European Financial Problems Fuels Equity Market Sell-Off
stock indices sold off early in the trading session as fear swept through the
markets. News that Greeceâ€™s
budget problems could escalate along with Portugal sent traders into the
Dollar and Japanese Yen and out of higher risk assets. Lower than expected U.S.
economic reports also contributed to the weakness as traders liquidated
positions in anticipation of a slowdown in the economy.All three major indices reached major
retracement zones on the downside which softened the break and let to a strong
midday retracement. What appeared to be panic selling to some may have actually
been a normal retracement.
The March E-mini S&P 500 has formed a range between
1148.00 to 1078.50. This makes 1113.25 to 1121.50 a potential upside
target.The charts are also indicating a
possible rally to 1842.00 to 1855.50 in the March E-mini NASDAQ and to 10371 to
10445 in the March E-mini Dow.
Despite the near panic selling in the stock indices and an
increase in demand for safety, pressure remained on the March Treasury Bonds
and March Treasury Notes. This could mean that the stock break was emotional
rather than fundamental.
Yesterdayâ€™s Fed report signaled that it is getting closer to
hiking interest rates. The news that the Fed is ending its quantitative easing
program on schedule at the end of March is likely to put upside pressure on
yields. Tuesdayâ€™s closing price reversal top which started inside a major
retracement zone is helping to pressure the March Bonds. All indications are
for a possible break back to 116â€™06.
February Gold had a volatile day. Overnight the market
dipped lower, but then failed in an attempt to rally as the Dollar began to
strengthen shortly after the opening. The trend is up in the Dollar which
should keep pressure on gold, although oversold conditions make this market
ripe for a short-covering rally back to $1119.10.A break under $1075.20 could trigger an
acceleration to the downside. The bigger picture indicates that this market could
collapse another $50 to $100 if speculators decide to liquidate positions.
March Crude Oil found support overnight ahead of the
December bottom at 72.53. The test of this price encouraged shorts to cover
positions while attracting bottom pickers. The fundamentals are still bearish
because of low demand and higher inventories. Renewed interest in higher risk
assets could trigger a short-covering rally however.The charts indicate there is plenty of room
to the upside with 78.99 a potential upside target.
The Japanese Yen rose on Thursday as investors shifted
assets out of the troubled Euro Zone on renewed budget turmoil in Greece.A spike in the cost to insure Greeceâ€™s
sovereign debt triggered a flight to safety rally which fueled a turnaround in
the Yen after earlier weakness.News
that a similar situation is developing in Portugal also contributed to the
Yenâ€™s strength.The Euro fell to it
lowest level against the Dollar as the news broke.
Traders had been cautiously removing risk from the Euro the
past couple of days after a report earlier in the week showed great interest in
a possible bailout bond issuance from Greece. Todayâ€™s action indicates
that the situation is growing worse and that the Yen may soar at the expense of
the Euro over the short-run.
After trading relatively flat in the hours before the New York opening, the
U.S. Dollar strengthened close to midday as investor sentiment shifted back
toward safety.Late yesterday and
overnight, the Dollar appeared to be ready to weaken as demand for higher risk
assets began to pick up following upbeat news from the Fed and a well-received
speech from President Obama.
Shortly before the New York
opening, news began to leak about Greece
debt concerns causing the U.S.
stock market to sell sold off.The
release of less than stellar U.S.
economic reports triggered additional selling pressure as investors pared
equity market positions in anticipation of an economic slowdown. This rattled
traders who then began selling higher price assets while seeking safety in the
lower yielding U.S. Dollar and Japanese Yen.
The March Euro traded under pressure throughout the session
while taking out sell stops under the psychological 1.40 level. Todayâ€™s selling
pressure was been triggered by news that Greeceâ€™s budget woes have
resurfaced, sending the price to insure its debt against default to a new
high.For several days, traders had
become complacent while under the belief that a new bond issuance would make
the Greek debt problems go away.1.3800
remains the most likely downside target.
The British Pound is traded lower but remained inside of its
five day range. Itâ€™s hard to tell at this time which direction investors
prefer.Fear, and demand for lower risk
is likely to drive the market lower. Renewed confidence in the economy could
limit losses or fuel the start of a rally.
Demand for safer assets helped turnaround the March Japanese
Yen, erasing earlier losses. During the wee hours of the morning, the Dollar
was rallying versus the Yen after completing a 50% retracement and a closing
price reversal bottom. The catalyst for the rally was an upbeat statement by
the Fed and optimism generated by Obamaâ€™s speech. A sell-off in U.S. equity markets and budget problems in Greece and Portugal, however, sent traders scrambling
for safety, sending the Japanese Yen higher. This currency pair is probably the
best indicator as to how bad the situation is between Greece and the Euro Zone.
Oversold conditions and profit-taking helped to underpin the
March Canadian Dollar early but the sell-off in U.S. equity markets changed risk
sentiment, triggering an intraday reversal. Look for the Canadian Dollar to
feel pressure as long as investors continue to shun risk. Lower crude oil and
gold also contributed to the weakness in the Canadian Dollar.
The March Swiss Franc was never able to get on track after
an overnight break took this market through the December low at .9522.A new main top has been formed at .9647.This market is rapidly approaching oversold
status and could begin a correction at any time. Watch for a closing price
reversal to signal the formation of a bottom. Weakening gold and the
possibility of an intervention by the Swiss National Bank are the fundamentals
driving this market lower at this time.
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Mon 18 Dec
10:00 EZ- final HICP Tue 19 Dec
09:00 DE- IFO Survey
13:30 US- Housing Starts/Permits
13:30 US- Current Account Wed 20 Dec
15:00 US- Existing Homes Sales
15:30 US- EIA Crude Thu 21 Dec
03:00 JP- BOJ Decision
13:30 CA- CPI & Retail Sales
13:30 US Weely Jobless
13:30 US- GDP Fri 22 Dec
09:30 US- GB- GDP
13:30 US- core PCE Deflator & Presonal Income
15:00 US- New Homes Sales
15:00 US- final University of Michigan
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Potential Trading Opportunities
POTENTIAL PRICE RISK: Medium Mon--10:00 GMT-- EZ- final November HICP. flash data are rarely changed.
POTENTIAL PRICE RISK: HIGH- Medium Tue --09:00 GMT-- DE- IFO Survey. Key report but usually not a market-mover
POTENTIAL PRICE RISK: HIGH- Medium- Tue --13:30 GMT-- US- Housing Starts and Permits. Leading indicators of activity
POTENTIAL PRICE RISK: HIGH-Medium- Wed --15:00-- US- Existing Homes Sales. Top Housing statistic
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