Stocks Slightly Lower Ahead of Opening after Choppy Overnight Trade
stock markets are called slightly lower this morning after a choppy overnight
trade. Today could be another day of risk reduction as traders are still being
influenced by a multitude of factors including Euro Zone sovereign debt issues,
new financial market restrictions, the threat of international terrorism and
possible criminal action against Goldman Sachs. The range may be limited,
however, as traders may begin to cut back on trading 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. Short-term oversold
conditions could trigger a short-covering rally before the downtrend resumes.
June Treasury Bonds are up overnight after soaring in a flight to safety rally
on Tuesday. Money could leave the stock market once again if traders continue
to dump higher risk equities. Additional pressure may come from funds leaving
gold and crude oil. Traders are seeking protection in the lower risk, lower
yielding T-Bond as sentiment has shifted out of higher risk assets. Traders are
also taking protection against the possibility that sovereign debt issues in
the Euro Zone could surge to global proportions.
June Gold is trading lower overnight following Tuesdayâ€™s closing price
reversal top. Earlier in the week, 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 break
equities could help accelerate gold to the downside as traders will be forced
to sell the metal to meet margin calls.
A drop in demand for higher risk assets and the possibility that a slowdown
in the Euro Zone economy will lead to lower demand for energy is helping to
drive June Crude Oil lower. The 4.78% drop on Tuesday 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 rally overnight, touching 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 June British Pound is trading better overnight as investors increased
bets on a victory for the Conservative Party. No matter how the election pans
out, traders are counting on the new government to mount a steady attack on the
countryâ€™s huge budget deficit. This may mean the implementation of new taxes
and austere cost slashing. U.K.
voters realize that either a Conservative Party or Labour Party victory will mean
aggressive action will have to be taken in order to avoid the same fate as the
Euro Zone economies. Last week, both the S&P and Moodyâ€™s credit rating
agencies said that a debt rating cut is likely depending on how the new
government chooses to attack the countryâ€™s fiscal problems.
Technically, the British Pound is trading inside of a retracement zone at
1.5163 to 1.5078. Additional support is being provided by an uptrending Gann
angle at 1.5087. The main trend is down, but this market appears ripe for a
short-covering rally. A move above 1.5163 will indicate strength. Look for a
possible acceleration to the downside if 1.5078 fails to hold as support.
Weaker gold, crude and equities are helping to trigger further weakness in
the June Canadian Dollar. After building a distributive top in April, this pair
finally crossed a swing bottom at .9789 to turn the main trend to down on the
daily chart. Downside momentum indicates that the March 26th bottom at .9705 is
the next downside objective followed by a 50% level at .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 Canadian Dollar to continue
to weaken unless there is renewed demand for higher risk assets.
The June Euro continued to trade lower overnight, reaching its lowest level
since February 2009. 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. Short-term
conditions are oversold, but there is no indication of a let up in the selling
pressure. This type of formation typically ends with a closing price reversal
bottom. Traders should start watching the 60-minute chart for clues as to
whether bearish conditions are getting ready to shift.
Tomorrow the European Central Bank will hold a meeting. Traders expect
interest rates to remain unchanged. The policy statement is expected to address
that fact that rates will remain low for an extended period of time as the Euro
Zone will need time to sort out its financial mess. ECB President Trichet is
also expected to address the problems in Greece,
Portugal and Spain. In his
after meeting speech, he is most likely going to try to boost the confidence in
The weak Euro is sending the June Swiss Franc sharply lower. Traders
continue to 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 pair 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 lower.
The lack of follow-through to the downside in the U.S. equities markets is helping to
pressure the June Japanese Yen. A turnaround in demand for higher yielding
assets is likely to put pressure on the June Japanese Yen with a move through
the former bottom at 1.0558 likely. The daily chart indicates that a break
through a downtrending Gann angle at 1.0623 is likely to be the first sign of
strength and could lead to an acceleration to the upside. A resumption in stock
market selling pressure should be the catalyst for this break.
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