Weak Economy, Technical Reversal Could Trigger Stock Market Break
Overnight stock futures are showing slight gains. Selling in
Asia and a 4.2% drop in Google stock is likely
capping the market in the pre-market. News that Goldman Sachs reached a
$550,000 settlement with the SEC has had very little impact on the market.
Trading has also been light ahead of the release of earnings data from
Citigroup, General Electric and Bank of America.
September Treasuries are trading flat ahead of the opening.
Expectations are for T-Bond and T-Note yields to continue to drop amid concerns
about a weakening U.S.
economy and speculation the Fed is likely to keep interest rates at
historically low levels for a prolonged period of time.
The U.S. Dollar is gaining ground against most major
currencies with the exception of the Euro and the Japanese Yen. The September
Euro is still showing strength due to the upbeat news regarding the Spanish
debt auction. Gains could be limited if weakness prevails in the U.S. equity
markets and if traders begin to pare positions ahead of next weekâ€™s European
bank stress test data.The September
Japanese Yen is rising toward its highest level of 2010 as signs the U.S. economy is
losing momentum added to speculation the Fed will leave interest rates near
This morning the U.S. government is expected to
announce that household sentiment deteriorated and consumer inflation fell.
Both of these reports are expected to weigh on the Dollar and could trigger a
decline in the U.S.
equity markets once traders digest this morningâ€™s earnings news from Citigroup,
Bank of America and General.
stock futures markets posted daily closing price reversal tops on Thursday,
sending a signal that a correction may be looming. It is going to take a break
through Thursdayâ€™s lows however to confirm the formation which would then
trigger the possibility of a 2 to 3 day break or 50% correction of the last
Early in the trading session, good news from J.P. Morgan
equities for a short-time before the markets caved in due to pressure from the
On Wednesday the Fed released a less than stellar outlook
for the economy, but it was Thursdayâ€™s bearish inflation and manufacturing
reports which encouraged investors to take profits, driving stock prices lower.
Throughout this week, stock prices have been driven higher
by investor optimism and a bullish outlook for strong earnings. Investors for
the most part chose to ignore economic data, but the Fedâ€™s outlook yesterday
and todayâ€™s reports finally made them sit up and take notice. The bottom line
is, despite better than expected earnings during the second quarter, the
economy is losing steam. Traders could begin pricing in the prospects of a
double-dip recession, thereby pressuring equities.
September Treasury Bonds surged on Wednesday following the
release of the Fedâ€™s dismal outlook for the economy. This drop in yields was a
strong sign that interest rates were headed lower and that the Fed would keep
its benchmark interest rate low for a prolonged period of time.
On Thursday, this market continued to move higher as money
flowed out of equities and into the fixed income market. A new higher bottom
was formed at 125â€™07. Upside momentum indicates that the market could test the
year for the year at 128â€™19 over the near-term.
August Gold finished slightly lower but remained rangebound
as traders assess the current trading conditions. On one hand, the bulls want
to buy gold because of the weakening Dollar, but the bears want to sell gold
because of the possibility of a deflationary scenario developing in the U.S.
In addition, the soaring Euro may be prompting the unraveling of more Long
Gold/Short Dollar spread positions. Until market conditions are clarified, Iâ€™m
leaning to the short-side as the main trend is down and the market has yet to
correct to the major 50% level at $1158.30.
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