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Morning Call: Futures Rest Pre-Market After Weak Data from China

December 1st, 2011

US stock futures are flat Thursday morning, taking a pause after a massive three-day rally. Yesterday pre-market there was a perfect storm of news that sent futures romping higher. The Fed, ECB, BoJ, BoE, SNB, Bank of Canada lowered interest rates 50 bps on dollar swaps, and China lowered its reserve rate requirement 50 bps, the first cut since 2008. Futures added to early gains following a much better than expected ADP jobs number (+206,000 jobs vs. 130,000 expected). Then, data showed that October pending home sales rose 10.4% vs. the 2% expected, the biggest jump since November 2010.


All of the news above triggered a rally that took most market participants by surprise. This will keep the bears honest and the bulls on alert as the dynamics keep changing in this market.


This morning the new front is fairly quiet. China released some weak economic data and remains the elephant in the room. The European sovereign debt crisis continues to worsen, but was not allowed to become a complete disaster. If the crisis was allowed to drag on and orderly defaults would have occurred, it would have likely started to weigh heavily on China.

A metaphor being used its that yesterday’s policy action puts a full body cast around a broken back without properly aligning the vertebrae! This could keep the body from hitting the pavement for now, but does nothing to solve the underlying problem, and could make it worse.

TECHNICAL TAKE

The Dow Jones had a 750 point in three days so a rest would be nice at this stage. Bulls are firmly in control at this stage, but new buyers will want to wait for a calculated dip to enter. The S&P’s rallied all the way back to the broken down wedge from a few weeks back.

Resistance in the S&P comes into play around 1252-1255, with a bigger area around 1260-1265 (200 day moving average). If the market wants to do some downside probing look to yesterday’s intraday range of 1236-1238, and then 1224-1228.

Scott Redler
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NYSE:RTH, NYSE:SPY


 

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