End A Busy Week in a Rather Confusing Manner
Apr 16, 2010 Small Cap Stock Picks
James@jwsheltoncapital.com
The EUR/USD trades lower after market participants placed short positions in reaction to the highs created Monday morning. The weakness, although technical, must give credit to the fundamental decay within the euro-zone. Fear within the euro-zone can be gauged best by the spread between German bunds and Greek 10 year debt. The spread has widened to the largest levels since the aid announcement by the EU and IMF. The bailout did instill confidence into the market place for a short period of time; traders quickly realized that Germany, France, and Ireland must vote on their financial contribution to the bailout package. It is worth noting that 1/3 of the contributions are expected to come from Germany, if their parliament does not allow for this, expect for an extremely bearish bias towards the euro. This would put the risk aversion trade back on the table, weakening US equities.
The United States equity markets traded rather quietly yesterday as economic indicators gave contradicting signals. The most important being the Empire State Manufacturing Index and Jobless Claims. The former came in at 31.86 vs. the 25 consensus. The index experienced the largest gains since May 2004 and is back near levels established in October 2008. On the other hand, the latter (Jobless Claims) rose unexpectedly by 24K to 484K. The expectation for this release was 440K. This gain is attributed to administrative factors, such as odd calculations of the short Easter week.
The S&P e-mini futures contract traded within a narrow range of 1201.25, support, and 1210.50, resistance. A break out of either of these levels, with conviction and follow through, will lead to significant price movement in the respective direction. Tomorrow the market will be watching for the Housing starts economic indicator and more importantly, Consumer Confidence. The latter has the ability to move the market in a big way as expectations of 75, call for a more optimistic economic situation in the United States.
This week was very eventful and we will be back next week writing at normal times once more. Enjoy the weekend.
Tags: bonds, bunds, commodities, debt, EUR, futures, Germany, Greece, http://jwsheltoncapital.com/, options, stocks, voting
A Quiet Week It Will Be
Apr 6, 2010 Small Cap Stock Picks
James Shelton
The Shelton Letter
The EUR/USD trades a bit lower as Greece speaks of bypassing IMF aid and using loans offered only by other EU nations. They do this in fear of strict regulations and stringent conditions imposed by the IMF in exchange for financial aid. It is interesting to see many analysts and traders disagree with these fears as they point out that the high interest requested by EU nations and the regulations they seek, will be more extreme than those of the IMF. We must wait and see as the aid plans change again. The EUR/USD is trading around critical support created from the March 2nd low, 1.3433. Closing below this level would help spark the bearish sentiment that was so prominent in the previous weeks, sending the pair lower. Closing above this with failing to break lower would allow the bulls to take the market through critical resistance at 1.36.
It is also worth noting that Greece will offer $5-10 billion in government debt to the United States. This is the first time the nation has done so as an emerging market. It comes at a time that European states lose interest in Greek debt, Financial Times reports.
The S&P futures closed above a critical high created two weeks ago. The market found strength on the back of a positive employment number and a healthy housing starts release. Although the employment data was optimistic, it was not strong enough to spark talk amongst traders of U.S. interest rate tightening by the Federal Reserve. Market participants want stronger reassurance that the economy is in healthy condition and an interest rate hike or increase, will not harm what is currently a very fragile recovery. However, this release may be enough to change the wording in the Fed’s summary, removing the ever so watched sentence claiming that interest rates will remain “exceptionally low…..for extended period of time”.
Australia’s Central Bank increased their interest rates to 4.25% from 4.00% in the overnight. The Australian banking stocks sold off a bit but found buyers when they were reassured that inflation was not an issue. Most global markets are trading quietly now as they experience a shorter trading week.
Tags: bonds, commodities, EU, EUR/USD, futures, Greece, Greek budget deficit, greek debt, http://jwsheltoncapital.com/, IMF, options, regulation, S&P, stocks, The Shelton Letter, trading
Markets Trading Near Critical Levels
Mar 30, 2010 Small Cap Stock Picks
James Shelton
One should take note of last Thursday on the s& p. It was a reversal signal day as it made a new high, broke previous days low and closed under 50% of days range. If we could close above it today, higher prices are warranted, if not, watch for break of swing lows from a week or two ago. Crude oil rallied yesterday, many traders attribute this to the subway bombings. It traded above the critical 82.25 level we have been speaking about, watch for continuation as prices could go much higher. Failure of follow through, would very likely send it back to the 79 level.
Tags: bonds, EUR, Greece, normal length returning soon, Quick summary, stocks
Latest Greek Aid Moves Markets
Mar 29, 2010 Small Cap Stock Picks
James Shelton
In the overnight, the EUR trades and rightfully so. While Germany presses the EU for IMF involvement in the bailout of Greece, they are essentially asking for a weaker currency. The fact that the Euro is an extremely young currency, as it was formed in 1999, and it is not able to support itself when the first major issue arises is rather concerning. The heavy selling occurring over the past weeks can be attributed to this. Yesterday, selling took place as Portugal’s debt was downgraded by Fitch’s rating, as this showed that debt issues are stemming from Greece. Notice the critical swing low we broke and the amount of volume in which we did so.
United States equities finally experienced decent selling pressure, a necessary element if this rally would like to continue. Before the close on Tuesday the S&P mini made a new high at 1170.50. After failing to continue the higher trend yesterday the market found support at a critical horizontal level, 1160. We are currently trading at 1165.25 and approach a critical trend line off Tuesdays high. If we get some impulse to the upside, with a close above this trend line, we could see new highs during the New York session. The past’s strong relationship with the euro did not drag equity markets down to much yesterday and that is certainly a good thing.
I would quickly like to note that United States bond yields traded at levels not seen since January. This comes as many institutional buyers, such as China have been reluctant to purchase our debt in a manner that they have in the past. This comes as we are spending more money than we have, in an extreme manner, and speak of a lower credit rating enters the market place. The 5yr Treasury’s yield increased 18 basis points; an increase of this size not been seen since last August. The lack of demand will become a larger issue as political leaders look to spend more money, money we do not have, more so in the future.
I say once more, the markets may trade quietly until Friday’s GDP release.
Tags: bonds, EUR, forex, GDP, Greece, options, Price action, stocks, trading
A Busy Overnight, Expect a Busy Week
Mar 22, 2010 Small Cap Stock Picks
James Shelton
In the overnight, something of large importance occurred; that being the Healthcare bills passage within the House. The bill must now run through the Senate before President Barack Obama signs to make it official law. It is too early to say how this will play out in our society. But, I will say this, my mother always taught me not to spend what I didn’t have, last I checked the United States does not have 1 trillion dollars to spare.
United States equities are trading lower, and as you can imagine, red has been a lacking color over the past few weeks. For now the most recent selling is a simple pullback and support shall be found around the 1136-37 level, as this is a natural level of support indicated from the size of the previous pullback . This trend will remain healthy also, if we do not exceed in terms of time, the previous pullback. With that being said, do not be surprised if we make a lower low tomorrow, wick, and close above the 50% level. If we close significantly below 1136-37 and the lows of critical January resistance (1127), heavy selling pressure is warranted, and a kind that has not been seen since the rally of last years March lows. For now, I stress the importance of the 1136-37 natural support level.
Commodities are trading lower as the Indian central bank raised interest rates for the first time in almost two years. The surprising interest rate hike instilled fear that the global recovery will stall, as the removal of economic stimulus and cheap money will hinder the fragile recovery. It is worth noting that this fear shall be one that will reoccur while more nations are forced to tighten interest rates out of inflationary fear, for this was the case with India.
Crude oil is lower for the third day in a row, and quite significantly. As I had stated last week, buyers will not come into the market until a close above $83.25. The high on Thursday the 18th was $83.19, with a close at $82.49; I am inclined to note that this is not above $83.25. Is it coincidence that we currently trade at $80.10, I think not. In terms of the sell side, watch for a close under $79.00, for selling pressure will be very heavy under that.
Gold trades a smidge lower this morning, after enjoying impulse selling on Friday. Pressures on gold from IMF or EU reserve liquidation, as a means of bailout funding, continues to loom in the back of traders minds. The bull’s ability to capture the critical swing high level, 1136, is looking very unpromising as we near the critical swing low of 1096. As I have mentioned many times last week, a close below this level will warrant selling and lower prices are imminent.
There continue to be concern of the United States losing there AAA credit rating. As I mentioned above, those in charge continue to spend more than revenue brings in now or will in the very near future. Although credit is a necessary element and has been critical in economic growth, one can not get too carried away with paying at a later date, especially when the later date is very far down the road. Speaking of government debt there will be a 4 week Treasury bill announcement today, followed by a 3 month and 6 month bill auction. In terms of treasury securities, it is appropriate to mention something rather comical. According to Bloomberg, the bond market is saying that it’s safer to lend to Warren Buffett than Barack Obama. This comes as the United States has flooded the debt markets with $2.6 trillion dollars since the start of 2009. Only time will tell what will become of our nations debt, one can’t deny that it does not look promising.
Tags: bonds, commodity, debt, EUR, healthcare, options, stocks
May Germany One Day Make Up Their Mind!
Mar 18, 2010 Small Cap Stock Picks
James Shelton
At this point, it is only appropriate to find Germany’s inconsistent support of Greece irritating. It seems as if every week, they are taking a different stance on the topic of Greek. Last week, many sources reported that Germany and France would possibly purchase 25 billion euros of Greek government debt. This morning, with the help of the Dow Jones newswire, we come to find out that this is not the case and that German Chancellor Angela Merkel believes it would be suitable for Greece only to receive financial support from the IMF. The source, who requested anonymity, also said the IMF support will be requested during the weekend of April 2-4, Easter weekend. DJNW also pointed out that the Greek Prime Minister, George Papandreou, was in contact with the IMF’s Managing Director Dominique Strauss-Kahn. Although Papandreou has reiterated the fact that all options remain open, I must say this is rather contradicting to a statement he made yesterday claiming that “if we need assistance (referring to Greece), we expect the European Union could respond to this and this would be the best option.” With all this being said, it would be best to wait for the Easter weekend before jumping to larger conclusions, in regards to the Greek economy.
The euro trades lower on the IMF’s call to support, and it does so against 15 of the worlds 16 traded currencies. However, we will place our attention to the EUR/USD, as this is the most liquid currency pair traded. It currently trades at a previous bottom around the 1.3640 level (2 black lines); if it is able to remove this support, it will also be removing a swing low on the daily chart. For those who trade the EUR/USD with a long position, I must caution you that this level is rather significant, as it is not a minor swing point; instead it is one representing the intermediate trend. The next support level is 1.3540, if broken more selling will be warranted and the bearish sentiment that ruled the pair so prominently in previous months will be very likely to return. A rally back to the highs just above 1.38 will be difficult, as this level contains two key Fibonacci retracement levels and the 200 week moving average.
Crude oil trades lower today (chart top right), this should be expected after reading the previous paragraph. I will say once more, as the dollar trades higher with risk aversion in mind, crude oil will trade lower. This has been the case in the past, it is the case now, and it will remain to be this way until fundamentals in the market place change and the dollar is no longer a risk aversion trade. There has been great momentum in crude oil after sellers failed to break critical levels. Many traders speak of crude trading at the 84-85 level by the end of this week, but this is not a possibility and one should not place a position with these expectations until the 83.25 level is captured and closed above (in intraday trade, especially the hour chart). Failure to break above 83.25 would make a lower high and sellers will enjoy bringing the commodity back to the 79 level, most likely breaking through this swing point.
Gold trades lower, rightfully so, as traders realize an IMF intervention in Greece will result in gold liquidation as a means of funding. Also, we must not forget the technical aspect of this market that we have discussing in such a significant manner. Higher lows and lower highs will make for very violent trade in a certain direction. As I pointed out yesterday a break under 1096-97 will warrant extreme selling, minor support will be found at 1090 and if this broken look for a gold contract trading at 1045 in the very near future. Yesterday we created what will be valued as a swing high; trading above it or 1135 would merit higher trade to 1045-46, and a break above this would allow prices to rise to 1160. Remain patient, for those who patient will profit the most.
At 8:30 EST the Consumer price index, best measure of inflation, and jobless claims will be released. Large surprises have the ability to move the market but this should not be expected. Also, keep in mind that tomorrow is a quadruple witching day, we shall see great volume.
Tags: bonds, commodity, Germany, Greece, options, stocks, The Shelton Letter
