Darshan's Blog

Darshan's Daily Market Ponderings

Will Retail Sales Disappoint?

Friday 11th December, 2009

Morning all - seems after another boring day yesterday, the futures have spiked up overnight. At the moment the SPX is still underneath a key resistance point at 1110 - if it breaks that I can see 1116 and then a break of the 50% fib at 1121. Similarly the Dow futures are up but it is diverging against the rises in Europe. What has caused this overnight pump? Well during the night, the Chinese reported stronger than expected groth and industrial production figures - so here we are.

However, and a big however - not only do we have the divergence between the US futures and the European indices as mentioned above, but it seems there is also divergences happening in the forex arena. The major one for me has to be the AUD/USD pair. That is a commodity pair and is most likely to rise when China reports great figures, as Australia exports commodities to China. However, the Aussie has been pretty flat overnight. This is the same with most currencies against the dollar.

So really, what we need to work out is if this is a bull trap today or not? I feel that they are building in a buffer for the retail sales number. The market is expecting November retail sales to rise to 0.6%; If they come out better than expected, then we will see a short lived spike and then head down to close the gap before aiming for new highs. However, if they come in less than expected, then the indices are now high enough to withstand a sell-off without causing too much damage on the lower levels. All in the market tends to move in the same direction as the reported figure - so up if a positive surprise and vice versa. So if the data does surprise, I see us testing either 10500 or 10590 max (if even that) and then we head down to 10200 and possibly lower either today or on Monday. However, if the data disappoints, then yes I full expect the journey down to 10200 and lower starting today. Of course, the overnight rise might already be pricing in any positive surprises in the data.

Really the whole thing depends on the US dollar getting some legs on and staying above 75.5. Another pair to look out for is the Euro - if it breaks above the 55 day EMA at 1.4855 - then we should see a resumption of risk taking and a new high on the indices. However, at the moment the internals look sick. Today is one of them days where it's not worth doing anything until after the data is out. could be yet another boring day, where the market is held up on low volume to keep the weekend Christmas shoppers shopping! There is not much else to talk about really - so I am going to keep this note brief and then update it later, if anything interesting develops.

Until then, happy trading!

Darshan

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