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
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
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
The EUR Trades Lower, Rightfully so.
Mar 24, 2010 Small Cap Stock Picks
James Shelton
So it has begun, the Euro has broken below its most recent weeks consolidation. It certainly appears as this market has started and will continue on another wave of selling. I say this as 1.3433 was a critical support level and the market currently trades significantly lower at 1.3357. This lower trade occurred on very quick impulse selling, signaling the trends direction, with a good volume. The euro’s trade at 10 month lows comes as European Government officials said the EU must rely on the International Monetary Fund to support a Greek bailout. This is rather negative as it displays the young currencies inability to support itself and causes traders to question the entities, in reference to the EU, true strength. To make matters worse, Fitch Ratings downgraded Portugal’s debt. It’s amazing the things agencies will announce at critical support or resistance levels.
Monday we had mentioned that Wednesday would be a day of gains in the equity markets. When we saw the market trade higher on Tuesday, we were rather perplexed and did not expect our belief of gains Wednesday (yesterday) to hold true as it had been fulfilled the day before. Well, the market proved it was in fact resilient while it gave us very significant gains into yesterday’s close also. This occurred after we recaptured the swing high right above 1165. Although futures are currently lower, the intermediate trend remains intact as long as we stay above yesterdays low and more importantly 1146.75, for that is a critical swing low. I must also say this, in reference to the markets major bull trend off the March 2009 lows, we are becoming overextended and it does not appear that markets will head higher to much longer, in terms of time not necessarily price). I am looking for significant trade to the upside in a short period of time, as this would signal an imminent trend reversal. We shall keep our eyes open.
In terms of economic releases today, we do have an 8:30 (EST) number, durable goods orders. Also, although it is not typically exciting or market effecting, we have new home sales at 10:00 a.m. EST. The markets will continue to focus on Friday’s GDP report, as this will give true indication of the United States economic standing. Markets could be anticipating better than expected numbers as we rally prior to its release.
A Rather Exciting Trading Day, It Shall be
Mar 17, 2010 Small Cap Stock Picks
James Shelton
In the overnight, the euro/usd broke through the critical 1.38 level, triggered stops, and failed to follow through. The pair currently trades at 1.3775 and still looks to be a bit overextended. The euro has enjoyed nice gains as a Greek debt downgrade threat by Standard and Poor’s is silenced upon “bailout” agreements. Significant resistance is still in place at the 1.3850 level or the February 9th high (red line chart below), while many institutional offers and stops are reported at this level. The dollar is weaker for a second day today before the wholesale prices report, expected to post a decline for the first time in first time in five months, warranting the trade recognizing that the U.S. will maintain loose economic policy and continue to pump stimulus.
This morning, I can’t help but feeling as if our administration has started a battle, that being the United States vs. the World. I say this upon analyzing two very recent developments; Congress’s attack of the yuan and Martin Feldstein’s, a presidential adviser since the Reagan administration, diagnosis of the Greek budget deficit with a possible euro currency-exit. The former issue is of more concern and we shall discuss only this as many believe, including the Chinese Commerce Ministry, that a focus on yuan valuations will not improve U.S. trade inadequacy. The bipartisan bill was introduced, according to the Washington Bureau, by Senators Charles Schumer, D-N.Y., Lindsey Graham, R-S.C., Debbie Stabenow, D-Mich., and Sam Brownback, R-Kan. It is the result of Chinese Premier Wen Jiabao’s rejection of any move to increase or un-peg the value of the yuan. It is also worth noting that the World Bank recommended a stronger exchange rate and tighter monetary policy within China to avoid further inflation and remove any possibility of an asset bubble. I say further inflation because China’s most recent CPI index displayed that inflation is at its highest level in 16 months.
Commodities, in terms of energies and metals, are trading modestly higher as the dollar trades weaker against most of its counterparts. Let us discuss metals first as many believe higher prices are warranted while we head in to the high-production season, that being the spring and summer months. Gold is approaching an intermediate trend line and is in good position to break higher, if it fails to do so a lower high will be recognized and traders will place positions accordingly (chart above right; third red circle under black trend line). It is also worth noting that platinum is trading near a two month high as cheap dollars spur investment demand in this alternative asset.
Crude oil, which violently declined Monday, has recaptured the lower levels and trades very close to weekly highs. It does so upon OPEC’s first gathering of the year, where no change in production is expected, according to 11 of the group’s 12 members. Although, one should take notice that OPEC is exceeding production quotas as there own analysis shows they are pumping more oil than market demand calls for. The reason for this is rather simple; a supply cut would cause oil prices to soar, which in turn would hinder the fragile global recovery. At 10:30 am EST, petroleum inventories are expected to show another increase as refineries prepare for the summer holiday driving season. You can see the swing low that crude made; this will be a great selling point if we fail to break higher.
Not only did the Federal Reserve leave the discount window at its exceptionally low level, but they also left the “extended period” clause within the summary (excerpt below). With that being said, one should not expect tightening at the next FOMC meeting as they claim inflation is being managed and the economic recovery although progressing, is delicate. The Press release stated that:
“The Committee will maintain the target range or the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”
