E-Mini S&P 500: Topsy Turvy Euro And A Sloppy Close

Includes: FXE, SPY
by: DeWayne Reeves

The E-Mini S&P 500 has been a bit like riding a roller-coaster as the ESM12 rises on the US modest recovery data and falls back on the contagion concerns filtering out of the Euro Zone. US Existing Home Sales increased 3.4 % to an annual rate of 4.62 million units last month while the median home resale price increased to $177,400.00 in April rising about 10.1% since last year. Around 28 % of those homes were distressed. Inventories increased to 2.54 million units as spring is typically the boom in housing where more houses go up for sale for the warmer summer months ahead.

The data may be skewed to a certain degree as "shadow inventory" (homes that may be in the foreclosure process but have not hit the market yet) take time to appear in the inventories. The US Unemployment rate is holding at 8.1% to date. The next Unemployment report is due out June 1st. As consumers become more confident in their job prospects, housing should pick up in step with the employment data. The general feeling is that the US housing market has bottomed. Existing single-family homes increased 3% to an annual rate of 4.09 million units while the multifamily homes increased 6% to a 530,000 unit pace. The average rate on the 30-year fixed mortgage is at about 3.79 %.

US business equipment loans increased by 20% in April to $6.1 billion really credited to replacement rather than expansion except in the case of health-care and manufacturing. There is still uncertainty about the rate of growth in the US. The recent initial public offering of Facebook (NASDAQ:FB) had been hyped to gain the curiosity of most investors, but since has dropped to about $30.98 shortly after the open Tuesday, falling about 20% from the offering price.

A couple of top US financial regulators are requesting a review of the offering due to the glitches in reporting on the Nasdaq exchange. The Nasdaq exchange processed about 570 million shares, making it one of the largest IPOs offered. One investor is attempting a class action suit claiming that a Nasdaq operator was negligent in handling the orders. Morgan Stanley was the lead underwriter on the deal. It is difficult to determine in these cases if any liability can be established as typically any electronic transaction has disclaimers.

Greece has its national elections on June 17th. The elections could go to the leftists still which would possibly move toward leaving the European Union (EU). One of the leftist leaders seemed to believe that the rescue funds would come whether they went along with the austerity measures or not. Greece's financial stability fund, the Hellenic Financial Stability Fund (HFSF) approved bailout funds estimated at about $18 billion euros in European Financial Stability Facility notes. These funds may be used to recapitalize the Alpha Bank, National Bank of Greece, EFG Eurobank and Piraeus Bank. The European Union leaders really want Greece to stay in the EU. The Greek banking system could not tolerate too many runs on the nation's banks. Last week about $700 million euros were withdrawn as the citizens became worried about a potential return to the Drachma.

The G8 this weekend discussed some of the mounting pressures regarding growth verses the deep austerity measures that have been met with so much opposition. The May 23rd summit should elaborate on growth and the fiscal compact in place and how to integrate them with a decided purpose. French President Francois Hollande is seeking a joint Euro Zone bond with the backing by Italy, Spain and the European Commission. German Chancellor Angela Merkel has opposed this move.

Merkel has been an advocate of reforms, believing that the stringent austerity measures would set the nation on a budget that would eventually fulfill the deficit, but it is difficult to budget to prosperity when growth is an equally important factor. The Spanish Prime Minister is calling for urgent solutions to guarantee financial stability in Europe. The Spanish auctions are still non-sustainable at yields of 6.29% on the ten-year bonds.

The Institute of International Finance disclosed that the Spanish banks may need another $76 billion euros to cover losses due to the collapse in the housing market. The Euro leaders have been kicking around the scenarios should the Greeks leave the EU where they may consider propping up the Spanish banks or perhaps the European Central Bank would spring for another round of cheap loans. Right now, the European Financial Stability Facility (EFSF) or the European Stability Mechanism (ESM) cannot recapitalize the banks directly. The EFSF is to expire in the next couple of months and perhaps they could lend Spain money to be injected into the banking system, but initially that money had been earmarked for the Greek rescue.

The Spanish Prime Minister is still claiming that Spain is not in need of any rescue funding. Britain is struggling along with the other Euro Zone nations. The Bank of England has purchased about $325 billion pounds in government bonds to boost the troubled economy, but it is thought that more is needed even with the inflationary concerns. Quantitative easing has become the life blood of many nations at this point.

The US is looking toward the next Federal Open Market Committee meeting with Operation Twist ending in June. Each report is viewed in two parts, the numbers pointing toward growth or any horrific numbers pointing toward QE3. The MSCI's all country global equity index increased 0.8% to 303.65. Japan was downgraded Tuesday on its high debt levels. It could be partly due to the tsunami and earthquake of last year that the rebuilding would take the nation off budget.

The G8 leaders did manage to agree on potentially releasing oil from the strategic reserves. President Obama had petitioned and released oil last year from the reserves to keep the price of oil from inclining to inflationary levels. The UN's International Atomic Energy Agency hopes to have positive results from the meeting. Iran insists on peaceful purposes for the nuclear research. The IRNA news agency of Iran quoted Chief Firouzabadi saying that Iran's aim was the "complete annihilation of Israel". Fears now are that the nuclear program in the Fordow mountain may be deeply embedded in the mountain at this point clear of any missile attacks. It is hoped that a resolution is near.

On the stock side: JP Morgan Chase and Co. (NYSE:JPM) was up 4.61 % to $34.01. Citigroup Inc. (NYSE:C) was up 2.63 % to $26.94. Bank of America (NYSE:BAC) was up 2.20 % to $6.98. Alcoa Inc. (NYSE:AA) was down 1.16 % to $8.50. Boeing Co. (NYSE:BA) was down 0.47 % to $71.44. Caterpillar Inc. (NYSE:CAT) was down 0.74 % to $91.30. General Electric Co. (NYSE:GE) was up 0.31 % to $19.18. Halliburton Co. (NYSE:HAL) was down 1.25 % to $30.78. Hewlett Packard Co. (NYSE:HPQ) was down 2.92 % to $21.25. SPDR Select Sector Fund - Financial (NYSEARCA:XLF) was up 0.65 % to $13.99.

E- Mini S&P 500 Chart.

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Wednesday, what to expect: We maintain a bearish bias unless the E-Mini S&P 500 penetrates $1341.00. Today, we anticipate an inside to lower day. Tuesday's range was $1326.50 - $1307.25. The market settled at $1315.75. Our comfort zone or point of control for this market is $1317.25. Our anticipated range for Wednesday's trading is $1323.50 - $1282.50.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.