Thursday October 7, 2010 - 02:08:48 GMT
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E-mini S&P Ekes Out Small Gain Following Weak ADP Jobs Data
The December E-mini S&P 500 closed slightly better after
the release of a weaker-than-expected ADP employment data report. Traders took
this market up to 1160.00 overnight, just shy of the May 12 top at 1160.75,
before selling off.
A steady stream of buyers held this market up most of the
session, thus avoiding a daily closing price reversal top. The weaker Dollar
and calls for additional liquidity by the Fed have been the catalyst behind the
recent strength. On Tuesday, the E-mini surged after the Bank of Japan eased
interest rates and pledged more quantitative easing.
While the S&P 500 and the Dow remain in strong breakout
modes, the December E-mini NASDAQ is still struggling to follow-through to the
upside. This divergence should be of
some concern to the bulls since all three major indices seem out of
Before Tuesday surge to the upside, the three indices looked
top heavy and ready to rollover to the downside. Shorts looked to be in control
as every recent rally was being met by fresh selling pressure.
Todayâ€™s action suggests the same type of pattern taking
place â€“ liquidation on rallies â€“ this makes me suspect that Tuesdayâ€™s rally was
short-covering rather than new buying. Rather than step in ahead and speculate
on the short-side, traders should wait until after Fridayâ€™s U.S. Jobs Report to
make a call.
Based on the current chart formation, a sell-off on Friday
could trigger a weekly closing price reversal top on a close under 1142.25.
Bank of England monetary policymakers are currently meeting
to decide whether to pump more new money into the fragile U.K. economy. This decision comes
on the heels of fresh stimulus measures taken by the Bank of Japan to bolster
its weak economy.
On Thursday the BoE is expected to hold its key benchmark
lending rate at a record-low 0.50 percent after a two-day monetary policy
Last week the December British Pound fell sharply after
policymaker Adam Posen said the central bank should consider revving up the
printing press and injecting more money into the economy. He further warned
that a slow response by the central bank could curtail growth and push down
The BoEâ€™s last foray into the world of quantitative easing
ended in February. Prior to the expiration, the central bank through its asset
buyback program created close to $317 of new money by purchasing government
bonds and high-quality private sector assets.
Given the financial risks facing the U.K. economy at this time, the BoEâ€™s
Monetary Policy Committee is revisiting the policy this week in an effort to
project growth in the economy with or without the stimulus.
Traders have been warning since the election in May that the
possibility of QE would have to be re-evaluated at a future date since the new
government implemented austerity measures that could slow down the economyâ€™s
Traders fear that the new round of austerity measures, due
from the government in two weeks, could drive the economy toward a double-dip
recession. Some are forecasting a slash in spending by as much as 25 percent.
Although there are signs the economic recovery is fading,
the deciding factor for the MPC will likely be the inflation figure. If
inflation continues to remain strong then the BoE will not have to act as
swiftly, and the current policy will be left on hold. Any weakness in growth as
measured by inflation is likely to mean that more quantitative easing at the
end of the year or the start of 2011.
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