Futures Back Down After Monday Squeeze

US stock futures point to a lower open Tuesday, giving back some gains from yesterday’s strong rally into the upper level of the current range. The market opened higher Monday amid relief that Hurricane Irene did not produce more catastrophic damage along the East Coast, and continued higher all day. Today, traders will be on the lookout for consumer confidence, as well as minutes from the latest FOMC meeting.

Yesterday’s action represented a big short squeeze, but this time around the bulls couldn’t keep the full court press on. Volume was very light yesterday, which can likely be attributed to transportation issues in the Northeast following the hurricane. Still, expect volume to be light this week and perhaps for the action not to have that much bearing on the intermediate-term direction of the market.

Economists are expecting a sharp drop in consumer confidence, from 59.5 in July to 51.9, so that will be an interesting tidbit to keep an eye on this morning. Deteriorating economic data was one driver of the steep drop we saw in early August. With no Fed programs supporting asset prices and a stuttering recovery, the jury is out on whether the market’s low for the year is in, despite yesterday’s squeeze.

On a stock specific front, Apple Inc. (AAPL) continues to show relative strength following the resignation of Steve Jobs. It appears that most investors have not been to troubled by the iconic leader’s exit. Many had long-held fears over a ‘Steve Jobs crash’ in the stock on the day he quit or passed, but those fears never came to fruition. With that cloud of uncertainty now lifted, the stock is looking poised to make 52-week highs in the near future.

The banks will also continue to be key to the action. Last week Warren Buffet’s $5 billion investment in Bank of America Corp. (BAC) resuscitated a lifeless sector. Confidence is a crucial ingredient for success in the banking industry, and Buffet’s decisive hand provides that. In another move aimed at shoring up its capital base, BAC yesterday announced it would sell half its stake in China Construction Bank for about $3 billion. BAC gained more than 8% on the day following that news. Be careful with the banks, however, as major issues still exist and BAC’s actions prove that the company harbors concerns about capitalization.

Overall, this is not a week to get aggressive as volume will continue to peter out as we approach Labor Day weekend. Traders may have unusual expectation for volatility this week given the type of August we have seen, but we should start to see at least some range constriction.

By: John Darsie

Disclosure: Evan Lazarus has no positions

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