Stocks Finish Lower; Markets May Settle Ahead of Jobs Data
stock markets finished sharply lower in expanded range trading. Traders were
reducing risks because of a multitude of factors including Euro Zone debt
issues, financial market regulation, the threat of international terrorism and
possible criminal action against Goldman Sachs. Despite Tuesdayâ€™s volatility,
market conditions could begin to calm ahead of this Fridayâ€™s U.S. Non-Farm
Tuesdayâ€™s action in the June E-mini S&P 500 reaffirmed
the main down trend while also confirming the weekly closing price reversal
top. This pattern usually suggests the start of a 2 to 3 week correction.
Downside momentum could take this market back to 1134.00 over the near-term.
June Treasury Bonds soared in a flight to safety rally.
Money left the stock market and traders dumped higher risk assets such as gold
and crude oil. This encouraged traders to seek safety in the lower risk, lower
yielding T-Bond. Traders are also taking protection against the possibility that
sovereign debt issues in the Euro Zone could surge to global proportions.
June Gold finished lower after an initial surge to the
upside. At first speculators were buying gold as they hedged against a possible
collapse in the Euro. Traders took profits as the market neared $1200 and the
U.S. Dollar soared. Technically, the closing price reversal top indicates more
downside action is likely. This type of trading pattern suggests that a break
to $1158.60 is likely over the near-term.
A drop in demand for higher risk assets and the possibility
that a slowdown in the Euro Zone would lead to lower demand for energy helped to
drive June Crude Oil lower. The 4.78% drop in price is a sign that this break
was triggered by more than profit-taking. The bigger picture suggests that a
correction to 79.17 to 77.18 is likely over the near-term. Losses could be
limited by the lingering problems in the Gulf with the oil spill.
The Dollar Index continued to soar on Tuesday as it touched
its highest level since May 2009. After spending April trading on both sides of
a monthly 50% level, the Index is now in a position to test the .618 price.
Based on the major monthly range of 89.62 to 74.17, traders should look for the
market to test 83.72 over the near-term. This market should continue to remain
strong as long at 81.90 holds as support.
The drop in gold, crude and equities helped to trigger a
break in the June Canadian Dollar. After building a distributive top throughout
April, this contract finally crossed a swing bottom at .9789 to turn the main
trend to down on the daily chart. Downside momentum indicates that .9705 is the
next downside objective followed by .9649. The weakening Canadian Dollar is
most likely pleasing to the Bank of Canada which hinted last week that a strong
currency is likely to have an impact on inflation and monetary policy. This led
this analyst to believe that the BoC was intervening to weaken the Loonie. Look
for the USD CAD to continue to strengthen unless there is renewed demand for
higher risk assets.
The June Euro traded sharply lower on Tuesday, reaching a
12-month low at 1.2993. Although a bailout agreement was reached by the Greek
government, the European Central Bank and the International Monetary Fund over
the week-end, bearish traders have shifted their focus to the growing fiscal
problems in Spain and Portugal.
Hedge fund and large traders continue to press the short-side, but the
technical bounce after briefly breaking the psychological level at 1.30 may be
an indication that this currency is ripe for a short-covering rally.
The sharp break in the June British Pound is an indication
that concerns are building that the U.K.
economy could face similar fiscal problems as Greece. The main concern among
investors at this time is the May 6th election. In my opinion, the election
outcome is expected to yield two results and both of them are bearish to the Sterling.
Firstly, recent polls suggest that the election is too close
to call. This means that a hung parliament is likely. A hung parliament results
when there is no clear majority winner following the election. If no majority
is in control of the parliament then it is highly unlikely that moves will be
made to shore up the U.K.
economy and budget deficit problem. If this occurs, then the British Pound is
likely to weaken because of the threat of a possible credit rating downgrade
and the possibility of sovereign debt default.
Secondly, even if a majority party is elected to parliament
and moves are made to try to fix the economy, the first move is likely to be
massive budget slashing. The Pound is likely to break further if the U.K. is forced to make austere financial cuts
just like Greece.
Mistimed budget cuts when the economy is in need of stimulus could set the U.K.
economy into a double-dip recession.
The weak Euro sent the June Swiss Franc sharply lower.
Traders expect the Swiss National Bank to intervene to defend its currency.
Based the 12-month range of .8222 to 1.0099, the market is now trading inside
the retracement zone of this range at .9161 to ..8939. Look for this contract
to continue to weaken as long as the high end of the range holds with the lower
end the next objective. The severely oversold Euro may trigger a short-covering
rally in the Swiss Franc. Aggressive traders have to be careful about chasing
this market higher.
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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
17:00 US- early Closes Mon 25 Dec
00:00 Christmas Holidays
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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