S & P Chart Formation Indicates Plenty of Room to Downside
The June E-mini S&P 500 turned the main trend down on
the daily chart on Tuesday signaling the start of a decline which could take
this market to a major 50% level at 1134.00.
markets broke sharply lower shortly before the mid-session after the S&P
Corp. cuts its debt ratings for Greece
The move signaled that the situation in Euro is worsening, thereby slashing
demand for higher risk assets.
June Treasury Bonds and Treasury Notes soared to the upside
following the stock market plunge. Yields fell hard and fast as traders bought
up Treasuries in a flight to safety rally. The action in the T-Bonds was fast
and furious. Upside momentum was strong enough to pierce a key .618 retracement
price at 118â€™06 as well as an old top at 118â€™12. The charts indicate there is
plenty of room to the upside as long as this market can hold above 118â€™06. The
catalyst behind any further upside momentum will be a sharp break in the stock
The stronger Dollar and weaker Euro helped to pressure June
Gold and June Crude Oil after the downgrade announcement, but gold has since
recovered and is now trading positively. Investors are buying gold as a hedge
against a collapse in the Euro. June Gold closed in a position to take out the
April high at $1170.70. A move through this level could trigger a fast
acceleration to $1200.00.
June Crude Oil plunged sharply lower on the prospect of
lower energy prices due to the lack of demand for higher yielding assets.
Traders are also beginning to believe that a collapse in the Euro Zone economy
will lead to a drop in demand for crude oil.
The U.S. Dollar was up substantially against most major
currencies with the exception of the Japanese Yen as demand for higher risk
currencies plunged following a downgrade of Greece
debt by the S&P 500 ratings company. Volatility is high at the moment and
could continue to remain high on Wednesday even though both the Federal Reserve
and Reserve Bank of New
Zealand are set to release their recent
The falling Euro helped drive down the June British Pound on
Tuesday. This news came on the heels of bearish economic reports overnight as
well as a shift in the polls which indicated no clear winner was emerging 10
days before the election. This uncertainty made traders nervous because it may
lead to a hung parliament which would curtail any attempts to fix the budget
deficit. The news that U.K.
retail sales were less than expected as well as lower than expected mortgage
approvals suggests the consumer may be cutting back on spending.
The June Euro made a new low for the year after plunging
sharply after the S&P Corp. lowered Greeceâ€™s
ratings to below-investment grade and cut Portugalâ€™s long-term ratings from
A+ to A-. The cut to junk status by S&P Corp, was another sign that
conditions were expected to worsen.Adding Portugal
to the mix indicated that the rating service believes the crisis is spreading
and the outlook remains negative.
From a technical perspective there is nothing to stop the
Euro from trading down to 1.3000 over the near-term. The last two times the
Euro made a new low for the year an announcement came out to trigger a
short-covering rally. This time no such announcement is expected so the Euro is
likely to accelerate to the downside.
What the S&P downgrade has effectively down was give
permission to the hedge funds to continue to aggressively short the Euro.It has also served as a warning to Ireland and Spain to get their finances in
order. Furthermore, the downgrade also signaled that the S&P Corp. was not
going to wait for the European Union and the International Monetary Fund to
reach a decision regarding the bailout package for Greece.
Hedge funds are most likely licking their chops over the
downgrade news. It seems at times they have taken heat for exasperating the
situation in Greece,
but with todayâ€™s downgrades, it appears their shorting activity has been
The announcements by the S&P Corp. sent U.S. stock
markets sharply lower while substantially lowering demand for higher risk
assets. Commodity linked currencies such as the Australian Dollar, New Zealand
Dollar and Canadian Dollar broke sharply lower on the news while demand for
lower risk assets drove the Japanese Yen higher.
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