Daily Trading Comments - September 01, 2010

ADP said that private sector employment fell by 10,000 in August, "confirming a pause in the recovery already evident in other economic data", according to Joel Prakken, chairman of Macroeconomic Advisers. The U.S. auto sector posted its worst August in 28 years, with posted results well beyond the expected 19% downturn. August new car sales for GM were down 25%. Ford's decline of about 10% was expected, Toyota is still battered by recall woes and it's sales were down 35%, yet BMW reported a minor decrease of 1.6% and Volkswagen was hit with a 7.9% dip. This suggests that the housing and labor markets are still weighing heavily on the consumer such that consumers simply aren't viewing new car purchases as a priority. However, Porsche offered a bright spot by reporting a surge in U.S. sales of 33%! In any case, European stocks rallied on the heels of an unexpectedly strong ISM manufacturing index in August. The composite index was 56.3, while analysts were expecting a number closer to 53.0. Also, positive economic reports from Australia and China helped to lift the tide, with Chinese manufacturing expanding in August. This set the tone and offered the catalyst the bulls needed to drive U.S. equity prices substantially higher. Meanwhile, and as would also be expected, with equity markets so strong, money rotated out of U.S. Treasuries, thereby driving debt futures lower by 1% to 2%, and conversely yields spiked higher. Alongside this dynamic, the U.S. dollar extended its recent decline.

Looking Ahead

Trading volume on the NYSE was abysmally low in August, yet on the first day of September, volume has increased to near normal ranges as prices bounce from an oversold August. Compared to a month ago, the SP 500 is nearly at the same level, which is a good environment for Optioneer traders. The 1040 support level we had mentioned is holding, with prices today closing right on top of nearby resistance near 1075. With the VIX below 25, you could add some bear hedge trades to your allocation. Tomorrow and Friday there is some key economic data being released, so you’ll want to be sure your orders are in place ahead of the open and that you offer the most lenience you are comfortable with. 

Thursday’s Reports of Interest

4:45 AM PST: ECB Announcement
5:30 AM PST: Weekly Jobless Claims
5:30 AM PST: Productivity and Costs
6:00 AM PST: Bernanke Speaks
7:00 AM PST: Factory Orders
7:00 AM PST: Pending Home Sales Index
FRIDAY: Unemployment Data