Monday, April 19, 2010

Morning Update/ Market Thread 4/19

Good Morning,

Equity futures are lower, the dollar is higher, Euro lower, bonds are roughly flat, oil is being pummeled and gold is also lower.

So called “leading indicators” come out at 10 Eastern, otherwise the week is a fairly slow one for economic releases, but obviously an important one in regards to the markets.

The suit against Goldman is certainly raising a bunch of questions. Importantly nothing has really settled that down over the weekend and GS is lower still this morning. Of course other banks were involved in doing the same types of things, and there are definitely international implications.

The XLF was hit hard on Friday, below is a 3 month chart showing that the trendline of the unbelievable run up was finally broken by the news and on extremely heavy volume:

The type of heavy volume we saw across the board on Friday is typical of the beginning of a large trend change. The downside volume on Friday was 93%, a panic selling day. The number of new lows fell from its Wednesday high of 611 all the way back to 218. The VIX roared all the way from the lower Bollinger to the upper, but closed inside. This movement produced a breakout signal on the VIX Point & Figure chart with an upside initial target of 28:

Normally you would expect a pause in the markets following a day like Friday. It is a Monday as well, so don’t forget that Pavlov’s sheep have now been conditioned to buy the dips. That’s a set up that could prove to be painful for those who stick around too long.

The Iceland volcano did not let up and there have now been tens of thousands of cancelled flights. This should impact the transports hard, it should also affect oil which we are already seeing. FedEx and UPS both said that international shipments have been greatly impacted.

And the latest news shows that the ash cloud is now spreading east and will be on the Canadian east coast by this morning.

Not to worry about little things like that, though. No, you see Citi Bank, an insolvent zombie “earned” $4.4 billion in the first quarter! Gee, they might as well just called it $4.4 quadrillion and just anointed themselves Kings of the Land of Fantasy.

New financial regulations? Sure, I’ll believe it when I see it. Of course the problem is that creating any legislation with teeth means that the required never ending growth becomes impossible - we can't have that now, can we? That will strangle the economy and will clearly demonstrate why, at this point, they are darned if they do and yet they are darned if they don’t.

One day’s action does not a trend make, so we need to be careful and keep an eye on trendlines. So far only a couple of sectors have actually broken trend. We’ll need to see more selling pressure if we’re ever going to truly see a stormy market Monday…

The Allman Brothers Band - Stormy Monday: