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Morning Market Update

Bears Return After Quick Respite

Stocks are lower in early action despite a slight downtick in initial jobless claims, as traders question whether yesterday’s gains can be extended into any kind of meaningful rally. The jobs number is the only major economic release on the day, and comes ahead of tomorrow’s broader nonfarm payrolls report, which surprised economists last month by coming in well below expectations. In equity news, Dow member Kraft Foods reported better-than-projected 2Q earnings and revenue and announced plans to split into two separate public companies, while General Motors far exceeded the Street’s top- and bottom-line estimates on strong global auto sales. Elsewhere, CVS Caremark matched the expectations of analysts and DIRECTV posted higher-than-forecasted results on a jump in subscribers in Latin America. Stocks in Asia finished lower as the nation reacted to an intervention by the Japanese government to weaken the yen. Meanwhile, markets in Europe are moving lower, as the ECB and BoE both voted to leave target interest rates unchanged. Treasuries are higher to start the day, while the US dollar is moving higher.

As of 8:55 a.m. ET, the September S&P 500 Index Globex future is 16 points below fair value, the Nasdaq 100 Index is 32 points below fair value, and the DJIA is 156 points below fair value. WTI crude oil is $0.92 lower at $91.01 per barrel, while the Bloomberg gold spot price is up $15.58 at $1,677.30 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is 1.5% higher at 74.98.

Dow member Kraft Foods Inc. (KFT $34) announced 2Q earnings ex-items of $0.62 per share, above the $0.58 consensus estimate of analysts surveyed by Reuters, with revenues increasing 13.3% year-over-year (y/y) to $13.9 billion, versus the $13.15 billion that the Street had forecasted. The food company also raised its full-year guidance to at least $2.25 per share, up from $2.20 per share. Additionally, KFT announced that it would split into two separate publically-traded companies: a global snacks business and a North American grocery business. The company is looking to complete the process by the end of 2012, and will do so by spinning off the grocery business to its shareholders.

General Motors Co. (GM $27) reported 2Q EPS ex-items of $1.54, well above the $1.20 Street forecast, with revenues increasing 19% year-over-year (y/y) to $39.4billion, versus the $36.7 billion that analysts were looking for. The automaker attributed the solid quarter to stronger global sales and an increase in production of high-margin pickup trucks and SUVs in North America. GM said it expects profits in the second half of the year to be “modestly lower” than the first half, after earlier this week projecting that total industry sales for the year would be “in the low end” of projections.

CVS Caremark Corp. (CVS $36) announced 2Q adjusted earnings of $0.65 per share, inline with the Street’s forecast, with revenues jumping 11% y/y to $26.6 billion, roughly matching analysts’ expectations. The hybrid pharmacy retailer and benefit manager said sales in its pharmacy services segment rose 23.2% y/y, while revenue from its retail pharmacy segment increased 3.6% y/y. The company raised the low end of its full-year EPS outlook, citing continued confidence in the remainder of the year and incremental start-up costs from its new drug management business.

DIRECTV (DTV $49) announced 2Q earnings of $0.91 per share, versus the $0.85 that was estimated by analysts, as revenues grew 13% y/y to $6.6 billion, compared to the $6.54 billion that the Street expected. The company saw a solid jump in subscribers in the U.S. and Latin America, while revenue per subscriber grew 3% y/y.

Initial jobless claims move modestly lower

Weekly initial jobless claims dropped by 1,000 to 400,000, versus last week's figure which was upwardly revised by 3,000 to 401,000, and compared to the 405,000 level that economists surveyed by Bloomberg had expected. Also, the four-week moving average, considered a smoother look at the trend in claims, dropped by 6,750 to 407,750, while continuing claims increased by 10,000 to 3,730,000, above the forecast of economists, which called for continuing claims to come in at 3,700,000.

Treasuries are higher in early action, with the yield on the 2-year note down 2 bps to 0.32%, the yield on the 10-year note 6 bps lower to 2.56%, and the 30-year bond rate losing 8 bps to 3.83%.

Europe in the red as ECB and BoE leave rates unchanged

The equity markets in Europe are lower in afternoon action as traders are digesting interest rate decisions by the European Central Bank (ECB) and the Bank of England (BoE). The BoE kept its key interest rate at a record low of 0.5%, as economists expected, and also maintained its current monetary easing level at 200 billion pounds. Any speculation of a rate increase subsided last week after the UK reported a 0.2% growth in 2Q GDP, which was lower than expectations and below the 0.5% rate reported in 1Q. Meanwhile, the ECB also maintained its target rate at 1.50%, after raising its key interest rate by 25 basis points at the last policy meeting. Traders are paying close attention to the customary press conference that follows the ECB’s announcement, led by President Jean-Claude Trichet. The focus of the press conference is not only on whether the ECB will signal if further rate hikes are possible, but also on whether the central bank will take action to alleviate the debt crisis growing in Italy and Spain, including the possibility of reactivating the ECB’s bond buying program. Trichet took a slightly dovish tone at last month’s policy meeting, saying the central bank will “monitor very closely” upside risks to price stability. The only other economic release from across the pond was a larger-than-expected increase in German factory orders.

In European equity news, shares of Lloyds Banking Group PLC (LYG $3) are moving lower after the British bank reported a 3.25 billion pound ($5.3 billion) loss for the first half of the year, due largely to compensation paid to customers who were missold insurance. Excluding the compensation payments, the banks profits were in line with expectations and the company reiterated its full-year guidance.

The UK FTSE 100 Index is down 1.6%, France’s CAC-40 Index is 0.8% lower, Germany’s DAX Index is declining 0.8%.

Asia closes lower as Japan follows Swiss lead in currency intervention

The Asia/Pacific equity markets finished mostly lower, although Japan’s Nikkei 225 Index managed to gain 0.2% on news that the country’s government has intervened in the currency market to stem the yen’s appreciation. The Japanese government sold one trillion yen ($12.5 billion), while the Bank of Japan (BoJ) loosened its monetary reins by increasing funds available for purchasing financial assets from 10 trillion yen to 15 trillion yen. The BoJ cut short its scheduled two-day monetary policy meeting to announce the decision, and also voted to leave its benchmark interest rate at its current 0%-0.1% level. The intervention dropped the yen to a three-week low against the US dollar, and follows a similar move by the Swiss government yesterday. There were no major economic releases from the region, but there was some news from the equity front making headlines. Hitachi Ltd. (HIT $63), Japan’s largest industrial electronics firm, and Mitsubishi Heavy Industries Ltd. (MHVYF $4) are reportedly in talks to merge several operations related to social infrastructure, such as electric power and railways, according to a Nikkei newspaper. Meanwhile, in the land down under, Rio Tinto PLC (RIO $67) reported a 35% increase in first-half profit after the close of local trade, but the results missed the expectations of analysts, and the company announced a $2 billion expansion in its existing share buyback program. The Hong Kong’s Hang Seng Index slid 0.5%, South Korea’s Kospi Index dropped 2.3%, and Australia’s S&P/ASX 200 Index declined 1.3%, while China’s Shanghai Composite managed a 0.2% gain.

HOW TO FIND YOUR TRADING PERSONALITY

By Forex Coach Abe Cofnas

In evolving into a forex trader, one of the most important components, and one of the most neglected is the traders personality. The personality of the trader shapes the strategy as well as the results. It is impossible to separate emotions from the trade. This is a fact of life, and the challenge is to recognize your own personality, limit the risks associated with your personal style, and channel the emotional energy correctly. How can this be done?

A good beginning is to recognize your own personality as it pertains to trading. There are several personality types, and the field of psychology is devoting a lot of work to modeling what emotions are. In fact, an entire new field of computation psychology and artificial chemistry is working towards mapping how emotions result in behavior. But you don't have to wait until you are at the point where two drops of greed, mixed in a base of fear, results in the predictable market reaction. There is no doubt that the resulting trade is an emotional process that is quite complicated. To get a handle on how to use emotions, profile your own personality if possible. Translated to trading you can generate several categories.

Carl Jung, one of the great contributors to the field of psy- chology, introduced the concept of archetype, categories that profile types of behavior and personality. There are many ways to characterize personality, and there is no perfect personality for trading forex. Each personality has certain advantages and disadvantages. Here are some forex trading archetypes. Which one describes you?

Archetypes in Forex Trading - Which One Are You?

The Gladiator/Samurai - This person loves to trade even more than winning or losing. For this type of trader being in the action is the objective. We call it the gladiator type because gladiators had no fear of death and focused on the battle itself. A gladiator type of forex trader has the advantage of focusing on being committed to the trade without being frenetic about the result. The disadvantage of this personality is that it can lead to overtrading and unnecessary losses. Few
gladiators survive for long.


The Warrior - Loves trading but wants to win. Avoids trades that are not highly probable and has no allegiance to any one market.


The Gunslinger/Surfer - Relies on emotional and gut feeling to enter or exit a trade. This type of personality often likes to surf and jump from one trading opportunity to another.


The Sniper - Analyzes the market, takes the trade when the market moves only on the conditions that have been have specified. This trading style is similar to swing trading or waiting for a key support or resistance to be tested. Many people do not have the patience or the wisdom to be a sniper trader.


The Lamb - This kind of trader reacts to market moves by running with the crowd. When a lot of such traders come into the market it adds fuel to the momentum of prices and creates emotional contagion. This is a very risky trading style because very often the moment that the trader perceives the crowd behavior, it is too late and the price has been exhausted.


The Black Sheep - The trading behavior of this personality is con-trarian. The trader does not join the crowd but seeks an opposite opportunity. It takes courage to be a black sheep. But often it keeps the trader in the "black" in profitability. What makes forex exciting is that any of theses personalities can result in profitable trading. The forex market provides opportunities for trades that enable each personality style to be applied.