Equity Index Update
Brad Sullivan
The index markets are called to open sharply higher after reassuring comments from Treasury Secretary Paulson and a move lower in the Yen/Dollar carry trade. The bid began in earnest last night after a horrid final 30 minutes of trading across the index complex. Once again, each index settled below their respective cash instruments and fair value…however, strong bids began to enter the market moments after Paulson’s comments and the SPH moved rather quickly from 1373 to 1386 the European open. Since that time, the indices have treaded water between 1389 and 1382.50.
Today’s action should be defined by this gap open and whether or not there is any push towards filling it. If the indices are unable to hold higher levels we should see increased selling as the session wears on, particularly in the final 45 minutes…a stretch of time that has produced heavy one way street selling the last 2 sessions. If the indices are able to hold their opening bid, I would look for a sharp move higher that would carry the market above their respective highs from yesterday and test the breakdown level from Friday afternoon. In the SPH7 this would equate to roughly 1394 to 1396.
One aspect of the trade that I would put forward is this…we have moved DRAMATICALLY lower in 5 trading sessions. At some point we will get a bounce that sustains – normally that happens after a sharp down morning as the market reverses course in the afternoon. Given today’s gap higher, I have a hard time believing that this will be day we rally +2%...but you never do know.
