Day Trading September 7, 2010 - TraderMongers.com Economic Analysis: Beige Book

Understanding the direction of the market as well as the economic activity will lead to profitable trades. Keep up with our live news feed with TraderMongers.com!

S&P 500

Both international as well as U.S domestic markets rallied after mixed economic data last week. No one wants to be caught in short positions from their August trades ahead of upcoming economic data and increasing volume as the summer season ends. The international markets rallied due to a slew of upcoming Central Bank announcements meetings this week from Japan, Australia, Canada, and England. U.S markets rose ahead of the long Labor Day weekend which ends the vacations of most Americans, sends children back to school this week, and prepares the markets for increasing volume from returning institutions and investors.

President Obama promised to stimulate the economy following the mid-term elections.  This may improve the unemployment rate if the Democrats maintain their numbers. Otherwise the Republicans will hold a sitting duck President for the next two years. Expect a sideways trading until November.

Another cause of high unemployment was mentioned in a recent Barrons article as retirees are flooding their money into bond funds and driving down yields. Corporate bonds then use the cheap cash to instigate mergers and acquisitions across the board that lead to higher unemployment.

Currently the 30 minute S&P 500 chart shows we have recovered near the mid-August 2010 levels. The January 2010 resistance levels starting at 1125 on the S&P 500 will hold off any major rallies until confirmation after November mid-term elections. The Beige Book is due out this week providing a clue to the economic conditions that will affect interest rate policy at the FOMC meeting.

On the daily chart of the S&P 500 the market is trading above the 1100 level. The sharp rally from the first week on September indicates a short-covering before the long Labor Day weekend and ahead of the foreign central bank rates announcements.

The Market Volatility Index or VIX track prices that investors are willing to pay for options on the S&P 500, usually to protect themselves against declines in stocks. The VIX peaked during the Sell in May seasonal trend trading above the 30 mark as institutions and investors switched from equities to cash before the summer vacation season.

Currently the VIX is trading slightly below the 144 and 200 day moving averages indicating more risky approach towards investments and assets. The thin trading volume in August magnified moves on the VIX so markets could be less liquid markets than fear-driven. The previous low for the VIX is the 22 area which has been recently broken however this is not confirmation that institution and investors are coming back only that short covering has taken place.

The Chicago Board Options Exchange (CBOE) Market Volatility Index measures options activity within the market and is widely used tracking the S&P 500. A common trading strategy for traders and investors includes a VIX level of 30 or above means an immediate switch from equities to cash. Traders and investors are retreating from the markets and finding safety and protection within the Treasuries, gold, and the dollar when the index is trading above 30.

Summary of Major S&P Pivot Levels

1219: S&P 500 52 Week High

Technical Levels Natural Support and Resistance

1125: January 2010 Resistance Level

1100: Natural Resistance Level

1075: Natural Support Level

1050: Natural Support Level

Technical Levels 30 Minute Chart

1075: 144 Day Fibonacci Moving Average on 5 Minute Chart

1075: 200 Day Moving Average on 5 Minute Chart

Technical Levels Daily Chart

1096: 144 Day Fibonacci Moving Average on Daily Chart

1088: 200 Day Moving Average on Daily Chart

Daily Economic Calendar

No Economic Numbers

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