Home > Uncategorized > 2011/11/30: Market Alert: ‘Different’ Santa Comes to Town

2011/11/30: Market Alert: ‘Different’ Santa Comes to Town

© 2011 ROHR International, Inc. All International rights reserved.

As we warned in our November 11th Rohr-Blog Quick Post: Santa Claus Is Coming to Town… Maybe, in the markets there is no Santa Claus! It is always more so the “Santa Portfolio Manager” rally. Any extended late year equities bid is a function of whether portfolio managers feel the need to window dress their portfolios by holding less cash and more stock if the equities are strong.

Well, what we knew about recent market activity is that this was not likely to happen based on recent market activity. And in fact market conditions were deteriorating on the back of problems in and among European banks. So who should ride to the rescue…?

“Santa Central Bank” of course. While there had been hints of it previous, the deterioration in the European interbank lending market apparently accelerated into a far worse condition than anybody had expected at the top of this week. And so the ‘different’ Santa has had to ride to the rescue in the form of a coordinated global central bank intervention.

While we have seen this before, it has typically been in the wake of a major failure, such as the Lehman Brothers collapse and other such occurrences. Possibly it shows constructive anticipatory action is possible as central banks lowered the pricing even on existing US dollar liquidity swap arrangements this morning. As such, no major European banks are going to face the sort of liquidity crisis that was instrumental in initiating the entire credit crunch back in august of 2007.

However, that still leaves two major questions. The first is just how bad had things become to warrant such a massive intervention and post facto pricing change? The second, more telling question is whether another round of liquidity infusions does anything to address the solvency issue which the markets will undoubtedly refocus upon sometime soon? While we do not wish to question whether the central banks did the right thing today, as we have questioned at many junctures over the past year and a half, does this sort of emergency crisis mitigation amount to anything that will restore confidence or more robust economic activity? Frankly we remain doubtful, especially as it applies to the still significantly imbalanced situation in Europe. More on that soon in a fresh Rohr-Blog post.

General Market Observations

The equities rally is not just a blessing for bulls, but also for bears who properly finessed their December S&P 500 future (and other) positions into heavy mid-1,100 area support. Consistent with our concerns about whether today’s central bank action actually represents a panacea for the economies and equity markets, the December S&P 500 future is indeed only back up somewhat above its important 1,230 area; which is to say approaching the much more critical 1,240-50 resistance. Similar activity is apparent in the international equities.

Extended Trend Implications

DAX is approaching its hefty 6,100 area resistance, while the FTSE 100 is around its 5,500 area resistance with more significant congestion up into 5,600. It’s going to be interesting to see how these markets finish the week in the face of European sovereign debt auctions tomorrow, and of course the major influence from US Employment on Friday.

Similar considerations abound in other asset classes. Note how the weak sister Bund that was suffering along with the deteriorating economic and financial market picture in Europe is suddenly up along with equities. And, not much of a surprise that the T-note and Gilt are weakening. Yet even there their slippage so far does not represent any sort of trend failure. The December T-note future would need to post serial failures below both the upper 129-00 area and the low 129-00 area to convincingly break trend support. Similarly in the December Gilt future, its resilience into and even after minor slippage below 130.00 demonstrates the degree to which it still believes the global economic situation is still weakening.

The US Dollar Index and the euro are both experiencing only modest additional corrections. If central bank action today was really a cure for what ails the markets and global economy, the euro would have been expected to be stronger than at present. While EUR/USD is indeed back above its most recently violated support in the 1.3400-1.3360 area, it is only back up to the previously failed 1.3500-1.3460 support.

And this is instructive on the US Dollar Index as well, at least insofar as its current selloff has only taken it partially back down to the important .7750 area (i.e. both hefty congestion and the overall up channel from the late October .7472 sharp selloff low.) Only a failure back below .7750 would defuse its current up trend. And some sort of correction of the US Dollar Index was not really much of a surprise after it stalled into major weekly channel resistance that was also right up into its .7984 early October high.

Whether or not the equities can continue their current rally or top out once again will also likely be the arbiter of whether commodities and commodity currencies maintain this week’s rapid resurgence. Or will they discover that (much like equities) this was only a rally back to major higher resistances. Of course, the same goes for the January Crude Oil pushing back toward its recent 102.91 high, and the December Gold future which is challenging the higher of its current key resistances (as noted in yesterday’s technical projections) in the 1,752 area.

Thanks for your interest.

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