Home > Uncategorized > 2013/01/18: US Equities Attempt a Jailbreak… Subject to Recapture?

2013/01/18: US Equities Attempt a Jailbreak… Subject to Recapture?

© 2013 ROHR International, Inc. All International rights reserved.

As we noted last Thursday, the March S&P 500 future was going to be critical if and when it pushed up into 1,474.50. Of course, that was the September 15th lead contract (September 2012 at the time) rally high from the QE-phoria ECB and Fed driven surge. All of the broad technical factors which make that area such a major technical trend decision confluence were reviewed at length in last Thursday’s post Might the US Equities Attempt a Jailbreak?

And they remain much the same, as those major indications actually do not change much week to week. What also does not change much week to week is the relatively soft economic data out of Asia and Europe that has been countered by stronger readings in the US. We saw more of that this morning in the East and Europe, yet now have a day in the US with almost no economic data.  And the weak economic data in Europe might not be so troubling in the wake of the ‘lack of crisis’ guidance from President Draghi at last week’s ECB press conference.

As we have covered quite a bit of the fundamental positives and negatives of late, it is more important to focus on the end of weak technical activity today. What is most important is the manner in which the March S&P 500 future fell back from a push to a 1,480 high yesterday to park itself right near 1,475 on the Close. That leaves the decision either way with the activity later in the session into the weekly Close.

And each camp has its challenges. Before we explore those it is important to note that the market might decide not to decide: we could have another quiet Friday drift that has actually been the tendency over the past several weeks. However if either the bulls or bears are going to gain a clear advantage, each as to prove their case beyond a specific technical threshold.

On present form, the bulls have a bit easier in the context of the obvious upward momentum. While any gap higher that fails to get through next resistance (especially if it is particularly critical resistance) might also be exhaustion, remaining well above yesterday’s 1470.70 low early in the session creates additional support around 1,474.50 today. That said, the bulls still need to achieve a close at least several dollars above that level in order to have the jailbreak continue on the upward run. That is now reinforced by the top of the overall channel from the major November low (CH2) extending to up around 1,478 today.

SPHdaily-130117And based upon that same psychology of whether a gap higher fails, the bears really have their work cut out for them. Given that the rally up until yesterday had stalled at no better than a pre-existing interim congestion and 1,465-67, it is of note that Wednesday’s daily Close was 1,465.60 (i.e. right in the low end of that range.) That makes it very clear technically that the bears need to get the market to close back below 1,465-67 to turn the latest upside Acceleration attempt into Exhaustion instead.

However, what is clear technically does not necessarily mean it is easy to accomplish in the real world market activity. The market also gapped up last Thursday above the previous congestion and rally high the 1,460-62 area. Even though it stalled at what was then the top of the same channel, the lack of ability to close back below 1,460 left the aggressive New Year up trend intact.

The difference this time is that any lack of ability to put the market back below the current gap will create the escape above 1,475 that points to the low 1,500 area at a minimum. We will revisit the reasons for that elevated interim objective below. However there is a much more critical near-term psychology which will likely affect the market later today…

…and that has to do with the current general global regional influence psychology.

  

 

The timing of the intraday swings seems to be back to a classical pressure on equities into the US morning trade, and stronger tendencies picking up after the European Close. Which means sometime not too long after 10:30 CST (11:30 EST; 16:30 GMT) US equities should gain additional strength. Let’s face it, even recent bouts of weak news out of Asia and especially into Europe have not managed to derail the up trends in those equity markets either.

And this intensifies the pressure on the bears to somehow get the S&P 500 future to fail at least back below the 1,475 area into lunchtime in the US, and keep it below their later today. Otherwise the prisoner might remain on the loose to the upside.

That would be due to that natural daily swing momentum, portfolio managers’ incentive to put more money to work in a market maintaining a rally in the face of headwinds, and a classic end of the week ‘margin call’ bear squeeze with the market at the highs. Those factors are likely to bring further strength late today into the weekly Close if the market is indeed still above 1,475 this afternoon in the US.

And the portfolio manager incentive has become that much greater as the psychology in Europe has (rightfully or not) significantly neutralized the previous ‘crisis’ mentality. As we noted last week, there is an old saying on the press being so fixated on sensationalist content because you can’t sell papers with the headline “The House Is NOT Burning.” Maybe not. But you can sell equity investors the idea of a lack of a crisis is grounds for expecting better earnings, or alternatively earnings multiple expansion enhancing the price of equities.

The latter has been one of the main arguments of the bulls for some time. They have asserted that crisis fears have multiples unreasonably low. And even with our reservations about the way forward after this month’s positive influences, that does make a difference. With S&P 500 companies estimated to earn a bit more than $100/share (subject to revision), each one point change in the P/E multiple is a difference of $100+ in the index… no small matter.

And those better sentiments on Europe and the reversal into somewhat improved corporate guidance mean an improvement in the P/E multiple to 15 might be reasonable; at least unless and until those 2013 headwinds begin to bite. See last Tuesday’s Cal-Perspective and US December strength to continue? post for much more on what still might go wrong into next month. Yet as we explicitly noted there, this is only going to become a factor later this month into February.

In the meantime, the question is whether the S&P 500 future might be ready to reflect some folk’s full annual 2013 target right away early in the year? Well, when some sort of aggressive expectation such as that rears its ugly (or beautiful depending on your trend opinion) head, it is best to ask what the market is telling us about the ability to advance straight to the implied target in the low 1,500 area. And in that regard, the current technical projections would seem to be quite critical.

Is the major intermediate-term S&P 500 future 1,475-1,340 trading range is ready to be broken to the upside. The activity later today (or at the very latest early next week) will likely answer the question of whether the market really has the ammunition to maintain this March S&P 500 future major jailbreak.

General Market Observations and EXTENDED TREND IMPLICATIONS are still much the same as Monday’s Calendar, OECD CLI, another great resource, Europe post, with its further extensive discussion of the problems still lurking in the background in Europe. Yet in the wake of the churn elsewhere outside of US equities and the continued weakness of the yen, in addition to any of the ideas noted above the market perspectives from Monday still apply elsewhere.

There are only two points we would add. In spite of the March S&P 500 future strength, there seems to be quite a bit of non-confirmation in other asset classes. The govvies are holding on very well at (or even somewhat above) the lower supports noted previous, and foreign exchange is not giving any signs of aggressive global economic strength from commodity currencies or even the euro. Whether that is real cause for concern or a matter of the equities just needing to be that much higher before the other asset classes reflect the improved economic psychology is yet to be seen; very likely in the wake of whatever the March S&P 500 future decides.

The other brief point is that the USD/JPY 90.00 level is not of any technical significance. The ‘big penny’ levels always attract a lot of interest and sentiment. However, they are not necessarily significant technical trend thresholds… sometimes yes, sometimes not.  As we noted after USD/JPY Accelerated above 87.00-.50 two weeks ago, the next interim resistance of any substance is not until 91.00. And given it remains an accelerated trend, even that may only be a temporary way station on the path to our broader intermediate-term Objectives at 94.00-95.00 and 100.00.

Thanks for your interest.

 

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