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All Markets Trade at Key Levels, Will it Last?

Mar 16, 2010 Market Analysis Comments

James Shelton

The overnights largest development is that of a Greek lifeline. As mentioned yesterday, euro zone leaders met to discuss the future of the Greek economy and to create a strategy securing its functionality. The euro leaders devised a system that would offer emergency loans to Greece incase their highly protested plan of tax increases amounting to 4.8 billion euros ($6.6 billion) and wage cuts, would fail to thwart further economic disaster. This “bailout out”, as many call it, should not come as a surprise as finance and prime ministers have been very reassuring of Greece’s future within the euro these past weeks. With this assurance, was some form of financial guarantee not implied, as many believe Greece’s “honorable” tax increases and wage cuts will not suffice? The market tends to think so as this aid has been priced into markets since last week.

Since last week the EUR/USD  enjoyed nice gains, breaking above the February 9^th trend line. This is rightfully so, as the most recent sideways trade exceeds the consolidation taking place from December 22^nd to January 13^th. As I have stated so many times in the past, time is the most critical element when analyzing horizontal and vertical price development. It is only appropriate that I mention yesterday’s healthy selling and failure to completely recapture bearish sentiment as the pair traded below the critical trend line and eventually closed above. If the market is able to recapture the 1.3500 level, heavy selling would be warranted. But, this is unlikely as a medium sized correction of the EUR’s large downtrend is expected by many prominent trading firms, such as Goldman Sachs. (Their Target for the EUR/USD is 1.45)

Equity markets are undeniably at critical levels. In fact, it is rather comical to see them trade so quietly at these prices, in particular the S&P 500 cash index whose critical level of resistance is 1150. Yesterday traders sold this index down to 1142, but after a failure to break lower after 12 pm EST, bulls gave a bid and helped the index close slightly higher. Slightly should not be taken lightly as it was only a tick or two higher. The early selling that occurred can be viewed in two ways. The first viewpoint is this, as markets trade at critical levels, buyers have become exhausted and bears give the market selling pressure while they will continue to do so in the near future. The more market optimistic stance is this; markets trade at critical levels and have experienced significant vertical price developmental, sideways trade is necessary before breaking higher and the bear’s inability to keep prices at the day’s lows, is in fact, bullish. I will not necessarily pick a side but I am inclined to say this, the most recent pullback occurring from January 19^th to February 5^th, did not exceed, in terms of time, the bull markets previous retracement taking place from Jun 12^th to July 7^th, 2009. Knowing this, one is to deduce that there is great possibility for market growth.

Crude oil trades lower this morning as China and India are expected to “cool” rapid economic growth, as they have seen the highest inflation levels in nearly a year and a half. Two other elements aiding in lower crude prices are the facts that OPEC will leave oil production unchanged at a time when demand is questioned and that petroleum inventories, released tomorrow at 10:30 am EST, will show an increase in stockpiles for the 7^th week in a row. If traders bring price below yesterday’s lows, we very well could see a change in trend.

Gold is trading higher as many assume the Greek bailout will be funded by partial gold reserve liquidation. The commodity’s demand can also be attributed to a safe haven play as the Federal Reserve decides on interest rates at 2:15 pm EST, today. One should note that the market has made what appears to be lower highs in the major trend but higher lows in the intermediate trend. Trading below 1096 would eliminate discussion of higher lows and most likely send the market lower.

Expect quiet markets until the Federal Reserve interest rate decision occurring at 2:15 pm EST, today. No change is expected and this will remain to be the case until they remove the line “for an extended period of time” from their minutes and summary’s. If a change does occur, once more extremely unlikely, markets will trade in complete chaos.

Quiet Markets are Expected

Mar 15, 2010 Market Analysis Comments

James Shelton

Upon writing, the S&P futures are trading near the 1142 level. At first one would be rather concerned as this is considerably lower than the January highs noted in the most recent weeks, 1150. But, that concern is unwarranted as one must note the contract change and understand that is a mainly a reference to the cash S&P 500 index, not futures. What I mean by contract change is simply this, in the past months futures traders have followed the S&P’s March contract as they now will follow the June contract, which had made a January high around 1144.75. This is somewhat comforting and for those concerned, the March contract is trading at 1147, only a few points under its 1150 January high. These contracts are trading lower as financial shares experience pressure in the pre market while key political figures reiterate financial regulation as a possibility, once more. Captain Chris Dodd will release more information on his financial bill today at 2 pm EST. Market sentiment could change prior to that if we see a better than expected Empire State Manufacturing Survey that will be released at 8:30 am EST. Analyst’s do expect today’s release to be fairly negative as they are looking for a release of 22, in opposition to the previous release of 24.91.

Dollar strength and Euro weakness is an element also aiding in interesting cash flow throughout the global markets today. One can see that the Euro is weaker on the day and will most likely test the trend line running from the high created on February 9^th, the trend line was broken out of on March 12th. If this is the case and trend line support is found, it coincides with price around the 1.3680 level, a bid off this would allow for equities to also rally, as the euro and S&P typically trade in tandem.

Oil trades at low levels, extending Friday’s losses as a strong dollar makes the price of crude more expensive for nations using other currencies. Also, traders are concerned that the U.S. consumer, the world’s top energy user, will display lackluster demand as indicated by last week’s confidence data. This is a nasty combination with the technical’s, especially as crude makes what appears to be a triple top or head and shoulders formation.Heavy selling is very likely a few cents under $80.00 while this should serve as a swing support.

Let us turn our attention to Greece, a nation that will be discussed in depth today by euro zone leaders at 11 am EST. These discussions are not expected to provide a numeral value for aid but are certainly expected to decide on a method, if you will, of fixation. Many are very pleased with the Greece’s must recent attempts to fix itself as French Economy Minister Christine Lagarde said that Greece had “delivered enormously” while they were able to cut spending equal to 2% of its GDP. With that being said Greece continues to expect a decrease in the debt to GDP ratio as they aim for spending of only 8.7% of GDP, down from where it was in 2009, 12.7%. Many involved with the euro zone believe that the issues of Greece are those of the past and that they should no longer cause concern. The street agrees to a certain extent as they participated and provided decent demand for a 10 yr bond offering of Greek debt. If a default on debt is to occur, it should happen in the next few months, although many believe this is not likely.

Moody’s, just as many other credit rating agencies have in the most recent months, have pointed out possible pressure on the United States triple-A credit rating as our president truly believes money grows on trees. The agency said in their AAA sovereign ratings note that “If such a trajectory were to materialise, there would at some point be downward pressure on the triple A rating of the federal government.” An element found to be extremely concerning is the fact that our nations borrowing levels are so high that interest payments are projected to grow to be about 15% of the governments revenue, this was last seen in the 1980’s, as the Moody’s report points out. Bond traders are aware of these concerns but are yet to take positions in a fearful manner as the United States is still the world’s reserve currency and is expected to remain so for the many years to come.

As I said in Friday’s letter, there are not any significant economic reports this week, at least in the U.S. But, Friday is a quadruple witching day, which means contracts for stock index futures, stock index options, stock options and single stock futures (SSF) all expire. Also, the FOMC will make an interest rate decision tomorrow. That is rather significant but I would not deem it an economic number. A change in interest rates is not expected until their statements remove the phrase “for an extended period of time” and inflation becomes a more extreme concern. Regardless, it will make for interesting trade today and tomorrow.

Markets At Critical Levels, Trade Carefully

Mar 12, 2010 Small Cap Stock Picks Comments

Upon writing the S&P futures trade above January highs, just as the EUR breaks significant resistance at the 1.3680 level. The spike in both markets comes as the euro zone reports better than expected industrial production data. I must say that this breakout is warranted technically as the EUR’s most recent consolidation exceeded previous consolidation starting on December 22^nd 2009, in terms of time. This was noted in yesterday’s letter and we shall stand by the trend just as Goldman Sachs FX research does, with a EUR/USD target of 1.4500. It is worth noting that a very large amount of stops will be placed at the 1.3500 level, expect support at 1.3735.

Equity markets in the United States open in two hours, although the futures above January highs, they do so quietly. If the S&P closes higher today, it will be the 11th straight day it does so, which is rather concerning as a pullback is needed. Markets will continue with the “wait and see” policy until retail sales are reported in an hour, it would be a safe assumption that markets will not react violently upon its release, unless it beats or falls below analysts estimates by a good amount.

Lets us focus on commodities as Gold trades higher for the second day in a row after its biggest weekly drop since mid-January. Gold has recently crossed under an intermediate trend line and will most likely be sold on rallies, with stops placed just above the trend line. If it does rally from this level it will be seen as a higher low and higher highs will follow. Today’s gold bid comes as the EUR attracts fresh money to the precious metal, a continuance in EUR strength could certainly result in higher gold prices. Other precious metals such as Silver, platinum and palladium, also regarded as industrial metals, gained after trading red yesterday evening. These markets had experienced heavy selling by funds upon the release of a high Chinese CPI, triggering fears of monetary tightening in China.

Crude oil also trades near highs as the dollar trades near 4 week lows. This price action is rather meaningless as it trades within range and energy markets are expected to remain quiet as economic news is, to say the least, lacking today. It worth noting that many traders and analysts claim that the inverse correlation between the U.S. dollar and crude futures may be loosening a bit, as history shows that a weaker dollar tends to lift oil prices because it is cheaper for buyers in other currencies. One could deem the most recent technical development on crude oil as a “head and shoulders” pattern. If that is the case extreme lower prices will follow. Then again, one must be prepared for a break above the $85.00 level, leading to higher prices.

As for Greece, the confusion and annoyance arising from inconsistent statements continues. In the overnight German chancellor, Angela Merkel, offered commitments to a Greek bailout, along with France’s help. The exact amount of capital is yet to be decided and the time frame also remains unclear. Although, there has been word of a German purchase of 10 billion euros’s worth of Greek debt before Easter. Discussion of this comes as citizens become aware of the “opportunity cost”, if you will, as a Greek bankruptcy would cost Germany at least 30 billion Euros. We are seeing a little bit of the “damned if you do, damned if you don’t” situation developing. One should take note of the recent rally in the Greek General Share Index, as confidence is restored.

Next week, economic news remains rather uninspiring, especially as the week end grows nearer. Although, it is worth noting that Friday is a quadruple witching day, a day in which stock index futures, stock index options, stock options, and single stock futures (SSF) all expire. This always makes for a volatile trading day with high volume. Enjoy the weekend and see you next week.

4 New Small Cap Stock Pick Breakouts in Play: RXII, CHTP, CERS, and VSTNQ.PK

Mar 11, 2010 Bullish Stock Charts, Small Cap Stock Picks Comments

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Small Cap Stock Picks : RXII, CHTP, CERS,  VSTNQ.PK

VSTNQ.PK

This stock has been nuts over the past week. Now finally today it looks as though we are clearing above 1 and closing above it as well making this the highest close we’ve had on this run. So momentum is extremely strong here. I think a target near the 1.20 area is definitely in sight

Bullish Stock Chart:

RXII:

Breaking out of its ascending triangle pattern on increased volume the black service crew was alerted to go long @ 5.99 earliar in the session . My target for this stock is to see a quick rally to 7+ where we can lock in some solid gains.

Bullish Stock Chart:

CHTP:

After suffering a huge gap down CHTP has consolidated for some time while forming an excellent looking breakout closing @ new highs above resistance. The gap fill resistance isn’t until around 6 so plenty of room to run for this stock . We entered @ 3.19 and are looking for a quick 20% run or so.

Bullish Stock Chart:

CERS

we have played CERS in the pas but not til now does this set up look  like its ready for a big run. Black Service alert came in to buy @ 2.76 and we are looking for this to run strong above 3. Goal would be to see the mid 3.50’s

Bullish Stock Chart

Historical Retracement’s Remain Valid

Mar 11, 2010 Market Analysis Comments

The Shelton Letter

The EUR, undeniably, enjoyed a bull market from October 28^th, 2008 until December 3^rd, 2009, starting at 1.2333 trading up to 1.5137, respectively. Knowing this, we shall analyze a rather interesting price reaction off two significant percentage retracements, the 50% and 61.8% levels. When these percentages are applied to the bull move start and end (prices are listed above), one will notice that the most recent consolidation, starting on February 18^th, has bounced between them. The EUR, currently at 1.3642, trades near the 50% retracement 1.3730, a significant break above followed by a close, would warrant a continuance in bullish activity. Although, one must not disregard a very viable possibility, that being a bounce off the 50% level, as this has happened 2 times already, on February 16^th and March 3^rd. If this were to occur again, support will be found at the 61% retracement of the large bull move, that level is 1.3410. The market has acted on the support line, in a similar manner that it did at the resistance (50%). A break in this level would lead to significantly lower prices. It also worth noting that this most recent consolidation phase is exceeding, in terms of time, the previous consolidation that took place December 22, 2009 through January 13^th 2010,  by a small amount. Time is an element that holds more significance than price, if this consolidation continues for two more days; it may be very wise to consider this formation of a base. Also, one should take note that usually, the fourth time a market approaches support and resistance, a break follows.

Let us turn our direction to a topic affecting markets quite significantly, Australian employment. The Australian Bureau of Statistics announced much worse than expected Australian employment data, with new jobs created coming in at only 400 while expectations called for a creation of 15K. Another element rather concerning was the fact that the unemployment rate increased to 5.3% after revisions, like they always say, better luck next time! Also, it is rather frightening that Australia witnessed the largest economic boom in the past three years; a pause in continuation is not welcome. Furthermore, this slow in economic growth justifies a suspension of interest rate hikes by the Australian central bank; this news brought the AUD lower.

Nearly every commodity trades lower as a Chinese inflation, measured by the Consumer Price Index, came in at 16 month highs, 2.7%. (Chart to right) Many analysts had expected a release of 2.5%. This report will continue to increase pressure on the Chinese Premier Wen Jiabao, who vowed to suppress inflation after financial systems were flooded with extreme amounts of capital by banks in attempt to thwart the global recession. It also worth noting that new loans had outpaced the expectation of analysts, adding to the pressure of an interest rate hike in China. The fact that interest rate hikes are expected, drives down commodity markets as purchasing will slow while money becomes more expensive, hindering growth.

As for US markets, we look for market direction upon the Jobless Claims release. This is an economic indicator that is compiled weekly in effort to show the number of individuals who filed for unemployment insurance for the first time. The previous release was 469 K, where as the consensuses for today’s release ranges from 450 K to 470 K.

Today the Fed will auction of multiple securities across the yield curve. I must point out that yesterday the Treasury’s $21 billion 10-year note sale saw some of the “strongest demand since at least the 1980s”. Many claim that any momentum left in equities will arise as an asset reallocation occurs from bonds to riskier assets, such as stocks. Do not expect this to occur below the January highs, many funds will hold off on buying until the S&P breaks through the 1150 level and is able to hold this into the closing bell. I find it suitable to close today’s letter with an interesting fact. The SPY, SPDR S&P 500 ETF, did in fact make a 52 week high today. Perhaps this is alluding to higher future price action, we shall see.

http://multipletimeframeanalysis.com/

Futures and options trading involve substantial risk. The valuation of futures and options may fluctuate, and as a result, clients may lose more then their original investment. In no event should the content of this website be construed as an express of an implied promise, guarantee or implication by of from the Shelton Letter that you will profit or that losses can or will be limited in any manner whatsoever. Past performance is not necessarily indicative of future results. Information provided on this website is intended solely for informative purposes and is obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted.

An Interesting Currency Development

Mar 10, 2010 Market Analysis Comments

The Shelton Letter

A rather interesting development occurs in the currency market, as our favorite pairs, the EUR, AUD, and GBP (against US dollars), trade in what one could deem separate directions. Don’t get me wrong, this parity remains intact on the behalf of the weekly timeframe, especially between the EUR and GBP. (Charts Above) The AUD, who attempted to make impulse waves lower like the EUR and GBP, failed, and now gives reason to believe it will continue higher. The unusual price action I am currently referring to can be seen best on the daily charts. One analyzing the EUR would see continued range trade that started with the lows of February 18^th; these lows will be broken the next time they are approached. If you were to take a look at the GBP, one would be looking at impulse waves to the downside without consolidation similar to that seen in the EUR. Just as the AUD differs on the weekly, it does on the daily while it attempts to make new highs.

China’s exports rose more than forecasted in February. This is the third straight month these figures have surprised to the upside; increasing pressure on policy makes to reduce stimulus aid. This rapid increase in exports is also expected to add to inflationary pressures. Government figures released tomorrow will give more guidance on this issue. It is worth noting that expectations show inflationary pressure within China, will be around 16 month highs. Crude trades higher and Asian markets are lower on this news, as market participants fear a central bank tightening.

A political issue that we believe will impact financial markets quite significantly in the near future, that being healthcare reform, is not expected to meet its March 18^th deadline. The deadline was set by Robert Gibbs, White House Spokesman, those in favor of reform claim the deadline is irrelevant and the plan can still be passed. We shall see only with time.

Dubai World meet with creditors earlier this week and proposed a debt restructuring that would allow debtors to receive their principal investments without a haircut. This is an optimistic element to the global recovery as many feared months ago, that this entity would collapse.

Romano Prodi, the European Commission President, claims that the worst of Greece’s financial crisis is over and there will not be similar issues arising in other European Nations. I am inclined to remain suspicious as small spending cuts do not fix large budget deficits.

http://multipletimeframeanalysis.com/

Futures and options trading involve substantial risk. The valuation of futures and options may fluctuate, and as a result, clients may lose more then their original investment. In no event should the content of this website be construed as an express of an implied promise, guarantee or implication by of from the Shelton Letter that you will profit or that losses can or will be limited in any manner whatsoever. Past performance is not necessarily indicative of future results. Information provided on this website is intended solely for informative purposes and is obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted.