The Euro is still having a pronounced impact on the US markets. Yesterday, the news was good and the Euro rallied. Starting over in Asia, exporters got a boost from the US Univ. of Michigan consumer sentiment reading for June. Taiwan Semi TSM (+0.5) rallied after reaching an agreement with China negotiators on a wide-ranging trade pact on content and structure. Credit Suisse gave a buy rating to Taiwan Semi, helping lift Semis here in the US. St. Louis Fed President Bullard was speaking in Tokyo, saying that while the sovereign debt crisis in Europe was serious, “the global recovery at this point looks very strong and seems unlikely to be derailed”. Important to investors, Bullard also reiterated what Bernanke had intimated the week before, that the rate of growth was not strong enough to warrant raising interest rates anytime soon. This is obviously good news for Financials, which posted early gains. Lincoln National LNC (+4.0%) announced plans for a public offering of equity and debt to fully repurchase the Treasury’s bailout stake of $950 million.
The gains in early European trading stemmed from a solid report from the Euro-zone. The Eurostat reported Industrial Production rose 0.8% in April and was up 9.5% year over year. IP rose in each Euro-zone country except Greece and Ireland. Expectations were for a gain of 0.5%, so this was greeted as very good news. London’s FTSE was up 0.75% despite a 9.3% drop in British Petroleum. bBP is facing stiff political headwinds from the Democrats, as the Obama Administration makes plans for the company to put money aside for future payments. The spill has already cost BP $1.6 billion, as the company weighs plans to potentially cut or halt its dividend payment. The stock was under pressure after Credit Suisse said the total cost to BP could be as high as $37 billion. The company’s current market cap is $83 billion.
The stronger than expected growth in Europe, positive comments by Bullard, and optimism on exports from Asia all built the case for better action in the Euro. Traders brace for bad news out of the Euro-zone heading into the weekends. When we don’t see anything extremely negative, as was the case first thing in the morning on Monday, the Euro rallies. The Euro popped to 1.23. That momentarily topped the recent spate of May lows and one in early June that failed to hold at 1.2144. The rally entered the overhead supply from May and pushed through its 21-day trading moving average at 1.2222. If one were to look at the short-term trend of the last two months, yesterday’s pop moved above that line, so this caught the attention of those looking to trade off of an intermediate term low. The Euro would need to take out its last major attempted rally high, reached on May 21st at 1.2672. That would be a key resistance level, and it is soon to be joined by a declining 10-week moving average, which is currently at 1.2757.
The Euro provided the early impetus to stocks after a solid reversal week last week. However, there is quite a bit of economic data due out this week and earnings are still several weeks away, so traders should be a little more optimistic, but still cautious. This gave the bulls a place to hang their hats and the market reacted smartly, sending the S & P to 1105.91. Two weeks ago, the S & P managed to rally to 1105.67 on June 3rd before falling to test the 1040 level. It’s 200-day moving average is at 1108. The morning rally got right in this zone before pulling back a bit and consolidating. The Dow’s comparable resistance was right about 10,316, which it edged through slightly. The NASDAQ closed on Friday right on its 200-day moving average, so it was a solid breakout until the index faded and gave it all up to close right back on its moving average at 2240.
What erased the market’s gain was aimed right at the heart of what gave it the impetus to move higher. Moody’s moved to downgraded Greece’s government bond rating to junk. The rating of Ba1 was four notches below its previous A3 rating. Moody’s said that the “macroeconomic and implementation risks associated with the program are substantial and more consistent with a Ba1 rating”. The Euro fell to 1.2221, right at its 21-day moving average. As the Euro gave up its important breakout gain, the Dollar popped back up to salvage a minor loss and the averages gave up all of their attempts to breakout above key resistance levels.
Technically, the morning rally gives us a more definitive point for the ultimate breakout to start the summer rally. Plug in yesterday’s intraday highs as your trigger points, as they closely approximated previous highs and moving averages. Dow 10,328, S & P 1106, NASDAQ 2279, and the Russell 2000 at 663 should be followed as near term resistance that should confirm the summer rally has started. However, this week may be tough to get the rally started, between all of the inflation and housing data due out. However, today’s small Empire State Index is the first regional manufacturing survey for June. Expectations are for 20.06 versus 19.11. Tomorrow, our main focus will be on May Industrial Production and Capacity Utilization figures. This should be one of the key reports for the week. A constructive consolidation would be very positive below the levels mentioned above.
The Euro is still having a pronounced impact on the US markets. Yesterday, the news was good and the Euro rallied. Starting over in Asia, exporters got a boost from the US Univ. of Michigan consumer sentiment reading for June. Taiwan Semi TSM (+0.5) rallied after reaching an agreement with China negotiators on a wide-ranging trade pact on content and structure. Credit Suisse gave a buy rating to Taiwan Semi, helping lift Semis here in the US. St. Louis Fed President Bullard was speaking in Tokyo, saying that while the sovereign debt crisis in Europe was serious, “the global recovery at this point looks very strong and seems unlikely to be derailed”. Important to investors, Bullard also reiterated what Bernanke had intimated the week before, that the rate of growth was not strong enough to warrant raising interest rates anytime soon. This is obviously good news for Financials, which posted early gains. Lincoln National LNC (+4.0%) announced plans for a public offering of equity and debt to fully repurchase the Treasury’s bailout stake of $950 million.
The gains in early European trading stemmed from a solid report from the Euro-zone. The Eurostat reported Industrial Production rose 0.8% in April and was up 9.5% year over year. IP rose in each Euro-zone country except Greece and Ireland. Expectations were for a gain of 0.5%, so this was greeted as very good news. London’s FTSE was up 0.75% despite a 9.3% drop in British Petroleum. bBP is facing stiff political headwinds from the Democrats, as the Obama Administration makes plans for the company to put money aside for future payments. The spill has already cost BP $1.6 billion, as the company weighs plans to potentially cut or halt its dividend payment. The stock was under pressure after Credit Suisse said the total cost to BP could be as high as $37 billion. The company’s current market cap is $83 billion.
The stronger than expected growth in Europe, positive comments by Bullard, and optimism on exports from Asia all built the case for better action in the Euro. Traders brace for bad news out of the Euro-zone heading into the weekends. When we don’t see anything extremely negative, as was the case first thing in the morning on Monday, the Euro rallies. The Euro popped to 1.23. That momentarily topped the recent spate of May lows and one in early June that failed to hold at 1.2144. The rally entered the overhead supply from May and pushed through its 21-day trading moving average at 1.2222. If one were to look at the short-term trend of the last two months, yesterday’s pop moved above that line, so this caught the attention of those looking to trade off of an intermediate term low. The Euro would need to take out its last major attempted rally high, reached on May 21st at 1.2672. That would be a key resistance level, and it is soon to be joined by a declining 10-week moving average, which is currently at 1.2757.
The Euro provided the early impetus to stocks after a solid reversal week last week. However, there is quite a bit of economic data due out this week and earnings are still several weeks away, so traders should be a little more optimistic, but still cautious. This gave the bulls a place to hang their hats and the market reacted smartly, sending the S & P to 1105.91. Two weeks ago, the S & P managed to rally to 1105.67 on June 3rd before falling to test the 1040 level. It’s 200-day moving average is at 1108. The morning rally got right in this zone before pulling back a bit and consolidating. The Dow’s comparable resistance was right about 10,316, which it edged through slightly. The NASDAQ closed on Friday right on its 200-day moving average, so it was a solid breakout until the index faded and gave it all up to close right back on its moving average at 2240.
What erased the market’s gain was aimed right at the heart of what gave it the impetus to move higher. Moody’s moved to downgraded Greece’s government bond rating to junk. The rating of Ba1 was four notches below its previous A3 rating. Moody’s said that the “macroeconomic and implementation risks associated with the program are substantial and more consistent with a Ba1 rating”. The Euro fell to 1.2221, right at its 21-day moving average. As the Euro gave up its important breakout gain, the Dollar popped back up to salvage a minor loss and the averages gave up all of their attempts to breakout above key resistance levels.
Technically, the morning rally gives us a more definitive point for the ultimate breakout to start the summer rally. Plug in yesterday’s intraday highs as your trigger points, as they closely approximated previous highs and moving averages. Dow 10,328, S & P 1106, NASDAQ 2279, and the Russell 2000 at 663 should be followed as near term resistance that should confirm the summer rally has started. However, this week may be tough to get the rally started, between all of the inflation and housing data due out. However, today’s small Empire State Index is the first regional manufacturing survey for June. Expectations are for 20.06 versus 19.11. Tomorrow, our main focus will be on May Industrial Production and Capacity Utilization figures. This should be one of the key reports for the week. A constructive consolidation would be very positive below the levels mentioned above.