Today is triple-witching day in the equity markets. Stocks are trading better overnight after absorbing the sell-off from earlier in the week. Equities are trading better than 50% of the week's range which is just another indication that investors are still buying the dips.
Two scenarios are developing in the equities. The first scenario is bullish. There is speculation that some money managers who missed the rally earlier this quarter have loaded up on this dip and are playing for a new high into the end of the month. Some feel that these investors may even chase this market into spiking sharply higher.
The other scenario is based on speculation that we have seen the top for this rally and that the current developing move is only a correction which will fall short of making a new high. Based on the September S&P 500 for example, this market is expected to retrace at least 50% of the 952.75 to 899.25 range. This would make the upside retracement target 926.00 to 932.00.
After a test of this zone, the bearish traders expect this market to trade flat and distribute. Once distribution is completed, this market is expected to feel downside pressure beginning at the start of earnings season about July 10th.
That's the short-term scenario. Today's action could be volatile because of the triple-witch. This could mean an exaggerated move to the upside or a wicked two-sided trade. Like I said earlier, 926.00 to 932.00 is a potential upside target today in the September S&P 500. On the downside 904.00 to 899.25 is major support. If this zone fails on break, things could get ugly.
September Treasury futures are trading mixed this morning. Since last week's daily chart reversal, Treasuries have recovered slightly from the bottoms but many knew this would be short-lived because of next week's record auction. Continue to look to the downside because of the huge amount of supply that is expected to hit the market. Yields rose yesterday following the announcement. This move may have been overdone so we may see an early rally, but overall, this market is still in a bear cycle.
Higher equity markets are helping the Dollar this morning. Because of the rise in stock prices, traders are demanding a little more risk and flocking to the higher yielding assets like the Euro.
British Pounds are recovering slightly following yesterday's sell-off. This rally could develop into an important retest of the recent high at 1.6600. A failure to drive through this level would be a strong indication that this market is topping out. Expectations of a sluggish recovery could cause buyers to shy away from this market near the 1.6600 level.
Flat crude oil and gold as well as indications from the central bank that the Canadian Dollar may be overpriced are holding back the September Canadian Dollar.
August Gold is building a support base at a major 50% price but aggressive traders haven't bit yet on the long side of this market in a big way. This could be because there is no inflation news. A key time cycle comes in this week-end which could trigger an upside breakout so lean a little to the upside.
Grains are trading flat to lower. The rain has been beneficial for the December Corn crop which is putting pressure on prices. November Soybean traders are looking at the rain differently. They see a potentially bullish scenario developing because the rain is delaying planting.
Overall, the early gains in the equities are triggering demand for higher risk assets. Because of the triple-witch, watch for volatility. This may mean an early spike higher in the market and maybe a dull trade into the close. On the other hand, a flat market early could mean the volatility comes later.