Wednesday, September 21, 2011

Mid-day pre-FOMC Market Thoughts

SPX is in 1190 - 1208 range, again. This is so frustrating for both longs and shorts. I am flat, waiting for FOMC. Confirmed breakout to either side is tradeable post-FOMC.

ORCL and ADBE did not disappoint. Both reported respectable and guided well. My thought is that NDX is not shortable at all. While not immune to sell-off, it will be less susceptible to bad news outside the tech sector, and will recover much sooner on the upside, when more Q3 earnings start rolling out. I am watching for SOX to close 339 gap first, which may send entire market to marginal new 2011 lows in the next week or two. Then a long trade from those lows into the end of the year is what I am looking for. NDX is probably the best vehicle on the long side, and I am thinking as all indices make new 2011 lows, NDX will not. 

Since on the subject of tech... HPQ is bouncing on CEO replacement rumor. While the stock is up, and perhaps the idea is that HPQ's internal problem solution will benefit overall tech sector recovery, I think that IBM will eventually suffer from this, and will underperform the tech. Plot IBM's chart over HPQ since the Mark Hurd debacle, you will see what I mean. Investors left HPQ in droves and jumped over to IBM for safety. If today's news is true, we will see a reversal of that trade. With IBM being the heaviest-weighted of Dow 30, this may drag the Dow somewhat compared to other indices. This is just a speculative thought, and IBM has not reacted negatively yet...

Speaking of Dow, Transports are negatively diverging, leading on the downside, and pointing to overall market weakness still to come. This confirms my thesis that we are in for a few turbulent weeks, on the way to retest 2011 lows.

FX is weak against the dollar, with exception of euro. This is pre-FOMC positioning and short-covering, and is meaningless due to traders not knowing for sure what the Fed will ultimately do. This said, if euro joins the weakness after FOMC, we will have a nice dollar boost and new short-term highs on DXY.

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