Stocks tread Water in Limited Reaction to Greek Fiscal Woes
stock indices traded in a tight, inside range despite potentially bearish
pressure from plunging higher yielding currencies and commodities. Either stock
traders clearly believe that the economy will benefit from the European
financial woes or bullish traders are being set up for a possible 8 to 10%
The June E-mini S&P 500 looks vulnerable to the downside
after failing to take out the high of the week at 1070.50. Although pressure
was mounting throughout the day to break this market, bearish traders failed to
trigger an acceleration to the downside as strong bids held this market up. If
this market is going to break then shorts may have used Wednesday as a day to
distribute more stock before the impending break.
The chart formation indicates that a break through 1146.75
will turn the daily main trend to down. The short-term downside target is
June Treasury Bonds closed sharply lower and changed the
main trend to down when it broke through 115â€™27. A 50% level was tested at
115â€™24, temporarily preventing an all out collapse. A break through this level
means 115â€™06 will be next.
T-Bonds weakened after several days of consolidation. While
the media likes to talk about the stock market as a leading economic indicator,
I have always maintained that Bond traders are the smartest investors in the
world, and the overnight developments in the bonds suggest that there is risk
out there despite what the equity markets are saying.
Pressure is mounting on the Treasuries because investors are
driving up yields in the face of the increasing risk of holding on to debt.
Everyone is issuing debt at this time from corporations to governments. Because
of the increased competition, investors are in a position to ask for and
receive the higher yields they desire. This should keep the pressure on T-Bond
The stronger Dollar drove down June Gold.Early in the trading session, this contract
broke the late February bottom at $1088.50, but failed to attract the heavy
selling pressure that had been anticipated. Although the initial reaction to
the news out of Portugal
is encouraging the shorts, if the situation becomes dire for the Euro once
again like it did several weeks ago, then look for gold to find support from
investors betting on the demise of the Euro. General demand for hard assets
will help underpin this market should the Euro collapse.
June Crude Oil closed lower after a government report showed
a larger-than-expected increase in domestic crude stocks last week. Additional
pressure came from the weaker Euro and stronger Dollar as traders sold off
higher risk assets. Losses were tempered by bigger-than-forecast drawdowns in
gasoline and heating oil stocks.
The main trend is down on the daily chart and this market
may be forming a secondary lower top. Should the Euro collapse further,
pressure could spillover to the energy complex. The charts are saying this
market is vulnerable to a correction to 77.28.
The U.S. Dollar Index rose to a new high for the year as
demand for the Greenback soared following an escalation of the fiscal problems
gripping the Euro Region economy.
Wednesdayâ€™s session began with the June Euro breaking
through its recent low at 1.3431 triggering a sharp plunge after Fitch
credit rating. Coupled with on-going concerns regarding efforts by Greece
to obtain financial aid from either the European Union or International
Monetary Fund, this latest development weakened the Euro throughout the day as
the EU began its two day summit to discuss various bailout proposals.
Tuesday night Fitch announced it had downgraded Portugal
one level to AA- and warned further cuts would be forthcoming unless the
country takes care of its ailing finances. Although this downgrade had been in
the market for weeks, Euro investors nonetheless applied downside pressure on
the thought that the other credit rating agencies, the S&P Corp. and
Moodyâ€™s, would reaffirm Fitchâ€™s assessment. Furthermore, traders reacted as if
this situation would spread to other sovereign nations as the European Union
continued to drag its feet amidst the already dire Greek outlook.
After closing the previous day off its low following the
news that France and Germany were leaning toward accepting a Greece
financial aid package from the IMF, the Euro weakened shortly before the Fitch
news on the notion that financial aid from an outside entity would appear to be
a weak signal from the European Union. This was almost a complete about face
from the scenario earlier in the week which helped push up demand for higher
yielding assets and currencies.
According to the recent CFTCâ€™s Commitment of Traders data,
short traders continue to control the direction of the Euro. Although efforts
have begun to curb excessive short speculation in the European single currency,
it looks as if bearish speculators are in control and have called the direction
of this currency precisely. Even if a financial aid agreement is reached, it
seems that the shorts will be reluctant to budge until there is clear evidence
and the other nations experiencing financial difficulties are well on their way
to solidifying their economies.
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