Published: Oct. 30 2003, 14:58 GMT
Short stocks ain't easy these days, with the US growth estimate exceeding even the most bullish estimates.
Event Risks:
SNOW TESTIMONY starting at 10:00 EST (15:00 GMT)
STOCK MARKET OUTLOOK:
- All equity markets got a dramatic shot in the arm with the release of the Q3 GDP estimate for the US, which came out an hour before the US open. It came in at a whopping 7.2% vs. projection of 6.0%. As we stated in our currency analysis from a moment ago: "Many will agree that this GDP number is a product of mortgage refis and FED pumping the economy with liquidity steroids - this number is not repeatable. Now that we've gotten it out of the way, the next number becomes a risk - and besides, it's time to move on to the day's main feature: the Snow testimony, which trumps everything for now." Let's not forget the massive Iraq conflict spending that is also no small part of this GDP number.
Still, it's hard being a bear these days, but we firmly believe that this is the top of the cycle of positive expectations for the economy. The Snow testimony could help or hurt this proposition in the very near term (starting in 10 minutes as I write this), but this market looks destined to be knocked off its pedestal - here or very slightly higher.
Please see the individual instruments for trading strategies.
Be careful out there!
John J. Hardy
Saxo Bank Market Strategies
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FROM OCTOBER 29...
- We were stopped out of our short DOW, SPX and ND-100 equity positions as we feared in the rally sparked by the FOMC statement. We are likely to see some limited additional upside, and we are unwilling to establish fresh shorts in front of the key event risks tomorrow. The stock market will initially focus most on the GDP number (and optimism is already so high for this number that we have a hard time imagining that the market will find any upside surprise in its release), but the Snow testimony is far more important - this testimony tomorrow may be one of macroeconomical touchstone events of the decade or it may be a fizzling dud - just realize the POTENTIAL magnitude of this event. The special China-US trade relationship is the dominant global macroeconomic relationship - any rocking of this large boat would have global consequences. Tough talk from Snow - a distinct possibility now that this has become a strong issue with the voting US public - will set all markets on edge.
- So, the Snow testimony could turn into a real blizzard for the stock markets and is a wildcard we can use to spike our already stacked deck of fundamentals against the stock market, which medium to long term is headed for a fall: technically, we're on hold for the ultra short term, but fundamentally, this market rally is running on fumes as the insider selling to buying ratio reaches a 10-year high, mutual funds have little cash, money supply is collapsing, bullishness is already extremely high (a contrarian sell indicator), and complacency as measured by the VIX is also extreme.
News Highlights:
* GDP's aren't coming up roses everywhere in the world as the EU has revised its eurozone GDP estimates lower for '03, '04. The European Union on Wednesday said its expects 2003 eurozone GDP to rise 0.4 percent for 2003, followed by 1.8 percent in 2004 and 2.3 percent in 2005. The 2003 and 2004 forecasts have been revised downwards from 1 and 2.3 percent, respectively.
* Among the companies whose shares are expected to be active in Wednesday's trading session is Boeing. The world's largest aircraft manufacturer is expected to report a third-quarter profit of 25 cents a share, according to analysts polled by Thomson First Call.
Equity Technicals:
- For US equities (Dec. DOW, SPX, ND-100 futures), we'll sit on our hands for now after being stopped out yesterday, as technically, it looks as if we will have a go at the recent tops in the major indices. We will look, however, for excessive ebullience just before or after the Q3 GDP release to establish a fresh round of shorts. In a longer term perspective, the rally from March lows is losing momentum and is due for a large scale correction soon.
- The DAX broke strongly higher through resistance and the Dec. Future looks set for a probe of the 3700 top in the coming day or two.
- The FTSE just survived our stop level, which we will raise in the view that this equity rally is a temporary phenomenon that will not take the FTSE to a new high. We'll allow for a little more upside, but continue to focus on the 4100 downside objective.
See the futures strategies elsewhere in the web page.
* News compiled from CBS MarketWatch
John J. Hardy
Saxo Bank Market Strategies
(NOTE: John J. Hardy will be stepping for Robert Balan this week only. Mr. Balan will return on Nov. 3)
S&P 500 Stock Index, dec 2003
SPZ3 (1046.80 @ 14:57 GMT)
The Dec. SPX may rall to previous highs around 1055 and marginally beyond, where we will look to establish shorts.
Sell at 1059.00. Initial stoploss: 1085.00. Trading objective: 992.00.
NASDAQ 100 Future, dec 2003
NDZ3 (1425.50 @ 14:57 GMT)
NDX 100 Dec contract rallied the Q3 GDP before falling back slightly. We'll stand aside for now, as it may rally to the highs around 1445 and slightly beyond. We'll see where this rally takes us, or we'll sell on ar retracement from the first large scale sell-off, which would be bearish from these levels.
Stand aside.
Dow Jones Industrial Future, dec 2003
DJZ3 (9761 @ 14:57 GMT)
The Dec. DOW may rally to previous highs around 9850, but the rally should quickly fade.
Sell at 9825. Initial stoploss: 9975. Trading objective: 9225.
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