AheadoftheNews Blog

Window dressing, window dressing, window dressing. Repeat this mantra after me. Funds are putting back in their portfolio all the April rally winners they booked profits on in August so as to show perfromance in their year-end (Friday). They will dump those stocks on Monday, and others as early as tomorrow, as they will quickly offload the ones that ran up with everyone else today but that everyone knows will perform badly next quarter. We have not reached oversold weekly levels and need to do so before we finally get a tradeable bottom. So relax and keep the powder dry. Better prices are coming and you aren't missing anything, unless you are daytrading. Yes, bulls "could" take-off from here and never look back, but that is not going to be my trade as of now. However, I will be hedging with a crude oil short at some time.

End of quarter window dressing is starting to warm up and you can see it in the closing action. Greenspan has little to do with it, funds are just cooking the books and weak shorts will get a scare, but the outcome should still be a test of August lows once we get past this week. Bears had their chance but now it's too close to the end of the month. It might have to wait a little. There is of course a chance that the window dressing will be more like an undressing. Only time and the tape will tell.
Oil inventories are up tomorrow morning, but watch the closing action and volume.

A rally in crude did the bulls in and all the morning gaps got closed and some. Tomorrow, we have consumer confidence, which along with oil will be market moving.
COMP has established pretty clear resistance at 10 day ema (2132).

Not going to be so easy for bulls. Lots of hedging going on as one can see in Index pc ratio activity. Retail speculators are piling on to equity calls as if 64 oil was good news. The YM short from 10708 stays open. This could be a classic gap and crap day.

Thankfully, a crisis was averted. Crude is dropping and equities should rally out of the gate tomorrow. Once we close last week's gaps, watch DOW 200 DMA at 10540. Consumer confidence, GDP and initial claims on tap.

Exiting NQ long at 1584 for +15.5 ($320 per contract)

Stopped out on QM long for -.05. I'll sit that one out for now, although it should find a base soon.

Raising stop on QM (oil futures) long to 64.55.
Position recap:
Short YM (DOW futures) 10708, stop 10708
Long NQ (NDX futures) 1568.50, stop 1568.50
Long QM (oil futures) 64.60, stop 64.55.

Long QM (November crude)at 64.60, stop 64.475. Buying the 50 day ema. Selling is overdone.

COMP did a perfect bounce off 38.2% April rally (2094). Should this level break, we will do a quick visit to the 200 dma at 2078. We also have a gap to close from June at 2045.

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Raising stop on NQ long to 1568.50, break-even. Looks like we have a perfect bracket again. Short YM from 10708 and long NQ from 1568.50.

QM drops to 67. Raising stop on NQ long to 1566.50, risking only 2 points. YM short at 10708 stays open.

DOW 10350 held. Took another NQ long at 1568.50, stop 1565.50. Insurance.

Stopped out of NQ long for break-even. I will see if I want another entry. This was a bracket play anyway. YM short is already +300.

Raise stop on NQ long to 1565.50, break-even,
Again, I have the markets bracketed. I want to keep the YM short open through October, but NQ (NDX futures) hit major support when SOX touched 455 and COMP 2094. We will see if it works.

Took an NQ long at 1565.50, stop 1563.

Weekly chart of the DOW. We found support today at 10376, 38.2% /61.8% 2005. However, we could have a little more downside as trendline support for April rally is not far way, at 10350. I will give alternate signals, but the YM short from 10708 stays open regardless, as I think we could be facing a more serious decline next month. As posted in August, my long term target remains 9487.80, March 2003 gap close.

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For the first time since the April rally started, QQQQ closed below its trendline support. Now sitting right at the 50 day ema (38.90). Critical. Lets see if bulls hold the line.

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Greenspan delivered a blow to the markets. The YM short went +200 while the ES long was stopped out for break even. The bracket play worked perfectly, a large move either way was guaranteed and we had it covered. YM has resistance at 10581, 50% July high/August low. We are camping in bear territory now with the DOW solidly below the 200 DMA.

Raising stop on ES long to 1234.25, even.
Lowering stop on YM short to 10708, even.
Got the market perfectly bracketed ahead of the Feds.

Hedging the YM short with an ES long at 1234.25, stop 1233.
Es has more upside potential due to energy stocks.

With this new hurricane threat, there is now a real chance the Feds might not raise rates tomorrow. YM closed the Friday gap and there could be a short term long play, especially if Feds hold off.

Bloomberg.com: Top Worldwide: "Sept. 19 (Bloomberg) -- Wall Street's biggest bond-trading firms cut their forecast for the 10-year Treasury yield after Hurricane Katrina sparked some doubt that the Federal Reserve will raise interest rates tomorrow for the 11th straight time. "

Raising the stop on the YM 10708 short to 10725 for now. This is merely a precaution as it seems oil is finding an overnight bid on renewed hurricane fears. If there is any hint that Rita is headed for the Gulf, we could see oil back above 65 in no time.
YM has a big gap to close from Friday and there is a solid chance we will hit it before the feds (10598).
Failure to reach new yearly highs for SPX this week will set the stage for the next leg down, the magnitude of which could suprise many. It's an important week for bulls to prove themselves. They are at bat.

Bloomberg.com: Top Worldwide

Sept. 19 (Bloomberg) -- Gold, trading at its highest price since 1988, shows no sign of retreating as production fails to keep pace with jewelry demand and investors buy bullion for a hedge against inflation, a Bloomberg survey showed.

Quadruple witching whacked the shorts just when they thought they had it made. Seems OPEX players wanted to pin NDX 1600 and they did. Somebody did not want to pay out those puts. YM short at 10708 is still alive, we will see what Monday brings, although I doubt bulls will press on much more ahead of the Feds. What is now pretty much guaranteed is a .25 rate hike. The equity rally took care of that, alleviating any second thoughts Greenspan might have had. With yields rising every day and more to come, pressure will mount on equities, especially slow growing big caps.

Bloomberg.com: Top Worldwide
Sept. 16 (Bloomberg) -- U.S. consumer confidence fell to the lowest since 1992 after Hurricane Katrina devastated the Gulf Coast and pushed gasoline prices to a record high, raising concern that Americans may curtail spending.
The University of Michigan's preliminary index of consumer sentiment fell to 76.9 this month from 89.1 in August, surpassing even the drop following the 2001 terror attacks as the biggest decline since December 1980.

ES (SPX e-mini futures) bounced off post-labor day gap open. Gap close is 1225.25/1226, and could be visited soon. With the Feds ahead, markets are jittery and on standby.

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Bloomberg.com: Top Worldwide
Sept. 15 (Bloomberg) -- Manufacturing growth in the Philadelphia area slowed more than expected in the wake of Hurricane Katrina as prices paid for energy, raw materials and components had biggest increase in more than three decades.

YM (DOW futures) short from 10708, lower stop to 10708, even.
The entire post-labor day rally has been pretty much wiped out. Target remains 10500.

Jobless claims came in at 400K, but "weekly claims don't reflect all the Katrina filings". Government inefficiency at work. Watch for some revisions next week.

The YM short is +100. We will most likely get a bounce, but I think we will soon go and test the post-labor day gaps (10537/10500). Same for ES.
I think the market will get a surprise when jobless claims are released in the morning. Estimates are for 350,000, it could well be double that, 6 to 700,000. I don't know how they came up with such a low estimate, but it opens the door to a nasty surprise, especially since the feds are not likely to halt rate hikes next week anyway. CPI is due as well. Volatile open.

Speculative fever at work today as traders jump out of high-flying techs into high-flying energy stocks. Not very healthy, if you ask me. I just can't shake that nagging feeling we are headed for stormy weather.

Exiting QM (oil) long at 63.75, for +.75 ($350 per contract). Inventories coming up.
YM short at 10708, raising stop to 10725.

YM (DOW futures) did not quite close the September 9 gap (10635), but as you can see on this 60mn chart, it bounced right off trendline support from August lows. This line will be important support going forward or we will most likely close the September 6th gap at 10500. Lots of holes below to fill, but bulls are still in control, which is why I'm using a tight stop on the short. Oil inventories are up tomorrow and CPI on Thursday.

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Raising stop on QM long to 63, even. Inventories tomorrow and there seems to be no traction.
Lowering the stop on YM 10708 short to 10708, even.
ES short is closed for +0. I can't monitor this many trades for the blog when I'm working for the live futures monitor at optioninvestor.com and today was busy. For now, we have the QM long and YM short and it should suffice. Signals for either YM or ES are often interchangeable anyway.

Shorted YM at 10708, stop 10725.

Went long QM (oil futures) at 63, stop 62.675.

Well, looks like I should have kept the YM short at 10733. Still short ES and I will adjust that trade. ES closed the gap at 1238.50. Gap close for YM is 10635.

Starting to look like we are going to try and close that March gap for the DOW at 10746. We had done the deed with the futures pre-open on 7/21, but it seems the cash market wants it now. Failure there is a short that could bring nice returns. For YM December contract, it would be close to weekly R1 at 10795. However, it will all depend on PPI in the morning and oil of course.

Exited YM short at 10733, even. Being short ES is enough exposure for now.

Exited QM (oil) long at 63.325 for +.65 ($325 per). Seems we can't get back above 50 DMA at 63.55.

Raise stop on QM long to 62.875, lock in +.20. ($100 per ).

Long QM (oil) at 62.675, stop 62.50.

Initial target on YM short is between 10635 and 10655, initial target on ES short is between 1238.50 and 1241 (Friday gaps).

YM short 10733, raise stop to 10761.

A note on bonds. As long as it is perceived that the Feds will keep on raising rates to curb inflation, yields should remain close to what they are now. If the Feds decide to pause the rate hikes, long bond might actually see some selling and yields could go higher as the inflation threat increases. The bond market is pretty convinced there is an inflation threat and that so far the Feds are keeping it in check. We will see if they are right when we get the CPI and PPI next week. Just keep in mind that this is the game going on now, so don't jump to quick conclusion as to where bonds might be headed if Feds pause. They might do the reverse of what people expect and actually sell-off. I think it is more likely that Greenspan will not pause, but we will see what the data gives us the coming week. In any case, if yields start climbing, I see little reason to chase stocks based on 2006 Katrina growth. That might be already priced in, given that this rally is out of sync with current risk/reward.

YM (DOW futures) closed at 10720 and I'll hold the short from 10733 over the weekend. Stop is still at 10733, break-even. It was a good entry, 4 points from the top, but I might raise the stop, depending on the action Sunday night when trading opens, if we are still open on the trade. If we close the September gaps, I would try the long side for a swing trade. I still think we have more downside going into October, so pick your battles carefully. It might be prudent to sit it out until the Feds meet.
The ES short is still open, with a stop at 1252, although it has risk to 1255, monthly R1. I will evaluate over the weekend.
Everyone is talking about Greenspan not raising rates on the 20th, but I'm not so sure he will oblige. He might view the current equity rally and government cash influx as enough compensation. If that is the case and the markets do not pullback next week, we could have some problems. Market behavior next week will be key in assessing risk reward going into the Feds.

Lowering the YM (DOW futures) stop to 10733, even. Free ride. They take us out, I will target 10760, monthly R1 or DOW 10700.

Lowering stop on YM 10733 short to 10738, risking only 5 points. There is upside risk to 10760 and I might exit early.

Shorted YM (December contract) at 10733, stop 10743.
Shorting the June high for old September contract. Worth a try.

SOX flipped and fooled everyone. Now testing 480.55 resistance again. COMP has resistance at 2178.52.

Markets are pricing in a hold on fed rate hikes.

Stopped out of NQ short for break-even. Powerful surge.

NQ catching a nice bid and things are changing fast. ES has R2 at 1245.75. NQ R1 is 1619. Stop is set at 1619.50. Triple witching next week and option players starting to do their thing. It is going to be volatile.

Strong move for ES and YM, but the SOX is lagging thanks to INTC. The news seems to have been pretty much priced in for TXN and it looks like the NQ short is the better performer today. I'm glad I used a wide stop for ES. Energy stocks giving it a surprise boost. However, I notice very optimistic pc ratios for SPX next week, indicating too many bulls on the same side. That could spell some trouble. Bottom line: do not trust rallies that don't include the SOX. There was a key failure yesterday for that index at 480.55, 61.8% 2004 H/L.

SPX has lost the trendline support from late August rally, now resistance at 1234 or so. In addition, the 10 ema has done a bearish cross of 20 ema, 30 mn chart.

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Lowering NQ stop to 1619.50, break-even. Looks more bullish than ES and caution is warranted.

Exited ES September contract short at 1232.50 for +5 ($250 per) and re-entered short ES October contract at 1239.25 (gained .50 in the process, note there is a 6.25 premium for December). Initial stop is set at 1252. I will adjust.

Triggered this morning on the NQ short at 1619.50 (using December contract) , August gap close. Stop is 1623.

Futures are down and it looks like shorting the gap for both ES at 1237.75 (entry was 1237.50) and QQQQ at 39.45 was a solid trade. The ES trade is already +4. NQ never closed its gap, came within 3 points, but the fact that QQQQ did the job might be enough. Tomorrow, we have oil inventories and the expected drop from Katrina is 8 million barrels bringing us to 314 million barrels. Any number lower than that in reserves might not be priced in and QM (oil futures) could take a bid and equities pull back. If QM drops below 64, next support is 63.60 and 63.35. Resistance is 65.85. It will be a volatile session.

Please note to roll-over September futures contracts to December tomorrow.

Shorted ES at 1237.50, stop 1242. August gap is closed.

QQQQ closed the gap at 39.45.

Bloomberg.com: Top Worldwide: "Sept. 7 (Bloomberg) -- Rising inflation pressures need to be addressed with ``appropriate'' increases in interest rates, even though Hurricane Katrina may temporarily slow the rate of growth the rest of this year, Federal Reserve Bank of Chicago President Michael Moskow said.
``I'm concerned about core inflation running at the upper end of the range that I feel is consistent with price stability,'' Moskow said in the text of remarks to the Futures Industry Association meeting in Chicago today. ``Even without an increase in inflation expectations, it will take appropriate monetary policy to keep inflation well contained.'' "

Link
Excerpt:
"we concede that there could well be a “growth scare” over the next six months, with industrial-world GDP growth breaking below the 2.75% barrier during that period. That underscores a near-term vulnerability that could have meaningful consequences for financial markets. Equities could sag and bonds could rally further, as fixed income markets raise the odds of aggressive monetary easing by the world’s major central banks. "
"In my view, the near-term risks to our new global forecast remain very much on the downside. In large part, that risk assessment reflects the lingering imbalances of a US-centric global economy."
"Once again, the endgame probably hinges importantly on the American consumer. Reflecting our higher energy price assumptions"
"...equity markets, in large part, remain very much in denial; few seem concerned about downside earnings risks in developed-world markets in an energy-shocked climate, and there is even less worry about spillover effects into emerging markets in the event of a US-led shortfall in global growth.

QQQQ blasted past resistance and it does not seem logical to think short soon, but this might not be the time to join the crowd. Keep tight stops as this can get tricky.

Overnight signal:
Shorting NQ at 1606, stop 1609
Shorting ES at 1237.50, stop 1241.50.
Shorting the August gaps. This might get adjusted. A close above those gaps will be very dangerous for bears and bullish, so keep an eye on those numbers (ES 1237.75 , NQ 1606.50 and QQQQ 39.46). I am giving the QQQQ number for those who don't trade futures. I remind you that there is risk. These are suggestions and for information purposes only, not recommendations. You are responsible for your own account management.

Exiting NQ short for +0. No traction and QM losing a bid. There should be a bounce at the Nymex close, so I will wait for that.

Lowering the stop on NQ short 1597 to 1597.50. Keeping very tight stops as I nibble at an entry for a swing trade.

August 16th gap open for ES is 1234 and gap close is 1237.75. I would wait for one of those numbers to short ES. For NQ, that gap open is 1598.50 and close is 1606.50. I am hitting the open again just in case that is all she wrote. I would consider ES 1235/1238 to be maximum upside risk.

Re-entering the short for NQ at 1597, stop 1599.

Exiting NQ short for +2. AD volume is strong and bulls are holding on quite well. Wait and see for now.

Short NQ at 1597, stop 1599. This is a quick stab at gap open from last week. If we get in the gap above 1598.50, risk is to 1606.50, gap close. I think the swing trade is to be short, but testing the waters here with a tight stop.

NQ short at 1587 was stopped out overnight at 1587 for break-even. QQQQ is at 39 resistance.

QM (oil) looks to open around 66.50, 20 DMA support. ES has overnight resistance at 1224, 50 dma. QM has lower support at 64.66 (76.4%) and further down 63, 50 dma and channel trendline support should we break down. NQ (NDX futures) must hold 1581, 38.2% July rally.

Crude oil dropping overseas. Barring any unforeseen event, stocks should rally out of the gate tomorrow and I would keep an eye on NQ 1593/1595 and ES 1228 for any sign of overhead resistance. For the DOW, watch the 200 dma at 10537. Any break above on a sustained basis negates short term bearish scenarios.

Some of you are in QQQQ trades or waiting to go in. First of all, remember that what applies to NQ (NDX futures) applies to QQQQ, so my NQ updates are relevant.
The Q's closed the week right at 38.77, which is critical support, as you can see from the daily chart. It's the 38.2% retrace of the July rally and more importantly, ex-downward channel resistance, now support and eight cents above 50 dma. If the Q's manage to hold ground, bulls will get relief. However, note the key failure three days in a row to close above the 20 dma. Further up, QQQQ has 23.6% retrace resistance from 2004 high/2005 low at 39.18/39.19, an area I think bears will strongly defend. These will be the paramaters to watch on Tuesday: initial 20 dma resistance at 38.93, Wednesday high of 39.01 and last stand for bears, 39.19 ( a solid short entry if you get so lucky, with tight stops). On the flip side, bulls need to hold 38.69 at all cost, followed by 38.40/38.50 zone, otherwise last week's lows will not hold and the downside target shifts to 37.93.
Frankly, I see no particular reason, other than a burst of short covering, for anyone to be in stocks until the Fed's meeting on 9/20. My guess is many will use rallies to go to cash.
The buying of the last few days has relieved the daily oversold cycles and now opens the way to further downside. Just one look at weekly oscillators tells me we have not bottomed out. My favorite trade next week would be to short a rally, which could occur on Tuesday. Shorting a breakdown of 38.70/38.77 support is also a viable trade. Don't forget that the week after is option expiration week and that there is lots of put support at 38. On the other hand, those put sellers will panic if we get too close and could spark a selling frenzy as they rush to cover those long puts by shorting the underlying. Tread carefully. The more long term investor that does not wish to play the short side might want to sit it out until the dust settles. I have a much more pessimistic view of the markets than the media does as the overall complacency out there troubles me and has since July. I would not be surpised to see the DOW lose 10K and SPX 1200 in the coming weeks, if not days.

Katrina Information Map

Katrina Information Map - This map is intended for the use of people affected by Hurricane Katrina who have or are trying to find information about the status of specific locations affected by the storm and its aftermath. If you have information about the status of an area that is not yet on the map, please contribute so that others may get that much needed information. Click on the link above. Thank you.

Oil closed right at 10 day sma, 67.5725. There is risk to 66.60, but frankly, with hurricane season just getting into the worst month, I think long is still the way to go. I'm patiently waiting for another price drop to get in. If they throw in a cold winter forecast, heating oil buyers that waited for a price drop will be forced to buy, driving prices higher again.

The drop in oil is not eliciting any bids in equities, in fact AD lines are getting worse. NQ short from 1587 stays open for now, with a stop at 1587.

Cancelling the QM (oil futures) long signal at 67.35. Risk is to 66.60 should 67.60 break, There is enough weakness now that suggests a dip to gap close at 67.40 might not be supportive. We could get a better price, stand by for updates.

Lowering stop on NQ short to 1587, break-even. ES shorts from 1228 should lower to 1225.50 and lock in profits. Energy stocks there giving a better lift.

Still have an open order to pick up some oil (QM) at 67.35, just below unfilled gap close, but pullbacks have been minimal, not even touching 10 day ema. For now, consolidating and trading back above ex-trendline resistance. 69 is support and should we break to new highs, 73.95, 38.2% projection of last run is in the cards.

Fed will not raise rates in Sept., Merrill Lynch predicts By Rex Nutting
WASHINGTON (MarketWatch) -- The Federal Open Market Committee will not raise interest rates at its Sept. 20 meeting, Merrill Lynch chief North American economist David Rosenberg predicted Thursday. "We are clearly in a state of economic uncertainty and the prudent thing to do in such times is to do nothing at all," Rosenberg said. "The economy was already clearly losing momentum heading into Katrina."

Short NQ (NDX futures) at 1587, stop 1591. Bearish RSI divergence everywhere. I would aslo short ES at 1228.75, 30 dma

My July 31st post on single digit VIX got me into many arguments with some prominent analysts, but it looks a little more real now. They are still bullish, so we are probably not done with the downside. Link