Stocks Plunge from High after Euro Breeches 1.20 Level
The E-mini S&P 500 plunged from its high late in the
session after testing a short-term retracement level at 1074.50.Increased demand for higher risk assets
helped drive up the equity markets early, but comments from Fed Chairman
Bernanke and less than stellar economic data from the Fedâ€™s Beige Book
encouraged investors to take profits, driving the index lower into the close.
Despite the early strength in the indices throughout the
first half of the session, traders remained cautious about the move, watching
the Euro for direction. Once the Euro broke through the psychological 1.20
price level, traders turned bearish, accelerating the break to the downside.
Technically the June E-mini S&P 500 confirmed Tuesdayâ€™s
daily closing price reversal bottom but ran into resistance at a short-term 50%
price level at 1074.50. The key support level to watch until June 14th
is 1045.00. A close under this price could trigger the start of a break to
1004.00 by June 23rd.
September Treasury Bonds posted a strong recovery into the
close due to the weakness in the equity markets. Earlier on Wednesday, the
T-Bonds were trading weaker because of the stronger equity markets and the $21
billion U.S. Treasury Note debt sale. There is was also speculation that the
Fed may be preparing to raise interest rates. After the Beige Book showed only
a moderate recovery taking place, traders drove up T-Bonds on the thought that
the economy was too weak for the Fed to follow-through on its promise to begin
tightening rates sooner than expected.
Technically, the T-Bonds found support at a 50% level at
123â€™22 before the late session break in U.S. equity markets helped pare
losses. Wednesday afternoon the Treasury reported that demand for its 10-Year
Treasury Notes was about average.
August Gold traded sharply lower earlier in the trading
session after investors took profits after the recent run-up because of greater
demand for equity prices. Technically this market stopped inside a retracement
zone at $1226.30 to $1219.70. A late session break in stocks helped gold pare its
earlier session losses, sending the metal higher into the close. Watch the
equity markets this week for direction. Gold seems to be a little more
sensitive to stock market movement rather than the Dollar at this time.
Increased appetite for risky assets helped drive September
Crude Oil higher Wednesday morning. The
short-term range is 69.62 to 77.84. This range created a retracement zone at
73.64 to 72.69. Holding this retracement zone helped trigger todayâ€™s
short-covering rally. A trade through 77.84 will turn the main trend to up.
Fundamentally, higher stock prices helped underpin crude oil
most of the day. The late session sell-off in the equity markets had very
little effect on crude into the close. This could be a sign that the break in
equities may have been over-extended. Additional support came from a weekly
report showing that inventories had dropped more than expected. Look for a
drive to at least 78.00 unless 73.64 fails to hold as support.
The Dollar rose against the Euro late in the trading session
after the release of the Fedâ€™s Beige Book. The business survey showed subdued U.S.
economic growth which led speculators to believe the Fed wonâ€™t be raising
interest rates soon despite what investors had earlier interpreted from
Chairman Bernankeâ€™s comments.
Some traders also attributed the break to position evening
ahead of the European Central Bankâ€™s policy meeting on Thursday. Although the
ECB is expected to leave interest rates unchanged, investors are worried about
its statement and the post-meeting comments from ECB President Trichet. The
statement is expected to contain bearish talk about the near-term growth of the
Euro Zone economy. Trichet is expected, however, to sound more upbeat as he
tries to unite the Euro Zone nations.
From a technical perspective, the inability to hold above
the 1.20 psychological support encouraged weak longs to throw in the towel,
triggering a hard break into the close.
Stronger demand for higher risk assets and slight optimism
about Euro Zone finances helped to boost the June Euro most of the trading
session. Early Wednesday morning, the Euro reached a high of 1.2072 before
comments from Fed Chairman Bernanke and the results of the Fed Beige book
strengthened the Dollar.
Higher equity and crude oil markets helped drive up demand
for riskier assets. This strength spilled over to the Euro. In addition,
traders were a little more optimistic about the survivability of the Euro after
the European Union finalized its rescue plan. Although sovereign debt issues
remain the major concern, short traders felt it was necessary to pare positions
on this news.
Technically the Euro is still in a downtrend, but the charts
indicate there is room to the upside should the current weakness prove to be
only a retracement and test of the bottom at 1.1876. Recently hedge funds and
large speculators have been shying away from selling weakness and have been
more comfortable with selling retracements. If the bottom at 1.1876 is defended
on this current break, then look for the start of a rally back to the nearest
retracement zone. Watch for renewed selling pressure once the Euro completes
its retracement to 1.2164 to 1.2233.
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