The collision of global markets and social mood

Friday, October 14, 2016

Friday -- China Redux, Mood Cues

S&P E-mini Futures:
Up but off their best overnight levels.

Yesterday, bad data from China put the market in a bad mood. Then it rallied.

Today, good data from China has the market in a good mood. Will it reverse?

The fallacy of news is that it creates trends. The market creates trends.

Markets run on psychology, otherwise known as social mood.

Here's an interesting social mood sighting today: two very similar themes from two major financial news outlets.

Come on in. The water's fine:

Come on in. The water's fine.

Enticing the public to play the game is often seen near the end of long established trends . . . just when it's not safe . . . just when the party's ending . . . just when it gets exciting for the short sellers.

Young Uber drivers and soldiers. Come on, that's scary.

USD slightly higher along with AUD weaker but CAD getting a boost, possibly from oil and NG. JPY & CHF weaker, thus a bit of Risk On currently.

Yesterday brought some brisk follow through as prices rallied on strong volume, yet didn't hold, and are weaker this morning thus far.

WTI crude and NG continue to benefit from lower inventories. Today's Baker Hughes rig count is at 1pm EST.

Mixed action with gold down, silver up, copper down, and platinum and palladium higher. Gold in particular looks like it's trying to make a near-term bottom for a bounce.

S&P Outlook:
S&P 500 and the Dow Industrials both broke below their September lows and reversed. This was the level that HSBC's Murray Gunn was watching to trigger a possible cascade decline.

Many people are embracing Gunn's call. There are even YouTube videos about it. As much as I am in agreement with him regarding the possibility for a large B-wave top to have been put in at the August highs, such declines usually occur when no one expects them.

True, today's mood cues tempting the public back into the pool could be a warning sign that perhaps few really do expect a mini crash at these levels.

And yesterday's action felt like it brought a sigh of relief.

It is possible to count a 5-wave decline in the e-mini futures to yesterday's low. And last night's action currently looks like a three-wave rally. Price would have to get below ES 2132.25 first and then continue lower.

The larger picture is that the S&P cash reached a 38% Fibonacci support level and reversed higher. It did so on lighter volume versus the September lows, a sign that there were far fewer sellers.

The bounce carried to a smaller 38% Fib resistance area and closed below it, along with closing below the 2134.72 2015 high.

So the action feels like a tie thus far and needs follow through to either side. Playing the long side currently using 2114.72 as a hard stop, yet will be watching ES 2132.25 and will be flat if ES 2132.25 can't hold.

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