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While it appears that international equity markets have managed to discount the Indian terrorist attacks and several key markets managed gains overnight, the early US action was somewhat mixed to weaker. Apparently the stock market is capable of discounting a certain measure of slowing evidence, but we also fear that a dose of pre and post holiday euphoria has served to carry prices upward and that once the market gets back to the normal day to day grind, the market might begin to view prices as expensive, especially when the trade is presented with more evidence of slowing next week. In fact, given the magnitude of the gains over the prior 4 trading sessions and the obvious ongoing deterioration of the US economy, one has to be surprised in the performance of the stock market this week.
Clearly the presence of more US government assistance and the announcement of an even bigger than expected US stimulus plan was beneficial to the bull camp early this week, but now that prices have climbed all the way back to the middle of the last two months trading range, we are becoming increasingly more skeptical of the bull case. However, even though the US market is showing some initial weakness this morning, we can’t rule out some initial optimism toward the shopping season kickoff early in the day today. On the other hand, if and when it becomes apparent that the holiday sales are indeed disappointing that could facilitate a profit taking mentality. The market might be up higher today, but prices are short term overdone from a technical perspective and prices are beginning to look very overdone from a fundamental perspective.
DOW: With the Mini Dow already climbing above the 50% retracement of the November range and closing in on the .618 retracement up at 8,794, we suspect that the market is poised to run into some overhead resistance. Initial support today is seen at 8,602 and then again down at 8,497. We wouldn’t rule out an attempt to rally this morning and perhaps the holiday euphoria will even be able to carry the market into an early close today, but we would like to ultimately be short this market for a look at a possible setback next week.
NASDAQ: The December Nasdaq seemed to run into some resistance at the 50% retracement of the November range at 1201.90 early today, but it is possible that the market might exhibit some positive action due to the lingering proximity of the US holiday. Higher resistance is also seen up at 1245.75, which is the .618 retracement level off the November trading range. Much has been made of the positive action of the stock market in the day before and the day after Thanksgiving but toward the close today, traders might also note that in the past, the stock market has generally exhibited weakness in the Monday after Thanksgiving. Therefore, we would respect this markets capacity to rally at some point today, but on strength today, traders should consider getting short or consider purchasing puts.
S&P 500: The December S&P has managed to entrench itself above the 50% retracement of the November range, which is pegged at 873.60, with the .618 retracement of the November range seen up at 905.36. In fact, while we can’t argue against a possible test of levels above the 900 level early today, we like the idea of getting short on a rally, or simply looking to get short just ahead of the early close today. Failure to hold above 875.10 this morning could be enough of a technical failure to turn a thin trade environment more negative. However, in the end we would watch press coverage of the holiday sales kickoff closely this morning for direction in the equity market into its early close today.
Cotton Commentary – 2008.11.28
by Terry Roggensack on November 28, 2008
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The rate cut news from China and a continued push by China to support domestic prices by purchasing grain and cotton to boost state reserves has been seen as a positive force. However, to expect that a significant low is in place, traders would have to assume that the worst of the demand news may have passed. This is brave assumption given the readings on consumer spending and the weak outlook for housing, employment and discretionary spending. Consider bearish strategies on the technical rally and watch for at least a test of the November lows. March cotton advanced on Friday extending the rally against a backdrop of stronger stock indexes and mixed results in commodities.
Traders said that strength in stocks for the fourth session in a row helped eased economic concerns somewhat from the near panic levels of recent weeks, and that this in turn had eased cotton traders’ concerns over longer term demand destruction. Some analysts say that pent up demand after months of retrenchment by consumers is combining with lower gas prices and the advent the Christmas shopping season to brighten the near and intermediate term outlook for apparel. Other buying was credited to short-covering ahead of the holiday. The US agricultural attaché in Egypt projects this year’s planted area there to fall by 50% with imports expected to rise 50%. Traders look for weekly export sales news this morning to show sales above last week’s impressive level of 203,100 bales. This seems to open the door for bearish news today. Open interest was at 220,037 contracts on September 15th and has fallen to 128,157 contracts as of Tuesday. The upside appears limited due to the potential for further reductions in demand for the market ahead.
TODAYS GUIDANCE: Look for a return to deflationary pressures on the economy and for weak demand news to begin to pressure cotton prices again.