Brian's Wednesday recap: Bad data here, bad acting in N. Korea

MrTopStep.com

We have the central bankers to thank for the macro backstop and going forward it should keep the Fed printing press(es) busy following the recent downturn in the economic data. Following Monday’s disappointing ISM release, the S&P futures immediately spiked 5 handles lower to 1558 and following today’s ISM non-manufacturing data the SPM quickly sold off four handles to retest 1558 area, trading a new intraday low of 1557.30 at 9:05 before briefly stalling below 1560 area and the electing the sell stops below. The equity bulls were hoping today’s service sector data would balance out the disappointing ISM manufacturing data. Oh yeah, let’s not forget how well the equities held following today's disappointing pre-market ADP data before the bottom dropped out following the regular trading hours opening as portfolio managers made some adjustments in front of Friday’s employment data. The consumer and their ability/willingness to spend should be focused on over the coming weeks - as those increased taxes dig in. By the way, our health insurance just went up from $1,300 to $2,000 a month for a family plan. Ouch!

Collective Intelligence! We are still in the heart of pre-announcements / corporate warnings as next week kicks off the earnings season.

Highlights of non-manufacturing ISM: Provided by Barrons.com Econday. Employment is the weak link in March's non-manufacturing from the ISM, whose headline composite index fell 1.6 points to a 54.4 level that indicates the slowest rate of monthly growth since July last year. The employment index is down a sizable 3.9 points to 53.3, still indicating monthly growth but -- in a parallel to this morning's ADP report -- monthly growth at a slowing rate. New orders are also slowing, down 3.6 points to 54.6. But backlog orders, unchanged at 54.5, continue to build in what is an especially good reading for this index. Business activity remains steady and strong and deliveries are slowing which is another sign of strength. This report, much like Monday's ISM report on manufacturing, has plenty of strength in some of the details. Growth remains solid and perhaps slowing now then is welcome, to keep activity within the rate of available capacity. Another positive in the report is an easing in price pressures, the result of lower fuel prices. The Dow, reacting to the headline and no doubt the employment reading, is moving to opening lows.

Europe takes a backseat to the geopolitical this morning. Hamas and Israel exchanged fire Tuesday across the Gaza border. The Palestinian radicals fired missiles into Israel. Although the Jewish state has said there are other factions responsible for the attack, they have put the onus on Hamas to end the hostilities. But more importantly, the DPRK has now shut the industrial complex just north of the border with the south. This is a serious step. The North receives its only foreign currency at the complex. It is worth $2 billion per year. Moreover as reported Tuesday, the North is restarting a nuke plant closed since 2007. China, South Korea and the U.S. have expressed “serious concern” over the incident, further isolating the despotic state. Also, the energy markets await the reading on inventories. The markets will be sensitive to the meanderings of the equity markets. Unless one has been in a coma there have not been any wandering other than toeing the line … up, up and away. It was reported Tuesday that Saudis are increasing production, which will make for ample crude in the intermediate term - posted by Stanton Analytics.

As today's SPM lows were printing: SEOUL (AFP)--The North Korean army said Thursday it had final approval to launch "merciless" military strikes on the U.S., involving the possible use of " cutting-edge" nuclear weapons. In a statement published by the official KCNA news agency, the General Staff of the Korean People's Army said it was formally informing Washington that U.S. threats would be "smashed by ... cutting-edge smaller, lighter and diversified nuclear strike means." "The merciless operation of (our) revolutionary armed forces in this regard has been finally examined and ratified," the statement said. Apparently Austin, Texas, is in their sights due to the Texas refineries. Bloomberg adds: *HAGEL SAYS WORKING WITH CHINA TO DEFUSE N.KOREA SITUATION *HAGEL SAYS CHINA SEEKS TO AVOID A NORTH KOREA 'WAR SITUATION.' The market dipped on the news of the mobilization and Hagel's comments that North Korea "poses a 'real, clear danger' to US allies."

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Kathy has had some very good calls! Charts posted by Kathy Garber @tbg4321. Harmonic rotations: AAPL premkt chart: http://screencast.com/t/ksMa1hfUo So far the green emerging Bat still in play, as long as price holds above 426.4. Also, Kathy posted the following CL at (09:35CT) CL testing bullish Gartley PRZ 96.24, how much this retraces makes a statement, a b/d here has 95.49 tgt w/ scaling pt 95.91, otherwise ideal min retrace tgt is 96.69 rgion http://screencast.com/t/7wiVMyhgSc

During the Globex session 194k ESM and 1.4k SPM traded on Globex, trading range was 1563.80 – 1567.80. Tuesday’s regular trading hours (RTH’s), pit session trading range was 1568.00 – 1559.50 before settling at 1564.40 up 8.5 handles. At 7:15CT the ADP checked in at 158k versus 200k estimates. The pre-market equity markets held well following the release. ADP’s big miss was partially offset by the upward 39k revision on the previous data, but the data did pave the way for some profit-taking in front Friday's employment data.

The regular trading hours opened slightly higher at 1564.50 -1565.00 in the SPM, traded 1566.30 before pulling back to 1560.50 area when the 9:00 non-manufacturing data disapointed. The equities deteriorated following that data and stepped lower throughout the midday. The concerns have begun to mount in front of Friday's employment data and the coming earnings season starting in earnest next week. Combined, the ISM misses this week showing signs of economic weakness along with the PMI data coming in a bit light overall. Traders and investors like clarity, concerns can quickly turn to fear - take in profits and ask questions later. The Fed continues to stand ready, adding stimuli and until that changes the equity back and fills may continue to provide a cheaper entry point versus buying at or near record high levels. Time will tell! The SPM had just printed a new intraday low at 1544.00 when the 2:45 closing imbalance showed the broader market with a huge $1.5B to the buy side. Well, that did not take too long - see what I mean - at least some peeps wanted to buy them on the intraday low...as the ensuing rally had the SPM pop up to 1550.50 area, just shy of the afternoon high of 1552. The 3:00 cash close traded in the 1548 area before settling at 1548.50, down 15.9 handles on the 3:15 futures close. At (15:08CT) Roger S posted: Based on today's 1% move in SPX, the VIX should be higher, closer to 16, especially if we're to continue selling off like this. We'll see tomorrow (and Friday).

Brian Shepard is a 20-year exchange member of the CME Group.
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