Brian's Thursday recap: Naz leads rally; new highs for GOOG and Dow

Brian Shepard
July 11, 2013

Collective Intelligence!
FED CHAIRMAN BERNANKE SAYS INFLATION, JOBS SIGNAL MORE FED STIMULUS NEEDED. "The overall thrust of policy is highly accommodative."  “They” say that if Bernanke had one big message, it was to emphasize the difference between LSAP (which still look on track for tapering later this year, prob. at the Sept meeting) and ZIRP (which will stay in place for a while longer, probably until at least early ’15). Diverging Debate at Fed on When to End Stimulus  Also, the Fed's Duke resigns, she was a moderate dove and probably opens the door for a new Fed governor who hasn't been there, probably hand-picked by Bernanke.

BTW heard from someone that French banks need to improve their liquidity coverage ratios and currently have a EUR 200bio shortfall. Other European banks in same position. In case of France there will likely be an impact over equity as it is rumored that the French Government will abolish the tax free status of Insurance Unit Link (they are mostly involved in French and EUR denominated equity) so that client move fund to tax free savings books. Tax free insurance unit link market = EUR 780bio. Another way to read that is that bank balance sheets in Europe remain under intense regulatory pressure so this will put a damper on lending, hence growth – posted by FrogMan.

Today started with 325k ESU and 1.4k SPU traded on Globex, trading range was 1657.80 – 1667.50. Wednesday’s regular trading hours (RTH’s), pit session trading range was 1652.50 – 1642.00 before settling at 1648.30, up 3 handles. Considering the price action, trading range following Fed Chairman Bernanke's post-close speech, the overnight volume was modest at best.

Today’s RTH’s gapped 18 handles higher at 1666.50 to 1667.00, marking the high, and quietly faded back to 1661.00 before the sideways to slightly higher trade kicked in and died on the vine in the 1664 area through the midday. The SPU double bottomed at 9:38, the intraday low of 1661.00 and quietly traded back up to retest and hold the opening range at 10:30. That signaled an early exodus as traders stuck around for the early trade, all six handles, and then took off following the European close as the SPU traded within a couple of handles of 1663.50 area. The NQU, Nasdaq September contract, was leading the rally and did take out the year high of 3044.00, trading an intraday high of 3046.50. The financials were lagging in front of tomorrow’s [JPM] and [WFC] earnings announcements.
By 1:15 the indices finally caught a bid and the SPU took out the opening range / morning high, electing buy stops and programs all the way up to 1670 by 1:35. The XLF went positive, but the BKX was still lagging, down a modest .3%, while the [VIX] traded a low of 13.57. Going into the cash close [GOOG] and the [DJIA] traded a new all-time high as the S&P is knocking on the door of its 1678 high. The closing imbalance showed $750M to the buy side. The cash close traded 1670 area before settling at 1670.10, up 21.5 handles on the day.

There is plenty of data coming out through the end of the week and next week with earnings season picking up and Ben Bernanke’s testimony. So, logically it would seem there will be a bit of profit taking before the coming weekend risk, mid-month window dressing and the tendency for the S&P to make a low on the Thursday / Friday before next week’s expiration.
Brian Shepard is a 20-year exchange member of the CME Group.

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