ECB Hikes 50 Basis Points

The European Central Bank was expected to raise by 50 basis points and the recent credit issues did not impact their decision.

PRE-OPEN MARKET COMMENTS THURSDAY – All eyes are on credit these days. Credit Suisse is likely to get aid from the central bank. It is important to know that Switzerland is not part of the ECB. If European banks issues start to surface, the bailouts and backstops are much different. The decision making is much more fragmented and the process takes much longer. That is a problem since credit issues escalate rapidly. The market will be focused on any new signs of trouble and the FOMC statement next week.  The ECB hiked 50 points this morning. They are behind on the tightening curve and they are playing catch up. The credit news did not impact their decision.

The Fed is likely to soften their tone next week. They are also going to calm the market and suggest that the credit issues are not going to cascade. It was just a few “bad actors”. The market will like the news, but Asset Managers will remain passive. They will wait a month or two knowing that if problems are going to escalate they will surface soon.

Swing traders are short SPY from the open yesterday ($385.70). We will hold this position with a closing stop at $393 and a target of $375.50. I plan to be out of this before the Fed and I want to avoid a possible relief rally. I do believe that trouble could be brewing.

Day traders need to be patient. The volume is good, but the action is choppy. Both sides are active. I do prefer the short side because I believe surprise favors the downside. When the market reaches an extreme and it spends time there, look for a reversal.

Support is at $380 and resistance is at $393.