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    MARKET EDGES

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Yesterday with Keith on the road, I wrote our intraday market note and highlighted that the stock market was broken on the intermediate duration based on our quantitative models.  As always, closing prices dominate and the SP500 closed below yesterday’s trend line of support, which was at 1,324.  Thus, until further notice, the SP500 is broken based on our quantitative models.

Today’s action is indicative of a dazed market that is having a difficult time finding real buyers, despite how “cheap” it is.  Interestingly, the market is flat despite a substantial sell off in the USD.  Currently, the EUR is up 1.17% versus the USD, while the U.S. dollar index is down over 0.60%.  The fact that U.S. equity markets are flat to down, despite this sizeable selloff in the USD market today, is a noteworthy observation, even if just for one day.

Over the past couple of years if there has been one tried and true correlation, it has been dollar down and most everything, particularly equities and commodities, up, with the 1-year r-squared between the SP500 and U.S. dollar index at 0.71.  We’ll have to wait and watch to determine whether this correlation is changing, but it is certainly confusing price action for those market operators that had been playing this correlation.

Undoubtedly part of the confusion in the markets today is born from Moody’s “update” on U.S. debt and deficit negotiation in which they stated:

“If the debt limit is raised and default avoided, the Aaa rating will be maintained.”

So, to paraphrase Moody’s, if the U.S. is allowed to issue more debt, that is deemed a positive and the Aaa credit rating will be maintained.  It’s shocking that the rating agencies have lost their credibility . . .

Below we’ve refreshed our current levels for the SP500. TRADE support is at 1,302 and TAIL support remains down at 1,214.  If the TRADE line holds, then maybe, just maybe, Morgan Stanley will get that Groupon IPO they just filed out the door, though we have our doubts if this market remains broken, as it is.

Daryl G. Jones

Managing Director

SP500 Levels Refreshed: Dazed and Confused - 1