Wednesday January 20, 2010 - 19:25:23 GMT
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Stock fall as Investors Shun Higher Risk Assets
U.S. equity markets are trading lower as investors dump higher risk
assets. The weakness started on the Shanghai Exchange overnight after
China asked banks to stop lending for the rest of the month. This sent
a signal to traders that the easy money environment will be coming to a
close. Investors are reacting as if the news from China will curtail
the global economic recovery.
Last night IBM reported strong
earnings but this news couldnâ€™t carry the market. This morning, IBM is
leading the Dow Jones Index lower. Investors may have been standing
aside while awaiting the special election results from Massachusetts.
The news that Republican Brown defeated the Democratic machine could
pressure healthcare stocks, but insurance stocks may benefit if the
current healthcare plan gets defeated.
The stronger Dollar
indicates that investors are looking for lower yields and safety. This
should continue to weigh on higher yielding, higher risk assets like
March Treasury Bonds and Treasury Notes are trading
higher. Traders are driving down yields as they seek shelter from
falling equity markets. If safety remains the theme throughout the day,
then look for more appreciation in bonds and notes. Look for a late
afternoon test of a downtrending Gann angle at 118â€™10.
Gold is down sharply. Stronger demand for the Dollar is putting
pressure on gold. Both a retracement level at $1119.10 and an old main
bottom at $1118.50 failed to hold and the market plunged further to a
.618 level at $1108.80 before finding some light support at $1106.80.
News that China is asking banks to limit loans could mean the end for
excessive demand for precious and industrial metals.
Oil failed to follow-through to the upside after Tuesdayâ€™s closing
price reversal bottom. The pattern hasnâ€™t been negated, but there
doesnâ€™t seem to be enough buying power to confirm a valid bottom.
Currently this market is trading inside a retracement zone at 78.99 to
77.70. A slowdown in demand from China could put additional pressure on
this market today. 76.00 is the next potential downside target.
U.S. Dollar is continuing to push toward new highs at the mid-session
against most major currencies as investors seek refuge in
lower-yielding currencies following the announcement by China that it
was asking banks to curb lending for the rest of the month.
attempt to reign in bank lending is an attempt to put the brakes on a
massive lending spree in an effort to cool the economy. The
availability of easy money through government stimulus and favorable
loan conditions helped fuel a huge surge in the Chinese economy. The
pace of the growth is a concern for central bank officials. Tomorrow,
China is expected to report double-digit 4th quarter GDP growth.
Dollar is also receiving a boost from the election of a Republican to a
key U.S. Senate seat in Massachusetts. This event is bullish for the
Dollar because some feel it may signal an end to excessive government
spending that has been weakening the Greenback.
of Chinaâ€™s aggressive tightening action along with the Republican
victory is boosting the Dollar while putting pressure on equities and
The March Euro continued its freefall on concerns
over Greek budget issues. Overnight the move accelerated to the
downside after International Monetary Fund Managing Director Dominique
Strauss-Kahn said Greeceâ€™s debt woes are â€śseriousâ€ť. Without any aid
from the European Union, or the European Central Bank, look for
Greeceâ€™s debt issues to continue to mount.
have stood there ground about providing financial help to Greece,
saying that it is not their problem to solve. They also fear that
providing aid will mean other countries such as Spain, Portugal and
Ireland will begin lining up with their hands out in expectations of
Technically, the March Euro broke through the
December bottom at 1.4217, reaffirming the down trend on the weekly
chart. The chart indicates that 1.3800 is the next major downside
target, although 1.4000 may provide some psychological support. At this
time, it looks as if the only event that can turn the Euro around will
be if the EU or ECB provides help to Greece.
The March British
Pound is trading sharply lower at the mid-session after support failed.
Overnight Bank of England Governor Mervyn King issued a dovish comment
about Tuesdayâ€™s higher than expected inflation report. Earlier losses
were limited, however, after a report showed that the U.K. unemployment
rate fell at the fastest pace since April 2007 in December.
the British Pound failed to form a closing price reversal top on
Tuesday, it sold off, nonetheless, when a 50% support price at 1.6355
was violated. The chart indicates that 1.6175 is the next downside
Overnight the BoEâ€™s King said that Tuesdayâ€™s reported
spike in inflation was a short-term event and not likely to last. The
cause of the surge in inflation was most likely the additional stimulus
the BoE added in late Fall.
Chinaâ€™s order to reign in bank
loans is likely to slow down the growth in the global economy and put
pressure on higher yielding assets. This should help to put upside
pressure on the March Japanese Yen, but so far trading has been
lackluster and sideways.
The Japanese Yen is at a critical
point on the charts. Although Tuesdayâ€™s closing price reversal top was
confirmed by a follow-through break last night, the lack of
follow-through to the downside should be a concern to the bears.
Traders seem to be indecisive about which way to play the Japanese Yen.
March Swiss Franc continued to break after it broke through a key
retracement price and an uptrending Gann angle. The break in the Euro
is making Swiss central bankers nervous which could lead to a surprise
On Tuesday, the Bank of Canada left interest
rates unchanged, but took measures to weaken the Canadian Dollar by
increasing its asset-buyback program. Weaker stocks, gold and crude oil
could put additional pressure on the Canadian Dollar.
a new main range has been formed in the USD CAD at .9303 to .9780. The
first downside target of this range is .9510. A breakdown under this
level will trigger a further decline to .9461.
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