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How about a $15,000.00 Mini Dow?

Leslie Burton
In Indices Futures | Market Analysis
by Leslie Burton at 12:18 pm on April 3, 2013 - [edit]

The Dow Jones Industrial Average contract is the market weighted average of about 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. It was introduced by Charles Dow back in 1896 as the first real indices. Other indices have since expanded with high volumes and extreme popularity. The E-Mini contracts for the Dow were introduced in 1992 as an appealing contract to allow the small speculator to trade in the global marketplace. The E-Mini Dow or YM is $5.00 for each 1.00 index point move. There are four contract months traded in the futures; March-H, June-M, September-U and December-Z. The options are offered as serial options that trade all 12 months and are exercisable into the nearby futures contract.

The E-Mini Dow has been defying gravity as the top is still not in. There have been no major retracements and the market has virtually shrugged off all the Euro Zone fears of a break up or a bank run. The market is focused on the US recovery although the Fed stimulus had fed the rally for the most part.

  • Today’s Factory Orders report came in at 3.0 %, while the previous reading was -2.0 % and expectations were set for 2.9 %.
  • The ICSC-Goldman Store Sales for the week of March 30th was 4.7 % while the previous reading was -1.7 %.
  • The Redbook Store Sales was 3.5 % while the previous reading was 2.6 %.

While the ESM13 is trending higher and may run to $1600.00, it is vulnerable to a reversal as this week is filled with reports such as our monthly unemployment report on Friday.

  • The US PMI Manufacturing Index came in at 54.6 while the previous reading was 54.3. Of course, any number over 50 points to expansion. Output is at 56.6. Employment is 54.6.
  • The ISM Manufacturing Index came in a disappointing 51.3 while the previous reading was 54.2 and the forecast had been 54.0. This was the blemish in this week’s data attributed perhaps to cuts in Federal spending that may impede expansion to a certain degree.
  • The Construction Spending for February increased 1.2 % to an increased $885.1 billion rate while the previous reading was -2.1 %.
  • In housing, the outlays increased 2.2 % to a $303.4 billion annual rate. The private business projects such as the construction of power plants and health-care facilities increased 0.4 %.

The US is also experiencing a shale boom in Pennsylvania and other states, increasing the construction of companies such as Dow Chemical Co. and Fluor Corp.

  • Last week, the US GDP came in at 0.4 % while the previous reading was 0.1 % last month. Expectations were more for 0.6 %.
  • Wednesday, we look forward to the ADP Employment Report for March at 205,000 while the previous reading was 198,000.
  • The ISM Non-Manufacturing Index is forecast at 56.0 unchanged from the previous reading.
  • Thursday, we look forward to the Initial Jobless Claims forecast at 350,000 while the previous reading was 357,000.
  • Friday, is the big monthly employment report with forecasts at 193,000 while the previous reading was 236,000. The Unemployment rate is forecast to remain at 7.7 %. The average work week is forecast at 34.5 hours unchanged. The private payrolls is forecast at 200,000 while the previous reading was 246,000.
  • The US International Trade Balance Level is forecast at -$44.8 billion while the previous reading was -$44.4 billion.
  • The Consumer Credit for February was forecast $15.0 billion while the previous reading was $16.2 billion.
  • The next Federal Open Market Committee meeting is slated for April 30th – May 1st.

499 of the Standard & Poor’s companies reported as of March 28th with 323 or 64.73 % exceeding expectations. The US government gave Medicare Advantage insurers raises of 3.3 % instead of cuts as previously thought.

  • Humana (HUM) was up 5.96 % to $79.49.
  • UnitedHealth Group (UNH) was up 4.70 % to $61.74.
  • Ebay (EBAY) was up 0.70 % to $56.108 after Canaccord Genuity Corp. upgraded the stock to buy.
  • Google (GOOG) was up 1.54 % to $$813.55 for April fool’s day introduced a smell based search engine (lol).

The Chicago Board of Options Exchange Volatility Index, the VIX decreased 5.89 % to 12.78. US companies begin the earnings season for first quarter to begin April 8th with Alcoa (AA). The companies of the S&P 500 are forecast to decline 1.9 % for the quarter.

US President Barack Obama will present his Fiscal 2014 Budget to Congress on April 10th! This was delayed by two months as the deadline was initially February 4th. The automatic budget cuts are in place, but President Obama has selected projects that may present as increased need for more revenue such as improvements in public roadways, education and clean energy programs. He is also attempting to dedicate more funds to research on health issues connected to diseases of the brain.

The President will also be attempting to bring up the minimum wage from $7.25 per hour to $9.00 per hour. He may also propose a chained Consumer Price Index which may be impeding any Social Security benefit increases. Medicare may be another area to tap for the President by reducing Medicare spending by $140 billion over the next ten years through reductions from the providers themselves. Charges for Medicare may also increase with the higher income seniors. US Federal Chairman Ben Bernanke diffused charges of the loose monetary policy adding to a potential currency war. He felt that the stimulus is enriching the expansionary policies of other countries to stabilize their own currencies. He insists that the industrialized nations are not using the valuation of their own depressed currencies to gain any trade advantage over other countries. The $85 billion in monthly bond purchases by the Fed remain in place. Fed members have said that they would like to see 300,000 newly created jobs for a couple of months in a row before they would even think any monetary policy changes. The Fed Funds Rate remains at 0 to 0.25 %. This is supposed to be in place until US unemployment would fall to 6.5 % and/or inflation increased to 2.5 %. For now, inflation remains and is forecast to remain at 2 % or below for 2013. Analysts are forecasting the unemployment average for 2013 to be about 7.3 % to 7.5 % at year’s end and in 2014 to be about 7.2 %. The growth rate is projected at 2.3 to 2.8 % this year and 2.9 to 3.4 % in 2014. The Fed said that they may consider raising interest rates in 2015. The Fed sees downside risks stemming from the Euro Zone, but seems rather positive about a US recovery. This is a stimulus fed marketplace fueling the housing, consumer spending , business spending and business consumption. China perhaps has tightened up on its monetary policy as of late. The Organization of Petroleum Exporting Countries (OPEC) is to perhaps cut the crude shipments next month as it is a seasonal function of the refineries to schedule maintenance work. This maintenance may take place April and May and the OPEC nations include; Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia and Venezuela. The next OPEC meeting is scheduled in May.

Cyprus has finished the bailout talks locking in a $10 billion euro loan until 2018 to hold together the small indebted country. The next meeting of finance officials is scheduled for April 4th. The European Union statistics reported that the Euro Zone unemployment was increased to 12 %. The (PMI) manufacturing in the Euro Zone decreased to 46.8 last month from the previous reading of 47.9. Businesses in the Euro Zone are focused on trimming expenses that they are literally cutting jobs rather than trying to build production. Europe was on holiday Monday for Easter Monday! The risks from Europe have benefited the US Treasuries and the US Dollar as of late. The banks in Cyprus reopened last week with a very orderly, modest group seeking withdrawals. This renewed confidence in the system. The people of Cyprus simply organized their budgets to hold until the banks opened their doors again. There was no run, no large group gathered to enter the banks upon the open. The small country is still expected to contract by 3.5 % or more in 2013. The troika, made up of the International Monetary Fund (IMF), the European Commission (EU) and the European Central Bank (ECB) had agreed to lend Cyprus the $10 billion euros contingent on the liquidation of the 2nd largest bank (Cyprus Popular Bank Pcl) and the imposed losses of depositors with holdings in excess of $100,000 euros in their accounts. Cyprus President Nicos Anastasiades and the Euro Zone leaders have agreed on a rescue package to ensure the solvency of the banks. The $10 billion euro bailout was secured as Cyprus agreed to levy deposits of more than $100,000 euros in the two largest Cypriot banks ( Popular Bank of Cyprus or Laiki Bank and Bank of Cyprus). Contagion still remains a risk. The European Central Bank has kept Cyprus afloat for months now and the country remains supported. The Russian holdings are estimated at about $31 billion. To impede any potential run on, the Cyprus banks have government restricted withdrawals to $300 euros per day and transfers abroad. Time deposits and check cashing have also been restricted. Credit card and debit card limits were set at $5,000.00 euros per person, per month. The restrictions are supposed to be set for a week to curtail excessive withdrawals. Cyprus President Nicos Anastasiades will be conducting an investigation to see if any criminal activity may have contributed to the downfall of the Cyprus banks. The Cyprus banks actually at certain points looked to be a hot spot for wealth. Insured deposits would fall under the $100,000 euro mark. There is about $68 billion euros in Cyprus banks out of that, $38 billion are made up of deposits exceeding $100,000 euros. European Central Bank President has reminded the Euro Zone that the country may be a small one but the systematic risk may not be. The country has been viewed as a potential money laundering island. The Euro Zone still remains vulnerable to a break-up. The Euro FX may continue to slide to about $1.2300 with some retracements at intervals.

June YMM13

The E-Mini Dow (June) remains in a bullish stance unless $14,352.10 is penetrated. We look to the volume to decrease to determine when the market buy side may potential dry up. We also realize that the US unemployment report, nuclear advances by anti-American groups and a Euro Zone break-up could impact the trend of this market. Without any adversity, this market could potentially advance to $15,000.00. It is likely that the “Sell in May and go away” seasonal trend may create the market to top off sooner than anticipated such as $14,780.00.

If you have any questions, feel free to contact Leslie Burton. She will be more than happy to help.

Learn to Trade the E-Mini S&P 500 – experience hands-on instruction in a virtual classroom.

Best regards,

Leslie Burton
Senior Market Strategist
Daniels Trading
(877) 224-1952 / (312) 706-7648
(312) 706-7548 FAX
lburton@danielstrading.com
100 South Wacker Drive, 1225
Chicago, IL 60606

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