Thursday, August 19, 2010

Sticky Equity Prices

I found today to be extremely frustrating. I am usually pretty laid back when it comes to how the market is trading but was agitated all day today. I felt like today should have been death for equities. If I was dreaming the night before I couldn't have thought up worse data. It is scary how fast the economic numbers appear to be falling and the equity market just refuses to budge. They remain sticky up near this 1100 area. Yes the Dow lost 144 points and yes the S&P 500 was down 1.69% but we ended up right back where we were late last Friday. Above resistance. Getting a 5 handle on jobless claims I thought would have sent the market down 2% on its own. Combine that with the Philly Fed index showing manufacturing was contracting and just an across the board slaughterfest and it should have created the volume to get the market back below resistance. Instead we are sitting above resistance going into two days with no economic data and option expiration tomorrow.

I really have no idea where the next two days of trading are going to go. If I had to guess options expiration combined with geopolitical risk going into the weekend (Iran switching the switch on nuclear power) causes stocks to surprise some people on the downside breaking through resistance. Than Monday surprises everyone and reverses going back above resistance. I really have NO IDEA. I remember a similar setup in September 2008 but what you just read should be considered just interesting speculation.

What I think could put a death nail in equities next week is the existing home sales on Tuesday and GDP revision on Friday. If existing home sales come in weak enough that months of supply of housing inventory comes in above 12 months, watch out. Also GDP revisions usually mean absolutely nothing but if it gets revised all the way down from 2.4% to less than 1% (a possibility) again watch out.

It feels like the market knows it is headed lower but it is the dog days of summer with many traders on vacation and like a lazy dog it is waiting for slightly cooler temps before it starts moving.

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