Eric Kelly's  Instablog

 The overall market declined continuously throughout the trading day (6-1-11). Financials led the charge downward, as the XLF posted a staggering -3.4%. The financial sector is expected to be hurt badly by loans over the next 6 months. On Tuesday the S&P/Case-Shiller Home Price Index showed a decline of -3.6%, which was more than estimated. It's a leading indicator of the housing industry's health because rising house prices attract investors and spur industry activity. The number is based on the change in the selling price of single-family homes in 20 metropolitan areas. In addition, several analysts are now stating the double-dip in housing is confirmed.

Most economic data that has come out in the last couple weeks has been poor. The US economy seems to be dragging after emerging from the world recession last year. Earlier today the ADP Non-farm Employment data showed a change of 38K vs. the 177K expected; this is the estimated change in the number of employed people during the previous month, excluding the farming industry and government. The results either a giant misstep by the economy or a grossly huge over-expectation by analysts.

All of this effects the performance of banks in the long run in terms of lending defaults. Below is a daily chart of XLF. Notice the price cross below the green 200 day moving average and today (6-1-11) ended with a very bullish candle.

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

JPM crossed below the 200 day sma (green line) early on Tuesday. The level of support was 42.18. The price action moved easily through the line, which is a cause for concern if you're a bull. Tomorrow's price action will be a good indicator of whether this stock will continue lower or move higher off of the 200 day line.

Fundamentally, JPM is a very strong stock. There is no reason to think the company is in bad shape on this decline. In fact, this is an excellent buying opportunity and gets even better as the stock moves lower. Think of this like shares of JPM are on sale. 

The last time JPM moved below the 200 day sma was about one year ago, May 5, 2010. The stock stayed below for almost 7 months before cleanly moving higher and maintaining its position.

 

 

 

 

 

 

 

 

The EUR/USD pair has been trading in tight channels over the last 48 hours. After diving to new monthly lows on Monday at 1.3970, the pair sprung up in an apparent recovery.  The price movement was a surprise after Monday's poor data:

French Flash Manufacturing PMI: 55 actual v. 57 expected (higher is better)

German Flash Manufacturing PMI PMI: 58.2 actual v. 61.2 expected

Flash Manufacturing PMI: 54.8 actual v. 57.6 expected

Flash Services PMI: 55.4 actual v. 56.6 expected

The "Flash" data is a prelude to the "Final" version which is released one week later. Above 50.0 indicates industry expansion, below indicates contraction. The data is a leading indicator of economic activity and is constructed from a survey of about 600 purchasing managers.

Other important data released on Tuesday had little effect on the pair. The German Ifo Business Climate was better than expected 114.2 v. 113.9 (don't forget the data from Monday though) and New Home Sales (USD) were better than expected 323K v. 305K. Lately housing data has had a larger effect on the dollar, so it is interesting that the currency pair barely moved on this.

The reason this is important is that the currency pair rallied on poor data in a downtrend. This can imply that investors were covering long positions momentarily. The USD did not release any strong or weak data to manipulate the pair into moving. The chart belows shows the channel trading in the EUR/USD from this week.

 

 

 

 

 

 

 

 

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