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
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.
Fear for Greece, Fear for the EUR
Mar 23, 2010 Small Cap Stock Picks
James Shelton
In the overnight, the euro was weaker against many pairs as traders fear an agreement on Greek aid, will not come by the weeks end. According to Bloomberg, Van Rompuy, the European Union President, is attempting to find an agreement on a Greek aid mechanism before the start of this week’s 27 EU leaders meeting. The EUR/USD, although experiencing selling pressure, has remained above yesterday’s low and yesterdays bar is very critical. I say this as it attempted to close below the series of previous swing lows, but failed to do so and created a lower wick. A return of bullish sentiment remains possible until a close below the swing lows to the left, 1.3530 and also until we close under yesterdays low, around the 1.3460 area.
The buying that we spoke of in US equities yesterday came a day early, while we were expecting it to come today. This is of course great news for the bulls as they will be able to take a break today, if they so chose. Yesterday’s rally stopped just at a resistance line created off last Thursday’s high at the 1165.50 level. The next time we touch it should result in a breakout, as the fourth touch of a support or resistance line, often results in a break. Today does not have to be a day of gains, in fact I would prefer selling to preserve the duration of the most recent buying. If the market can remain above yesterday’s lows, one should be pleased and trade accordingly. Support will be found slightly above the 1157 level and the more critical level, 1147-48.
Crude oil was able to trade under the critical $79.00 price level, but failed to close there, which was a necessary element for many traders to establish new shorts. Watch for this market to make its way back to these levels as they now have a gravitational “attraction” to it. This market, along with equities could experience a breakout in some manner today. Trade with caution!
Tags: equity, ES, EUR, futurestrading, Greece, options, stocks, USD
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
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.”
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.
