U.S. Stocks Strengthen as Demand for Risk Picks Up
equity markets are called higher this morning in follow-through buying
following Mondayâ€™s strong finish. Stocks were under pressure at the mid-session
yesterday but mounted a strong short-covering rally into the close. The turnaround
to the upside in the Euro was the catalyst behind the rally. The June E-mini
NASDAQ managed to close higher with the Dow and S&P 500 trailing closely.
Pressure has been on the equity markets lately because of
investor concerns about weakness in the Euro Zone and the possible negative
effects it may have on future corporate profits. Early in the session on Monday,
the June E-mini S&P 500 tested a key 50% level at 1115.50. This price
remains important support followed by 1101.50. Although downside momentum took
the market through this price level, the mid-session recovery after the test of
this price helped trigger a short-covering rally into the close.
Based on the June E-mini short-term swing of 1174.75 to
1112.75, traders should look for a retracement to 1143.75 to 1151.00 before new
selling takes place.
If traders can set aside the activity in the Euro today, the
focus will shift back to economic data. Today investors have a chance to react
to inflation, housing and key earnings reports. Earlier this morning, Home
Depot reported a first-quarter jump of 41% on margin and sales growth. This
number beat analyst estimates. Later this morning, Wal-Mart Stores is set to
report. This report will give traders a clue as to how the consumer is
The turnaround in the equity markets is helping to keep the
June Treasury Bonds in a tight range. Overbought conditions and oversupply
could be other reasons for the flat trade. Retracement zone resistance is at
122â€™05 to 122â€™22. This area stopped the rally on Monday. The daily chart
indicates that a move to 119â€™12 is possible over the near-term. Earlier this
morning it was reported that China
returned to the Treasury markets after being absent for a few months. This news
helped provide a little support. In addition, China
has reportedly regained its position as top purchaser of U.S. debt.
The firmer Euro is helping to drive June Gold lower
overnight. Mondayâ€™s inside day indicated impending volatility, while last
nightâ€™s action confirmed last Fridayâ€™s closing price reversal top. The chart
pattern suggests that this market could correct back to $1203.00 to $1192.00.
With the main trend up, watch for a technical bounce inside of this zone.
The stronger Euro and oversold conditions is helping to
boost the June Crude Oil contract this morning. Based on the short-term range
of 87.15 to 69.20, traders should watch for a short-covering rally to take this
market back to 78.21.
This morningâ€™s rally in crude oil is purely a technical play.
Fundamentally, traders still feel a slow down in the Euro Zone economy will
lead to a slow down in demand.
Oversold conditions and the lack of fresh bearish news are
helping to support the June Euro overnight. Fundamentally, nothing has happened
overnight to change the minds of traders. Investors are still concerned that
the European Union is not doing enough to fix the financial problems in the
Euro Zone. The lack of confidence in the European Union continues to remain the
major reason behind the selling. Investors want clarity not just ideas from the
EU. This would include the implementation of new austerity measures by the five
countries at the center of the financial problems: Portugal,
Italy, Ireland, Greece
Technically, the Euro confirmed the daily closing price
reversal bottom at 1.2233. This should trigger the start of a 2 to 3 day rally
or a move back to 1.2787 to 1.2918. A rally into this zone will not be a change
in trend, but is likely to attract fresh selling pressure.
The June Swiss Franc posted a daily closing price reversal bottom
on Monday and confirmed the pattern overnight. This type of formation sets up a
possible correction back to .8952 to .9002 over the next 2 to 3 days. The
direction of the Euro will dictate the movement in the Dollar/Swiss.
The recent divestment out of the Euro has been putting
strong appreciation pressure on the Swiss Franc. The Swiss National Bank fears
that continuous selling pressure will hurt price stability and put the Swiss
economy at risk. The main concern is damage to the export market will stall the
economy. SNB President promised to act in a decisive manner which could mean
another round of intervention should the Euro weaken substantially.
The June British Pound is holding inside of yesterdayâ€™s
range. The tight overnight range indicates impending volatility. Earlier this
morning, it was reported that U.K.
inflation surged 3.7%. This report has had very little influence on the Sterling.
Bearish talk has been circulating that the previous government
pushed through spending measures which will make the new governmentâ€™s attempts
to cut the U.K.
deficit and balance the budget more difficult. Pressure is likely to remain on
the British Pound as the new government is likely to propose severe budget cuts
and tax increases which could put a strain on the economy. Investors are also
concerned that the weakening economy may encourage the Bank of England to renew
its bond buying program which would have a negative influence on the economy.
Like the Euro and Swiss Franc, the British Pound chart
pattern suggests oversold conditions which could mean the start of a 2 to 3 day
short-covering rally. Unless there is fresh news regarding the economy, traders
should be careful about shorting the Pound at current levels.
A late session turnaround in the U.S. equity markets on Monday and
the follow-through rally overnight is helping to push the June Japanese Yen lower.
If sentiment shifts toward risky assets then look for selling pressure to build
against the Japanese Yen.
The June Canadian Dollar fell Monday morning but ran into support
at a 50% price level at .9592. The minor reversal to the upside indicates that
a 2 to 3 day rally is likely. The first objective at .9735 was reached
overnight. Upside momentum could trigger a further rally to .9772. A change in
investor sentiment should help the Canadian Dollar. Traders should watch crude
oil and equity prices for direction. Greater demand for risky assets means
greater demand for the Canadian Dollar.
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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
John M. Bland, MBA co-founding Partner, Global-View.com
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