UNPRECEDENTED UNCERTAINTY

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By Danny Riley
As 2012 comes to a close, it does so with an unprecedented amount of uncertainty both at home and abroad.  While we are not trying to ruin the holiday cheer, we do think it’s important to remember that we live in an ever-changing world.

When I started as a runner on the Board of Trade floor 34 years ago, it was a much simpler time. Get up at 8:00, shower, catch a bus to the L train and then get off right behind the exchange. It was a really fun time learning the markets, and the best part is that the grains opened at 9:30 CT and closed at 1:15; a 3 hour and 45 minute day. You can't beat that! After working in the grain room for a few years I headed to the bond pit, which I hate to say added a few hours. The bonds opened at 7:20 and closed at 2:00, 6 hours and 40 minutes. That was almost double the hours. I know most people call that “bankers’ hours,” but guess what? There was no bank, just me. When the company I  worked for asked me if I wanted to go over to the CME and take over running their S&P desk, a shorter day than the bonds but much more brutal, I jumped at the chance. After running desks in just about every big futures contract in Chicago, the S&P was a test of my abilities and what I learned was it was a lot harder getting a 500-lot out of the S&P pit than it was the bonds.

Things were simpler: In the old days we had to worry about things like grain reports and money supply. Yes, there were housing numbers and jobs reports, but they were not as market-moving as they are today. Back then, crude oil was around $8 and gold was $150. The only thing we ever heard about in the Middle East was that they sold us oil. China was not an economic or military threat, and when the Berlin Wall fell, so did the Soviets. With the U.S. being the global sheriff, the current flash points are the Korean Peninsula, where North Korea is constantly threatening the South and the U.S. with its nuclear capability, and in the Middle East where the Arab spring has brought jihadists into power with Iran and all its proxies. The current cycle never seems to have an end.

In the United States and Europe it’s the ongoing credit crisis. After almost five full years there does not seem to be an end in sight there either. Greece and Spain and many other countries are going to continue to need financial support. I am and always have been a bull market guy. I have always prided myself on my ability to spot bottoms and I do not doubt that there will be some type of year-end rally, but that is not what I am concerned about. What worries me is how the markets are going to hold up in the beginning of 2013 when taxes go up and what the national health care program is going to do to small business. I think we are in for a rough ride at the beginning of 2013 and I do not think the ride is up.

Danny Riley is a 34-year veteran of the trading floor. He has helped run one of the largest S&P desks on the floor of the CME Group since 1985.

Our view:
The S&P is open all day, but we think people will start to cut out early. It should get very quiet after Europe’s close and then we are closed for Thanksgiving and open until 12:15 CT on Friday. That said, this should favor the upside. We have a bunch of buy stops above 1388 up to 1395, but we also think that area will end up solid resistance. We lean to selling the midmorning rally and then buying weakness (keep an eye on the euro). And as always, keep an eye on the 10-handle rule and please make sure to use stops.

Today’s data:

  • It’s 7:00 a.m. and the ESZ is trading 1385.25, down 1 handle; crude oil is trading 84.69, up 94 cents; and the euro is trading 1.2805, down 4 pips.
  • In Asia 6 out of 11 markets closed higher (Shanghai Comp. +1.07%, Hang Seng +1.39%).
  • In Europe markets are mixed (CAC +0.24%, DAX +0.05%).
  • Today’s headline: “Italian Bonds Fall, Euro Weakens after Greek Deadlock.”
  • Economic calendar: Today: Weekly mortgage applications, jobless claims, PMI manufacturing index flash, consumer sentiment, leading indicators, oil inventories; earnings from Deere . THURSDAY: MARKETS CLOSED, Thanksgiving! FRIDAY: Black Friday - NYSE closes at 12:00 CT / CME closes at 12:15pm CT
  • Volume: 1.53mil ESZ and 8.2k SPZ trade
  • Fair value: S&P +1.25, NASDAQ -0.75


MrTopStep Closing Print Video:http://www.mrtopstep.com/videos/?id=34436  

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DISCLAIMER: The information and data in the following report(s) were obtained from sources considered reliable. Opinions, market data, and recommendations are subject to change at any time. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any commodities or securities. MrTopStep, its officers, directors and its contributors may, in the normal course of business, have position(s) which may or may not agree with the opinions expressed in this report.

 

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