Goldman Sachs or Goldman Slacks?
Apr 19, 2010 Small Cap Stock Picks
James Shelton
The EUR currency trades lower against the USD and the JPY as risk aversion becomes popular once more. After a Greek bailout was secured in talks at the start of last week, the currency (against USD) traded above the critical resistance level at 1.3592. It tried on multiple occasions during intraday trade to recapture the old resistance level, now support, but failed to do so. On Friday, it was able to do so with a close below the level, in a big way. We now trade with critical support at 1.33. A break and close below this level would help send the pair lower as optimism from the bailout fades. There is not much news on the euro zone today as all markets concentrate on the most recent Goldman Sachs developments.
Equity markets experienced heavy selling Friday as the SEC filled an investigation on Goldman Sachs. The investigation by the United States regulatory entity has been followed up by lawsuits from the U.K. and Germany. Market participants will keep the risk aversion trade on the table until they are assured that Wall Street’s most profitable firm will not be followed by other large firms and that Goldman trading operations will not be at risk. The S&P equity futures are trading lower by %.50, traders remain fearful.
There are not any economic indicators that will provide great insight as to whether or not the economy is truly improving. Markets will look forward mostly to Goldman Sachs updates and the Jobless Claims number on Thursday, which was worse than expected last week.
Tags: currency, debt, EUR, forex, Goldman Sachs, Greece, http://jwsheltoncapital.com/, JPY, markets, options, stocks, The Shelton Letter, trading, USD
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
The EUR/USD is Weak Once More
Mar 31, 2010 Small Cap Stock Picks
James Shelton
In the overnight, the EUR/USD trades lower, it does so below a critical support level . This critical area represents a swing low created on March 2nd and it was recaptured on Monday with a small trading range. The strength that was seen last Friday comes while Greek budget issues appear to be contained as a resolution is presented. The weakness displayed in the past few days shows that markets have digested and find concerning an International Monetary Fund “bailout”, as this proves the EU is rather weak. Not to mention the statements made by Irish Finance Minister, Brian Lenihan, who claimed that Irish banks will need more capital before they can truly secure a recovery. A close on the daily chart below 1.3259, will warrant heavy selling by retail and institutional traders as it confirms a downtrend in the currency pair.
Dallas Federal Reserve Bank President, Richard Fisher, said according to MNI, that “record federal borrowing is putting upward pressure on longer term interest rates, but doubted the Fed would ever buy Treasuries to help hold down those rates.” This news did not move bond markets too dramatically while it is worth noting that they experienced heavy selling pressure last Wednesday. Support will be found at the swing low near 115’070, while extreme selling pressure is warranted with a close below.
Crude oil trades below the critical $83.25 level we have spoken so much about in the most recent weeks. The markets inability to close above this level, after trading very close to it on multiple occasions, would warrant heavy selling pressure back to the $79.00 level.
Quite markets should not come as a surprise as the unemployment numbers are due this Friday, markets are closed.
Tags: commodities, crude oil, debt, EUR, EUR/USD, Greece, Irish debt, stocks, www.Jwsheltoncapital.com
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
Quiet Markets are Expected
Mar 15, 2010 Market Analysis
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 9th, 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.
Tags: congress, debt, equity, Greece, stocks, The Shelton Letter
Markets At Critical Levels, Trade Carefully
Mar 12, 2010 Small Cap Stock Picks
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 22nd 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.
Tags: action, debt, fundamental, Germany, Greece, options, price, stock, The Shelton Letter
