Spain Concerns, War Threat put Global Markets under Pressure
Global equity markets fell sharply lower overnight on
renewed fears in the Euro Zone and rising tensions between North Korea and South Korea. The sell-off started
early when Asian traders began liquidating equities on war concerns between the
Korean nations and quickly spread to Europe and the U.S. as these two regions continued
to struggle with the spreading debt issues in the Euro Zone.
Comments from the International Monetary Fund helped accelerate
the decline in European markets. On Monday, the IMF warned that Spain
must do more to accelerate the consolidation of its banking system and to
overhaul its labor laws and government pension systems. Despite remaining
upbeat about the soundness of Spain‚Äôs
banking system, traders read this comment as a negative and began selling
equities while seeking shelter in lower yielding currencies.
On Monday, the June E-mini S&P 500 tried, but failed to
confirm Friday‚Äôs closing price reversal bottom. This failure helped set up the
overnight decline because it indicated that buyers were scarce. After trading
lower on Monday‚Äôs opening, the E-mini started to rally, buoyed by the news of a
better than expected U.S. Existing Home Sales Report
By the mid-session the S&P 500 was flirting with turning
positive, but buying dried up as the market neared Friday‚Äôs high at 1088.75. At
the close, Friday‚Äôs closing price reversal bottom had not been confirmed,
leading to speculation that there may be a correction back to at least 1060.00.
The overnight weakness more than accommodated the bears by driving through this
price level to a low of 1036.75.
The June E-mini S&P 500 is now set to challenge the low
for the year at 1036.25. A trade through this price will wipe out the entire
February to May rally and indicate further weakness is likely. Stops are
expected to be triggered under this level, however, there is always the
possibility of a short-covering rally especially since sentiment is extremely
bearish and technical indicators remain oversold.
June Gold finished higher after high volatility and
overbought conditions drove large speculators to take profits last week. For
several weeks, gold traders had been buying the metal as a hedge against the
possible collapse in the Euro, but the recent slowdown in the fall in the Euro
has given speculators an opportunity to take a little bit off the table.
Monday‚Äôs renewed weakness in the Euro and concerns about
contagion in the Euro Zone because of the government takeover of a Spanish
financial institution helped to drive up gold.
June Gold is trading slightly lower in limited trading.
Speculators have not been too aggressive in this market overnight. Financial
turmoil usually drives gold higher, but in this case, margin calls from the
equity market sell-off may be the reason why gains have been limited.
Technically, June Gold is still in an uptrend as long as the
last swing bottom at $1156.20 holds as support. Last week this market corrected
into a 50% price at $1167.90 and an uptrending Gann angle at $1168.10. On
Tuesday, the Gann angle moves up to $1172.10.
Based on the developing short-term range of $1249.70 to
$1166.00, traders should look for a minimum near-term correction back to
$1207.80 to $1217.70. The test of this area should dictate the further
direction of gold. A failure in this zone will indicate a possible secondary
The global sell-off in the equity markets is driving up
demand for June Treasury Bonds overnight. T-Bonds finished lower on Monday as
the see-saw trading in the equity markets encouraged traders to liquidate
flight-to-safety trades put on last week when stocks plunged and T-Bonds soared
to a new high for the year at 126‚Äô01.
Traders have been ignoring the abundance of supply in the markets
and instead have been focusing on the likelihood the Fed will leave interest
rates near zero until next year and the on-going concerns in the Euro Zone
Watch the U.S.
equity markets for clues as to which way the T-Bonds will move. Panic selling
in the stock market is likely to drive investors into the safety of the
September Crude Oil straddled the February bottom at 72.43
on Monday. Additional support was being provided by a 50% price at 72.16. The
overnight break under this level triggered a sharp decline overnight.
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