay afloat, the longer the downturn could last.  Therefore, we would not be surprised to see the U.S. ‘seal the deal’ relatively soon and follow through by nationalizing Citi, AIG, and possibly Bank of America.  Who knows, big brother may have to swoop in and pick up GM and Ford along the way.  The focus will come down to raw economic data.  If the data does not improve, neither does the stock market.  Since Obama’s stimulus packages could take months to trickle down into the economy, the government may have to act soon rather than later.  Meanwhile, the S&P futures are finding solace in the psychological 700 level.  However, we have not seen a high volume buying spree yet, showing investors aren’t quite ready to initiate a temporary bottom.  If the S&P should fall below the 700 area, we could see some more significant selling before the buyers finally step in and stabilize equities again.  Fundamentally, we find resistances of 712.75, 717.25, 723.75, and 730.75.  To the downside, we see supports of 708 and 700.  The S&P futures are currently trading at 708.25.

The S&P futures were slammed on Friday as Prelim GDP came in far below analyst expectations.  To make matters worse, Citigroup crashed nearly 40% on the news the U.S. government will convert most of its preferred shares to common stock, thereby diluting shareholder equity.  Bank of America followed suit, falling a whopping 26%.  Even though Bank of America remains afloat, the nationalization of Citigroup seems imminent.  With its stock trading at $1.50/share, investors are pricing the company for bankruptcy.  Seeing as the bankruptcy of Lehman Brothers resulted in a catastrophic freeze in the credit markets, the government will likely need to step in and finish the job as far as nationalization is concerned.  With the S&P futures closing beneath 2008 lows, we could witness a massive selloff to the downside in the near-term.  The futures are already trading down 2.2% in Monday’s pre-market.  The U.S. economy is slowing faster than expected, and the global economy is following suit.  Due to the interconnectivity of the global economy, as one domino drops the rest come crashing down, perpetuating the economic contraction in the around the world.  The EU and Britain are experiencing another wave of troubles in their respective financial industries with their largest banks reporting disappointing earnings and searching for ways to raise fresh capital.  Furthermore, the major economies of Eastern Europe continue their rapid deterioration, pulling down the EU banks with them.  It’s hard to find a bright spot in the U.S.  However, data released this morning showed U.S. spending increased while the Core PCE Price Index came in line.  Investors are now waiting on the ISM Manufacturing PMI to get an idea of how bad America’s manufacturing sector is.  With the other major economies contracting, it’s hard to believe demand for exports will provide any boost for U.S. manufacturing.  Correlation wise, Crude futures are dropping below our 2nd tier downtrend line as our uptrend line meets an inflection point.  Additionally, the 30 Year T-Bond futures are walking upwards while Gold bounces off our 1st tier uptrend line.  Hence, all of our correlations are pointing towards a continued selloff in U.S. equities.  Meanwhile, the S&P futures remain well below our near-term downtrend line, giving us little reason to be positive trend wise.  However, there is a positive note in the fact the S&P futures should find near-term psychological support at the 700 level.  Fundamentally, we find resistance of 724 with fresh 2nd tier and top-end hanging at 731.75 and 738.75, respectively.  To the downside, we see support of 716.75 with 2nd tier and bottom-end sitting at 711 and 700, respectively.  The S&P futures are currently trading at 718.75.

The S&P futures were slammed on Friday as Prelim GDP came in far below analyst expectations.  To make matters worse, Citigroup crashed nearly 40% on the news the U.S. government will convert most of its preferred shares to common stock, thereby diluting shareholder equity.  Bank of America followed suit, falling a whopping 26%.  Even though Bank of America remains afloat, the nationalization of Citigroup seems imminent.  With its stock trading at $1.50/share, investors are pricing the company for bankruptcy.  Seeing as the bankruptcy of Lehman Brothers resulted in a catastrophic freeze in the credit markets, the government will likely need to step in and finish the job as far as nationalization is concerned.  With the S&P futures closing beneath 2008 lows, we could witness a massive selloff to the downside in the near-term.  The futures are already trading down 2.2% in Monday’s pre-market.  The U.S. economy is slowing faster than expected, and the global economy is following suit.  Due to the interconnectivity of the global economy, as one domino drops the rest come crashing down, perpetuating the economic contraction in the around the world.  The EU and Britain are experiencing another wave of troubles in their respective financial industries with their largest banks reporting disappointing earnings and searching for ways to raise fresh capital.  Furthermore, the major economies of Eastern Europe continue their rapid deterioration, pulling down the EU banks with them.  It’s hard to find a bright spot in the U.S.  However, data released this morning showed U.S. spending increased while the Core PCE Price Index came in line.  Investors are now waiting on the ISM Manufacturing PMI to get an idea of how bad America’s manufacturing sector is.  With the other major economies contracting, it’s hard to believe demand for exports will provide any boost for U.S. manufacturing.  Correlation wise, Crude futures are dropping below our 2nd tier downtrend line as our uptrend line meets an inflection point.  Additionally, the 30 Year T-Bond futures are walking upwards while Gold bounces off our 1st tier uptrend line.  Hence, all of our correlations are pointing towards a continued selloff in U.S. equities.  Meanwhile, the S&P futures remain well below our near-term downtrend line, giving us little reason to be positive trend wise.  However, there is a positive note in the fact the S&P futures should find near-term psychological support at the 700 level.  Fundamentally, we find resistance of 724 with fresh 2nd tier and top-end hanging at 731.75 and 738.75, respectively.  To the downside, we see support of 716.75 with 2nd tier and bottom-end sitting at 711 and 700, respectively.  The S&P futures are currently trading at 718.75.

S&P Daily Commentary for 2.26.09

The S&P futures ended a volatile session on a low note Wednesday after President Obama discouraged investors by implying increased government oversight of financial institutions.  Furthermore, Existing Home Sales data was discouraging, showing the housing market has yet to bottom out.  Therefore, despite the psychological initiatives via government stimulus and reassurances from Fed Chairman Bernanke, critical data continues to paint a bleak economic picture.  Encouragingly, the banks and auto manufacturers are stabilizing a bit, easing fears of bankruptcies.  The U.S. will release more key economic data today including New Home Sales, Durable Goods Orders, and weekly Unemployment Claims.  Around the globe, investors will be keeping a keen ear on what Trichet and King have to say about the European and British economies, respectively.  Additionally, Japan will release a slew of economic data in the evening, showing us just how bad the Japanese economy is.  As a result, Thursday could provide more than enough evidence to heighten volatility over the next two trading sessions.  Correlation wise, Crude futures are breaking out while the 30 Year is flirting with the idea of falling below February lows.  Therefore, the correlations are creating a situation where the S&P futures could see a nice pop to the upside with a possible retest of the psychological 800 level.  However, conditions remain highly sensitive and could swing one way or another at the drop of a coin.  Our downtrend line is still bearing down on the S&P futures with the uptrend line well out of reach.  Therefore, we have no circumstantial evidence to alter our negative outlook on U.S. equities.  Fundamentally, we maintain our resistance of 774 with fresh 2nd tier and top-end hanging at 782 and 789.75, respectively.  To the downside, we hold our support of 766.25, with 2nd tier and bottom-end supports resting at 760.25 and 754.25, respectively.  The S&P futures are currently trading at 771.25.

S&P Daily Commentary for 2.24.09

The S&P futures retested 2008 lows on Monday as equities reacted negatively to the idea of the U.S. government taking a larger stake in Citigroup.  Even though the futures touched the critical 2008 lows briefly before recovering, it seems a drop below these levels may be inevitable.  The S&P futures are turning negative at the open after the U.S. released disappointing data concerning housing prices.  This development casts doubt on the overall effectiveness of the government’s new housing recovery plan.  With the U.S. government’s plans on the table concerning fiscal stimulus, the Obama Administration is running out of psychological tools to keep the market’s head above water.  Furthermore, with the U.S. benchmark interest rate near 0%, the Treasury is about out of tricks in terms of monetary policy shocks.  It seems the only option the Treasury has is to proceed with quantitative easing.  However, this would be an unprecedented step for the U.S., and the government will do whatever it can to avoid traveling this route.  Hence, the government may have to take a passive role for the meantime, and let reality dictate the path of markets until investors can begin to see the impact of the massive economic initiatives.  With credit markets still at abnormal levels and global confidence and consumption rates on the decline, corporate profits should continue to get squeezed while economic data weakens.  Later today the U.S. will release CB Consumer Confidence data followed by Fed Chairman Bernanke addressing the general public.  All investors will be paying close attention to Bernanke’s tone to try and decipher his opinion of the U.S. economy at present.  Correlation wise, the 30 Year Treasury Bond futures are breaking out to the upside while Gold is still knocking at the psychological $1000/oz level.  Furthermore, Crude futures continue to be held down by their debilitating downtrend.  Therefore, the S&P’s correlations provide little good news as far as the bulls are concerned.  Meanwhile, the S&P futures are well below our 3rd tier downtrend line and the 800 level and uptrend line are a distant memory.  Therefore, even though we may see a small bounce today due to oversold conditions, we maintain our negative stance on the S&P futures.  Fundamentally, we find resistances of 754.25, 760.25, 766.25, and 773.5.  To the downside, we see supports of 747.25 and 739.75.  The S&P futures are currently trading at 752.00.