Divergence Signal in Stock Indices could be Indicating Top
stock indices finished mixed on Wednesday. While the NASDAQ remained firm
throughout the day on the heels of strong earnings from Apple, the S&P 500
floundered because of weaker financial stocks. Traders are nervous over the
outcome of the proposed financial regulation bill before Congress.
Many traders feel that this weekâ€™s rally may have been too
much too fast which could be the reason behind todayâ€™s slow trade. The question
will be whether investors want to chase this market higher or wait for a
correction before entering.
June Treasury Bonds and Notes finished a little better.
Traders were watching the stock market and the situation in Greece for
direction. Gains were limited however because of the massive amount of debt in
the system. Unless stock market volatility increases, look for Treasuries to
continue to remain rangebound.
Both June Gold and June Crude Oil traded sideways to higher.
Downside pressure could be building on both of these contracts because of the
Selling pressure continued to drive the Euro down on
Wednesday. The outlook for the Euro remains bearish despite on-going meetings
between Greek officials and the IMF to find a solution to the growing sovereign
The June Euro was down all day in the New York trading session after trading lower
overnight. Another indication of lower prices to come was the widening of the
Greek 10-year Bond/German Bund Spread to 500 basis points. Investors are
continuing to ask for protection from a potential collapse in the Greek debt
Traders are becoming convinced that there is not enough
money available to help out Greece
in the long-run. Hedge funds continue to short the Euro in anticipation of more
borrowing by Greece
and despite another proposal from the EU/IMF to provide additional emergency
funds if necessary.
Throughout the day, talk was circulating that Portugal is close to a similar dilemma as Greece.
bonds are also selling off, indicating investor lack of confidence in this
countryâ€™s ability to contain its debt.
All of this is adding up to more pressure on the Euro.
The June British Pound closed higher after holding steady
most of the day. Government data released early Wednesday morning showed the
number of people claiming jobless benefits fell by 32,900 in March. This was
three times more than pre-report estimates and the sharpest drop since June
Overnight the Bank of England minutes were released. The
data revealed that the BoE members voted 9-0 to keep interest rates at
historically low levels, but that inflation was a concern. On Tuesday a report
was released showing U.K. CPI had risen to 3.4%. This percentage was almost
twice the target of 2.0%.After
providing stimulus for months in an effort to revive the economy, the BoE will
now have to figure out how to begin removing the stimulus to lower inflation
without upsetting the developing recovery.
The upcoming May 6th election remains a concern for U.K.
investors at this time which is helping to limit gains. Traders maintain that
the election is too close to call and that there is still a strong possibility
of a hung parliament. This could mean that without a majority in the
parliament, a plan to slash the U.K.
budget deficit may not be able to be implemented.
The weaker Euro helped weaken the June Swiss Franc.
Technically, this market is poised to breakout to the downside. Traders are
selling the Swiss Franc in anticipation of further intervention by the Swiss
The weakening U.S. equity markets helped to push
the June Japanese lower. Early in the trading session, this currency pair was
having trouble with a 50% price level at 1.0741. Wednesdayâ€™s weakness in the
stock market drove the Yen through this level as well as an uptrending Gann
angle that has held the market up since the 1.0588 bottom on April 2nd. Downside
momentum could take this market to 1.0697.
The June Canadian Dollar was underpinned early in the
session following Tuesdayâ€™s bullish announcement by the Bank of Canada that it
is going to begin hiking interest rates sooner than expected. The Canadian
Dollar rose to a new 22-month high overnight but weakness in the U.S. equity
markets and overbought conditions helped to push this pair lower by the close.
Traders feel this currency will continue to rise as long as
keeps interest rates low and because of the improving Canadian economy. The BoC
wants to act as early as June 1st in order to stem the harmful effects of
inflation. Aside from a few short-covering rallies triggered by the dumping of
higher risk assets, look for traders to continue to press the Dollar/CAD lower.
Long June Canadian Dollar traders should be careful because
of Wednesdayâ€™s closing price reversal top. This type of pattern can lead to a 2
to 3 day counter-trend break.
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