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Market Recap Thursday August 18, 2011.

  • Written by Syndicated Publisher 46 Comments46 Comments Comments
    August 19, 2011

    “When you stare into the abyss the abyss stares back at you.” – Friedrich Nietzsche

    And it doesn’t smile. Trust me I have stared into it many a time throughout my career. It was really mad today. Apparently all those economists saying the economic soft patch was transitory have not traveled to the greater Philly area. I hear business is a little soft of late. Today’s Philly Fed survey data was a complete disaster and is forcing reality upon the market.

    Making matters worse was the rise in CPI. The Fed has made it clear QE will return should the threat of deflation return. Based on today’s data that threat is safe for a while. With three dissenters and inflation on a 12 month rolling basis at 3.8% well above the 1-2% Fed target I don’t see QE in the near future at all.

    With bond yields falling the treasury TIPS will show a possible deflationary threat but not CPI and how can the Fed argue deflation as a result? At least between now and next Friday’s Jackson Hole speech I don’t see it not with the threat of inflation looming large.

    Putting some context on today’s market below are a few notable facts and “not so pretty” charts.

    Gold up 14% since August 1 while the USD is up 0.6% over the same time frame. Looks like treasuries and precious metals are the new safe haven trade (in addition to other reasons).

    Oil down 6.5% today, 18% since August 1

    Copper down 2.3% today, 14% since August 1

    10 Year Yield – 1.98% was the intraday low taking out the previous 2.04% low during the height of the “great” recession. The last time rates were this low if I heard correctly was during the 40′s. So far it looks like bonds are pricing in the correct economic picture based on today’s Philly Fed.

    30 Year Yield – Based on historical correlations the 30 year would price the SPX at 1,000.

    VIX – Looking rather “2008 ish” to me. Next major resistance is 48.20. If that fails to hold this market could really selloff fast.

    SPX – The August 9 intraday low of 1,101 is the next big test. A bounce is possible as traders not believing in this selloff will jump in after failing to miss it the first time.

    The big headwind to this market right now is the worried investor who is not active in this market at all. Who after two weeks of wild rides on the markets watching CNN or Fox for example and hearing about the bloodbath on Wall Street will simply want out after today’s headlines. With record low cash on hand fund managers will be forced to sell stocks on a daily basis to meet these redemption requests.

    When leaders like AAPL selloff greater than the overall market then you will know fear and redemptions have in fact arrived.  Honestly I believe the market is still very complacent and bulls believe Bernanke has their back.

    Completely off topic but I think Bob Pisani is very long stock based on his positive spin today. Pure comedy. CNBC never disappoints.

    From

    Market Recap Thursday August 18, 2011- Macro Story.

    Images: Flickr (licence/attribution)

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