Looking For a Quiet Day

With the Treasury market closed in observance of today's Columbus Day holiday, a lot of investors are away from their desks.  As a result, volumes should be pretty light throughout the session and price action likely meaningless.  That said, Q3 earnings reports are beginning to trickle out at a steady pace now, so the market will likely begin transitioning from an economic data driven trade to a more earnings performance focus.  To an extent, this process has begun as positive releases from Aloca, Nike, and Bed Bath & Beyond have added fuel to the recent rally.  However, the release of Q3 (fiscal Q4) earnings from Intel tomorrow and J.P Morgan on Wednesday will go a long way to showing just how far the market has moved in this transition. 

For what it's worth, I don't expect any kind of blow out number from Intel tomorrow for a couple of reasons.  First, last quarter's performance saw the firm's operating margins at an all time high, which will be very difficult to replicate on a consecutive quarter basis.  Second, about two weeks after its earnings conference call last quarter, the company released a statement that took down the overall earnings and economic outlook that they had discussed on the conference call.  To me, this swift change in outlook suggests that things slowed markedly during the quarter.  This is in keeping with much of the economic data we've seen over the past few months and part of the reason why the Federal Reserve is considering another round of monetary stimulus.  If I'm right about the equity market's shift in focus and softer Intel earnings, the back half of the week sets up for weakness.  And with the S&P 500 presently sitting near overhead resistance, the technicals, in my view, support a sell off of sort sort.

Although today's action should prove pretty mundane, I'll be keeping an eye on the Dollar Index.  After closing the week at 77.18, the index now sits at trend line support and is in danger of breaking down further.  If this trend line support does not hold, there is risk all the way down to the 74.25 level.  I my view, support is likely to hold for now.  However, Fed commentary will prove to be the wild card for the Dollar.  With so many people now viewing Fed intervention as a certainty, any deviation from expectations could have a dramatic effect on the Dollar's trend, with most of the risk lying on the upside.  As such, I would be more inclined to buy the Dollar in here rather than hold on to a short position.  I tend to the use the Powershares U.S. Dollar Index Bullish ETF (UUP) for this type of exposure, so check it out if you're interested.

Until later......