After an early morning
short-covering rally, U.S. equity markets resumed their sell-offs, and
are now selling close to their lows. Fallout from the SEC/Goldman Sachs
situation is the main reason behind the weakness in the U.S. equity
markets. Last weekâ€™s closing price reversal top in the June E-mini
S&P 500 was confirmed. This pattern sets up a potential break to
The current developing top formation appears to be the
worst threat to the bull market since it began in March 2009. Going
into Fridayâ€™s action, this â€śmatureâ€ť bull market had been struggling
despite better than expected earnings and an improving economy. Long
traders had been coming in everyday looking for a reason to sell and
may have gotten it with the Goldman news. This often happens in bull
markets because long traders look at the size of the rally and wonder
how the market is going to sustain itself if the buying stops because
of lofty price levels.
Traders should watch to see what happens
in the June E-mini S&P 500 following a test of 1171.00. A break
through this level will turn the main trend to down for the first time
since March 1st. A move through this level could set up an even steeper
decline to 1123.25.
The June Treasury Bonds and Treasury Notes
rallied late Friday in a flight to safety rally as equities and
commodities broke hard, but have been trading flat throughout Mondayâ€™s
session. Despite lower stocks and commodities at the mid-session,
however, the Treasuries have been unable to mount any serious
flight-to-quality rally. Conditions are ripe for the rallies in both of
these instruments to continue, but the huge amount of supply in the
markets may be helping to limit gains.
June Gold was under
pressure earlier in the trading session because of the stronger Dollar
but fought back to nearly unchanged as the Dollar gave back some of its
gains. Based on the last swing of $1086.10 to $1170.70, look for a
correction into a retracement zone at $1128.40 to $1118.40. Short-term
oversold conditions could trigger a technical bounce following a test
of this zone. The main trend remains up and the current move suggests
that this is only a correction but sentiment could shift if $1118.40 is
Jude Crude Oil is experiencing a technical bounce after
early weakness. The main trend turned down in June Crude Oil overnight
following a break through the last swing bottom at 83.75. In addition,
this market is currently breaking through a pair of uptrending Gann
angles. This could help further accelerate the break to the downside.
Overnight, there was a technical bounce following a test of 82.45. If
this price fails, look for more selling pressure. Regaining 83.43 may
trigger a short-covering rally.
The U.S. Dollar and Japanese Yen
posted strong gains overnight but profit-taking during the New York
session helped these markets pare their gains ahead of the mid-session.
rallies in these two currencies were triggered by aggressive selling of
risky stocks and commodities. Weaker equities, gold and crude oil sent
a message to traders that risk was going to be taken off the table in
the wake of the last weekâ€™s fraud lawsuit against Goldman Sachs by the
SEC. Investors have been moving money to less risky, lower yielding
currencies since Fridayâ€™s surprise announcement on speculation the
investigation may broaden.
The June Euro continued its slide on
speculation that Greece would have to tap its rescue loans to meet its
short-term obligations. The spread between Greek Bonds and German Bunds
continues to raise concerns that Greece is on the brink of collapse if
it canâ€™t service its debt.
The June British Pound was down
sharply overnight as concerns continued to mount about the possibility
of a hung parliament following the May 6th election. Investors are
worried that a virtual tie between the Labor Party and the Conservative
Party will mean that the next administration will have a difficult time
working out solutions to its current budget deficit crisis.
falling Euro helped send the June Swiss Franc lower early in the
trading session. Traders are raising concerns that the Swiss National
Bank will have to continue to intervene to protect the Swiss economy,
especially its exports.
Increased demand for lower risk assets is
helped to give the June Japanese Yen a boost overnight although
oversold conditions led to a fast short-covering rally in the
Dollar/Yen into the mid-session. Falling equity markets could lead to a
turnaround in the June Yen into the close.
The sharp sell-off in
gold and crude oil triggered a sizeable break in the June Canadian
Dollar at the mid-session. This break is most likely profit-taking
rather than fresh shorting. Tomorrow the Bank of Canada meets to
discuss monetary policy. The Canadian financial markets are indicating
that investors expect the BoC to lean toward increasing interest rates
as early as June 1st rather than the earlier speculated July 1st.