Tuesday, February 9, 2010

JPMorgan’s M Krauss

Markets Headlines/Desk Color 02.09.10

· SP500 technical update – from JPMorgan’s M Krauss - Bounce from Fri’s 1044.50 upside reversal day low lacks follow through, as Mon’s 1071 downside day fails at the key 1071.59 Jan 29 low. Below there sustains a negative tone, following a 1105 bearish outside week. Last week’s freefall held the 1043 July 38.2% retr/4th-wave obj, and Jan channel low (now 1038). Still could be a complete a-b-c correction, from the 1150 Jan 19 bearish outside month high, but bulls need to see the market close above 1071.59. Renewed selling would seek MT support: 1035 10% drop, 1029 Nov low, 1026 Jan-Feb c=a, 1019 Oct trough/200 day MA. Alternately bounces seek Feb 2 retraces: 1068 38%, 1075 50%, 1082 62%. Significant resistance remains at 1105, 1115 Jan 22 break, and 1130 Jan range break. Keep a 2010 range view: 1000-950 low, 1150-1200 high.

· US Indices: Vol was mostly unchanged throughout the day until it ticked higher as we sold off into the close. Near dated skew was higher on protection buying. Longer dated variance was offered relative to the rest of the curve, and has been getting cheaper relative to fixed strike. Divs were 1% weaker across the curve, with particular selling in the near dated maturities. US derivatives desk.

· Program trading color - 1.04 to 1 better to sell - Moderate Flow; Large Cap 66% and Mid Cap 23% of total Market Cap; Energy, Financials, Health Care, and Information Technology better to buy; Consumer Discretionary and Industrials better to sell; ETF's 6% of sector flow.

· JPMorgan Options VolumeSpike Report – ONNN, EBIX, CADX, HAS, ARIA, PDE, ZSL, AVT, FLIR, BDX, BBD, RGC, ARG, TEN, CFSG

Yesterday’s Trading

· Levels: SP500 ends off 9.5 points/0.88% to 1056; the R2K ends off 1.09% and the Nazz closed down 0.7%.

· Equity Desk Color – buyers tried to make it a green session although failed to hold the early gains and stocks finished at their lows after accelerating to the downside during the last hr of trading. There was never a lot of follow through to Fri’s late-session rally (a lot of which was short covering) – this morning’s buying never had a lot of conviction behind it. For much of the morning and early afternoon, the large vanilla selling from last Thurs and early Fri didn’t really appear and shorts weren’t being as aggressive putting new exposure on, although this changed in the last hour of the day (into the close selling picked up and shorts became a bit more active). The trend still remains to fade rallies (like we saw today) and the weak close today was very discouraging to the bulls. Larger vanillas were relatively quiet up until 3pm. European sovereign headlines remain top of mind but didn’t seem to have to the type of systemic impact as they did last week (also note that European equities had a strong session and finished near the highs of the day). The calendar is pretty light this week both on the corporate and eco front; the biggest event will prob. be Bernanke’s testimony before the House on exit strategies. We failed to close north of the 1071 level on the sp500 (cash), a neg. technical development. Tough to read today’s tea leaves – US equities sag into the bell following a strong European close; US TSYs didn’t really rally though the session; while the Euro lagged vs. the buck in the last hr of US trading, it ended off its lows from overnight.

· Equity Sectors – financials have been laggards all session, weighed down by larger money centers and some profit taking in the REITs (fins finish off >2%). The materials stocks saw selling into the afternoon (the sp500 materials fell >1%, which is in contrast to their European peers, which traded well on back of the Xstrata #s, and in contrast to the underlying metals, which were higher). Leading materials on the downside: NEM, TIE, MON, CLF, AKS, NUE. Industrials dip >1% (some of the big cap goods firms, like UTX, and CAT, along w/rails, all close off >1%). Tech, which outperformed for most of the day, ended off ~0.4% after failing to hold its gains (WFR, ABDE, WU, BRCM, ORCL all weighed). The homebuilders were one of the best performing groups today (ahead of earnings from PHM tom morning; the WSJ had a pos. article on the group).

· Best Performing SP500 stocks (from Bloomberg): HAS, CVS, TSN, JDSU, MOT, MA, MU, S, PHM

· Weakest performing sp500 stocks (from Bloomberg): NDAQ, EK, NEM, MEE, WFC, SPG, DV, PLD, AFL, DNR

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