Gains before and after economic reports under attack?

Technical indicators should take a back seat when fundamental data changes. Today’s data indicates that retail sales has not met growth expectations even when adjusting for lower oil and gasoline prices. The New York Empire report was very weak as well giving rise to additional concerns for the manufacturing base.

As such, if we look at technical conditions at this point, we need to look at them in the context of this new data and what has prompted recent price action.

With that said, fixed income price action rallied hard in front of this morning’s reports. They rallied even further following the reports. Subsequently however, prices have fallen. One of the things I like to look at is the ability of a market to sustain gains (losses). It is my first line of analysis in the area of determining trend strength. A trend is indeed defined by its ability to gain and hold new ground.

The gains since the weak economic reports have been relinquished and in many cases, contracts traded even lower than at the time the reports were released. This is an indication that the reports are being discounted or that they were already priced. Within the next three 10 min time periods following the reports, the gains made as a result of those reports and because of the underlying position, created an advance that has not held.

If a trader is inclined to risk today’s highs, he may have found a more significant turning point than any shown over the last 11 sessions of repeated price and open interest gains. Be mindful that there are additional reports today and Fed speak.

About the Author

Martin McGuire, managing director at TJM Institutional Services