Tuesday, August 24, 2010

Market Update – stocks close off the lows of the session but the failed rally (and
late-day sell-off) was in many ways more damaging to the tape than if we had closed
at the worst levels.
This morning, NY investors came into work to find the futures
already down a few handles (due to the WSJ Fed article, the CRH earnings miss, the
yen rally, and general worries about the economic outlook). Trading continued to
deteriorate throughout the morning (the disappointing earnings from MDT and BMO
pre-open didn’t help) heading to the existing home sales reading at 10amET. Risk
selling hit a crescendo at 10amET, as shorts came in to cover in equities (this was
esp. notable in the homebuilders index, which was down nearly 2% pre-10amET but
ended the day up small, albeit off their best levels). However, despite the impressive
move off the lows in equities post the existing homes, the buying demand petered
out into the afternoon and there was never much follow-through on the upside.
While the heavy selling pressure abated some vs. the pre-10amET levels, real
buying never stepped in to lift the tape into the green. Despite sentiment seeming to
be very negative, it appears like many are anticipating some kind of a rally (after the
rally this morning, the consensus thinking def. thought we could finish the day off
small or maybe slightly in the green). Volumes today were actually pretty heavy
(much higher than Mon and looks like the highest since 8/11). The tape is catalystless
for the next few days (really until Bernanke on Fri although TOL
earnings/durable goods on Wed will be important) and there are some potential
landmines that investors would like to see out of the way before reentering risk
trades (like the Aug manufacturing readings next week and the BLS jobs number
next Fri). For the time being, the trend remains to trim back on risk (we see this in
stocks, FX, TSYs, etc).

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