Currency Pairs Give Different Signals
Apr 21, 2010 Small Cap Stock Picks
James Shelton
The Shelton Letter
Currency pairs that once traded in a similar direction, are beginning to part. They do not do these in an extreme manner but we are starting to see selling pressure in the EUR while the GBP trades rather quietly around its most recent horizontal resistance level. I mention this price divergence as it gives light to the markets perception of risk aversion and appetite. As the Euro-zone continues to expierences confusion in terms of Greek aid, traders sell the EUR and buy USD (U.S. dollars). This is a classic risk aversion trade as the United States is a safe haven. But, the fact that we are seeing this risk aversion in such a limited manner and only in one market is rather interesting and worth noting. This contained risk aversion trade comes as United States equities continue to rally on the back of great earnings reports. The British Pound is reluctant to sell off from the critical resistance level of 1.54, regardless of euro-zone issues. This display’s market participants willingness to shrug off issues that should be of large concern. It is worth noting that the GBP/USD is the best indication of risk aversion/appetite following the EUR/USD (in reference to the currency market).
As I mentioned a bit before, earnings are a large driving force behind strength in U.S. stocks. Goldman Sachs and Apple reported earnings that almost doubled. It is also worth noting that over 80% of the S&P 500 companies that have reported earnings, have beat expectations. Goldman Sachs concerns continue to be put on the back burner as they claim “caveat emptor”, which is Latin for buyer beware. Also, a great point by former AIG CEO was made today, why should we discuss financial regulation before the SEC releases further detials on the unethical practices? It would be silly to act on information that we do not have at our disposal at this point. This information will be released near year end. Markets will continue to watch for deveolpments on this topic and more importantly, earnings.
Tags: Currency pairs that once traded in a similar direction, earnings, earnings are a large driving force behind strength in U.S. stocks. Goldman Sachs and Apple reported earnings that almost doubled. It is also worth noting that over 80% of the S&P 500 companies tha, http://jwsheltoncapital.com/, regardless of euro-zone issues. This display’s market participants willingness to shrug off issues that should be of large concern. It is worth noting that the GBP/USD is the best indication of risk a, the fact that we are seeing this risk aversion in such a limited manner and only in one market is rather interesting and worth noting. This contained risk aversion trade comes as United States equitie, The Shelton Letter, traders sell the EUR and buy USD (U.S. dollars). This is a classic risk aversion trade as the United States is a safe haven. But, which is Latin for buyer beware. Also, why should we discuss financial regulation before the SEC releases further detials on the unethical practices? It would be silly to act on information that we do not have at our disposal at this point
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
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
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
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
