PMI’s Move Multiple Markets
Apr 1, 2010 Small Cap Stock Picks
James W. Shelton III
The EUR/USD trades on the defensive after German retail sales for the month of February were worse than expected. Most analysts were expecting no change at all in the report while it came in at -0.4%. It is also worth noting that German retail sales for the month of January were revised to the downside, adding to euro selling pressure. Both these elements raise a rather critical question, what will become of Germany’s fragile consumption recovery. This same question can be applied to the wellbeing of the United States as the ADP employment change, an economic indicator, was released worse than expected yesterday. The EUR/USD did gain nicely upon that release but remains unable to capture critical levels with a close above 1.3530. There is critical support around 1.3270, a break below this would be a break of a critical swing low, warranting lower prices. Taking a quick look at the upside, 1.38 remains extremely critical.
The S&P futures traded lower in the New York session but quickly recouped losses during the 15 minute session they are open after the NY close. The 15 minute session is typically used to close out day trading positions. The fact that the market rallied so dramatically in this short time period may be a great indication of the extreme selling pressure that traders placed on the market. Trading under yesterdays low would most likely warrant institutional selling, taking us to our first support around 1156. On the other hand, higher prices, closing above the 1176.5 high seen last Thursday would help enforce the bullish sentiment that has controlled the marketplace off last years March lows. The U.S. equities experienced selling pressure yesterday as the ADP employment report, as I mentioned earlier, came out worse than expected. I must point out that the month’s most critical economic indicator will not be tradable as many markets enjoy an Easter Holiday. The economic indicator in reference is the Non-Farm payrolls, expected to come in at a positive 190K on Friday. Markets would react poorly to this number if it comes in negative as the United States Government initiates removal of unprecedented facilities and quantitative easing that aided in the current, yet fragile, economic recovery.
Crude oil was able to close above the critical $83.25 level we had mentioned in previous weeks and currently experiences follow through in a similar direction. As we discussed, many institutional traders would be holding off on their longer time frame trades until a close above the $83.25 level or below the critical support area around $79.00 occurred. $92.00 a barrel is the next resistance level, and this is found when analyzing price action from 2008. Many traders attribute the most recent strength in crude oil to extremely optimistic economic indicators of nations that use this commodity heavily as they experience rapid growth. One should take note that these nations have extremely low interest rates and one nation in particular, China, has an extremely cheap currency aiding in export growth.
Speaking of interest rates, I am inclined to point out that France and Italy have just released their PMI numbers. They come in at 40 month highs, display growth but also inflation. Inflation should soon become a concern as central banks leave interest rates at extremely low levels.
Gold rallied in a big way while these PMI numbers were released, as inflation continues to become a global concern. Gold remains within a range on the daily chart and may continue to do so until a significant event triggers a breakout. Perhaps tomorrow’s employment report will do the trick.
Tags: commodity, employment, EUR/USD, gold, Greece, http://jwsheltoncapital.com/, options, PMI, 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
Heavy Volume is Expected, But Not to Much Direction
Mar 19, 2010 Small Cap Stock Picks
James Shelton
As the Euro’s well-being was questioned by market participants yesterday, Greek’s rebuttal should have been expected. I noted yesterday, a source claimed Greek’s Prime Minister, George Papandreou, was in talks with the IMF’s Managing Director, Dominique Strauss-Kahn, and a request of financial aid was to be expected on Easter weekend, April 2-4th. Global markets came to find out yesterday, near the end of the New York trading day that this information was not true at all. “This is ridiculous,” Greek Finance Minister George Papaconstantinou told Reuters. He went on to say that” We have said from the beginning that all options are open” but, “we are not any closer now to the IMF (than before). These reports are just plain silly.” There is speculation that the faulty information was released to stimulate a sense of urgency within the Greek government, as many believe that financial aid will be the only means of covering the nations borrowing costs while 20 billion euros ($27 billion) of debt comes due in the next two months (April 20th and May 19th). Many investors request an interest rate payment on Greek bonds that is at least 3% higher than that received on German debt. This rather difficult task comes as Greece still needs to raise another 10 billion euros for those payments.
The EUR/USD, although hurt by the erroneous IMF’s call to aid, was not helped by its refutation. It trades below an important swing low and could very well trade down to the next critical swing level, indicated by the white circle. If sellers are able to break this level, expect the bearish sentiment from the previous months downtrend to return, where they will face final support levels at the last swing low. A break of this will lead to quick impulse selling and will start the 3rd wave of the downtrend.
Upon writing Crude oil trades quietly and it does so within critical breakout levels. As we mentioned yesterday, one should not take a long position until price closes above the $83.25 level or even think about selling until a close under the swing low of $79.00. Market participants are torn between crude at $84-85 a barrel and $79 a barrel. Therefore, I must reiterate the fact that patience is a crucial element to the business of trading.
Copper, a commodity representing global economic growth, is forming what appears to be a double top. This is a market that has followed a trend similar to equities, off last years March lows. A failure to break higher could precede selling in the stock market which will occur in a violent manner. We shall keep you informed of price development in this market as we value its direction very much.
U.S. equities should experience very large volume today as it is a quadruple witching day. Once more a quadruple witching day is when contracts for stock index futures, stock index options, stock options and single stock futures (SSF) all expire. Other than that, there are no scheduled events worth mentioning.
Have a great weekend.
Tags: commodity, copper, EUR, futures, Greece, options, stock, USD
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
All Markets Trade at Key Levels, Will it Last?
Mar 16, 2010 Market Analysis
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 9th trend line. This is rightfully so, as the most recent sideways trade exceeds the consolidation taking place from December 22nd to January 13th. 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 19th to February 5th, did not exceed, in terms of time, the bull markets previous retracement taking place from Jun 12th to July 7th, 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 7th 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.
Markets Trade, But Quietly
Mar 9, 2010 Market Analysis
Let us start our discussion this morning, noting the rather lackluster beginning to the week. This can be attributed to two things; price is squaring itself off with time and the lack of key economic figures. The former statement is in reference to two markets, the S&P and the U.S. Dollar (USD). Both markets have had extreme moves in their respective direction and are “cooling” down, if you will. As we noted yesterday, we are bullish on the S&P. In terms of length, expect the next bullish wave to last 120-135 days, unless there is rapid accumulation within the first 49 days. If this is the case, the market has exhausted itself and lower prices will soon follow, correcting half of the move from last years March lows to the high prices created on the 49th day. If you measure from the Swing low of Feb. 5th 2010, we have already experienced 20 days of rapid accumulation, 29 (give or take a few) days more of similar trade will call for bearish sentiment. This will be assessed when the time comes. I say once more as of now we are bullish while this last correction was not able to overbalance, in terms of time, the previous correction that took place from Jun 10 2009 – July 08 2009. Although we did exceed that correction in terms of price, time is more valuable and one should trade accordingly. If we fail to break above the 1150 level, which is highly unlikely as we have traded against it 3 times already and the 4th time almost always goes through, one should be bearish when the S&P closes under 1112.
Let us speak of George Papandreou, the Greek Prime Minister. This is appropriate as budget deficits of his nation have been quite concerning in recent months. The latest development with Captain George is his request to Barack Obama to help “combat unprincipled speculators”, who are responsible for the global financial crisis. These accusations are rather comical as those “unprincipled speculators” provided his nation with a means of manipulating the true status of their economic well being, which in fact was not well by any means!
Japan is enjoying positive economics and a strengthening yen as the majority of the nations companies recorded profits before the fiscal year end. One of the weakest currencies against the yen is the GBP, which shows continuation in its bearish trend.
Today US markets will experience treasury auctions, other than that, nothing to important.
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Tags: commodity, employment report, Greece, Greek budget deficit, http://multipletimeframeanalysis.com/, options, S&P, stock, The Shelton Letter, USD
