Morning Call: Futures Back Down After Monday Squeeze, Expect Volatility to Wane Into Holiday Weekend

US stock futures point to a lower open Tuesday, giving back some gains from yesterday’s strong rally into the upper level of the current range. The market opened higher Monday amid relief that Hurricane Irene did not produce more catastrophic damage along the East Coast, and continued higher all day. Today, traders will be on the lookout for consumer confidence, as well as minutes from the latest FOMC meeting.


Yesterday’s action represented a big short squeeze, but this time around the bulls couldn’t keep the full court press on. Volume was very light yesterday, which can likely be attributed to transportation issues in the Northeast following the hurricane. Still, expect volume to be light this week and perhaps for the action not to have that much bearing on the intermediate-term direction of the market.

Economists are expecting a sharp drop in consumer confidence, from 59.5 in July to 51.9, so that will be an interesting tidbit to keep an eye on this morning. Deteriorating economic data was one driver of the steep drop we saw in early August. With no Fed programs supporting asset prices and a stuttering recovery, the jury is out on whether the market’s low for the year is in, despite yesterday’s squeeze.

On a stock specific front, Apple Inc. (NASDAQ:AAPL) continues to show relative strength following the resignation of Steve Jobs. It appears that most investors have not been to troubled by the iconic leader’s exit. Many had long-held fears over a ‘Steve Jobs crash’ in the stock on the day he quit or passed, but those fears never came to fruition. With that cloud of uncertainty now lifted, the stock is looking poised to make 52-week highs in the near future.

The banks will also continue to be key to the action. Last week Warren Buffet’s $5 billion investment in Bank of America Corp. (NYSE:BAC) resuscitated a lifeless sector. Confidence is a crucial ingredient for success in the banking industry, and Buffet’s decisive hand provides that. In another move aimed at shoring up its capital base, BAC yesterday announced it would sell half its stake in China Construction Bank for about $3 billion. BAC gained more than 8% on the day following that news. Be careful with the banks, however, as major issues still exist and BAC’s actions prove that the company harbors concerns about capitalization.

Overall, this is not a week to get aggressive as volume will continue to peter out as we approach Labor Day weekend. Traders may have unusual expectation for volatility this week given the type of August we have seen, but we should start to see at least some range constriction.

Evan Lazarus
Evan Lazarus is the Chief Knowledge Officer of T3 Live. He leads the company’s strategic vision for trader education and manages all of T3 Live’s intellectual property. Mr. Lazarus employs a technical swing trading strategy. Mr. Lazarus has been in the equity trading business for 11 years. After three years at Freelance Equity Trading, LLC, he took a managing director position at Sperling Enterprises, LLC. At Sperling Enterprises, Mr. Lazarus, along with Scott Redler, managed the firm’s traders and developed its training program. His core competency lies in understanding the difficult psychological aspect of trading, and his ability to mentor other traders. Mr. Lazarus became a partner in Sperling Enterprises in 2006 and stepped into the role of Chief Operating Officer for the company. In 2007, he helped facilitate the merger between Nexis Capital and Sperling Enterprises. Mr. Lazarus now manages all training content at T3 Live. T3LIVE.com is an online financial media network and education platform that provides active traders and investors with market analysis, real-time access to strategies, and in-depth training from real traders, real-time.

*DISCLOSURE: Evan Lazarus has no positions

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