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Cliff Wachtel
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Cliff Wachtel, CPA, is currently the Director of Market Research, New Media and Training for Caesartrade.com, a fast growing forex and CFD broker. He covers a variety of topics including global market drivers, forex, currency hedged and diversified income investing, and is currently working on a... More
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  • WEEKLY MARKET MOVERS 1: PIIGS BOND EXPOSURE UNDERMINING BANKS, MARKETS 0 comments
    Aug 20, 2011 9:40 PM | about stocks: UUP, UDN, FXE, ERO, URR, ULE, EUO, DRR, FXA, FXB, FXC, FXD, FXF, FXEN, FXY, JYF, AUNZ, CYB, GLD, CNY, USO, DUG, USL, NBO, DBV, ICI, CEW, SLV, OIL, SPY, SDS, RSW, BXDC, SPXU, SH, DIA, EWC, EWA, TLT, XHB, ITM, IGOV, VGK, TBT, GSG, DBC, CORN, ICN, SZR, BZF, GRU, DAX, FRC, DB, SAN, BNO, ENI

    Weekly Market Movers Part 1: A strategy guide to prior week’s market movers and their lessons for the coming week for traders/investors of all major asset classes via both traditional instruments and binary options.

    PRIOR WEEK

    We begin with the broad technical picture, and then look at what’s behind it.

    TECHNICAL PICTURE

    We wrote in last week’s market review:

    Note in the weekly chart (below) that the[S&P 500] index has also breached its 200 week EMA (pink).Unless the index can rally back above this level around 1200 soon, then we’re looking at a decisive break below this level. As the below long term weekly chart of the index shows, breaks below this level usually bring longer term pullbacks.

    ScreenHunter 13 Aug 14 04 211  WEEKLY MARKET MOVERS 1: PIIGS BOND EXPOSURE UNDERMINING BANKS, MARKETS

    S&P 500 WEEKLY CHART JANUARY 2001- AUGUST 2011 COURTESY ANYOPTION.COM 13aug 14 0421

    Key Points

     

    The last two times the index dips below its 200 week EMA (pink line) we got a longer term downtrend  lasting many weeks.

    Short version: charts are looking more bearish.

    Here’s the updated weekly chart below, which shows the most recent candle of the past week making a deeper, more decisive penetration below the 200 week moving average. This move was mostly due to the Thursday selloff, added by the lesser selloff Friday.

    ScreenHunter 07 Aug 20 22 25  WEEKLY MARKET MOVERS 1: PIIGS BOND EXPOSURE UNDERMINING BANKS, MARKETS

    WEEKLY S&P 500 COURTESY ANYOPTION.COM    07aug 20 2225

    Looking at the daily chart, we get additional insight into the technical damage sustained this past week

    ScreenHunter 04 Aug 20 21 45  WEEKLY MARKET MOVERS 1: PIIGS BOND EXPOSURE UNDERMINING BANKS, MARKETS

    S&P 500 DAILY CHART COURTESY ANYOPTION.COM       04AUG 20 2145

    BUILDING BEARISH MOMENTUM

    Deepening “death cross”: As 50 day EMA (red) falls further below the 200 day EMA (pink). This raises the odds of more downside, as we discussed in detail in S&P 500 FLASHING DEATH CROSS: THE BEAR IS BACK.

    Increasingly bearish layering of EMAs: The stronger the downside momentum, the more we see the shorter term (and thus most sensitive to changes in momentum) moving averages crossing  below the longer term ones, the stronger the downside momentum.  Note shortest duration 10 day EMA (blue) under the longer duration 20 day EMA (yellow), which in turn is below the longer duration 50 (red), 200 (pink) and 100 (purple). The layering is now almost perfect, except that the 100 day EMA has yet to fall beneath the 200 day EMA, but that’s usually the last step given that these two are slowest to respond given their inclusion of so many older data points.

    The index is now deeper into the Double Bollinger Band Sell Zone (the zone bounded by the lower dark green and orange bands): Once price enters this area it means downward momentum is strong and suggests higher odds of more downside to follow. For more on this see:4 RULES FOR USING THE MOST USEFUL TECHNICAL INDICATOR, DOUBLE BOLLINGER BANDS

    In addition, we’ve a developing bearish flag chart pattern on the daily S&P 500 Chart below.

    ScreenHunter 05 Aug 20 21 58  WEEKLY MARKET MOVERS 1: PIIGS BOND EXPOSURE UNDERMINING BANKS, MARKETS

    S&P 500 DAILY CHART COURTESY ANYOPTION.COM   05aug 202158

    FUNDAMENTAL MARKET MOVERS

    So what was behind these moves on the S&P 500, our primary barometer of risk appetite?

    The short version:

    • Growing anxiety over the stability of EU banks, particularly those of the core nations most heavily exposed to GIIPS bonds. The ECB bond buying program helped, but EU policymakers made things worse.
    • Ongoing evidence of slowing global growth

    Here’s a day by day breakdown of how these and other forces played out, and the lessons we learn.

    MONDAY

    Risk assets rose on a combination of:

    • Upward momentum from the prior week’s close

     

    • Data: Better than expected Japanese GDP and US retail sales
    • M&A Activity: Google’s purchase of Motorola Mobility
    • Possible optimism that the latest Merkel-Sarkozy emergency meeting might actually produce meaningful results
    TUESDAY

    The risk asset rally ends due to:

    • Technical Resistance: From a technical perspective risk assets were hitting near term resistance levels and thus needed new reasons to move higher. For example, the S&P 500 was now back around the key 1200 level. However, they got the very opposite kind of news.
    • German preliminary GDP was below expectations 0.1% vs. 0.5% forecasted), feeding ongoing fears that even if its credit is still solid Europe’s leading exporter and bailout funder can’t grow if its end markets aren’t buying.
    • The Merkel-Sarkozy meeting was a disappointment, offering no dramatic solutions like Eurobonds or major new funding for troubled states or banks that might have calmed markets. Nothing new was said, except that Sarkozy proposed a new banking tax, which didn’t help banking stocks, which were already battered on concerns about solvency due to exposure to GIIPS bonds. Markets had been about even at that point, but started selling off thereafter.
    • There were further reports from German politicians that Eurobonds were a non-starter in Germany and could only be considered as a last-resort. However over the course of the EU crisis, today’s last resort becomes tomorrows solution (bailouts, ECB buying of junk-rated sovereign bonds, etc)
    • Italian shares were further hit by news of a new “Robin Hood tax”.
    • US data was mixed at best. Ominously, US bank shares were selling off hard once again.
    WEDNESDAY

    Markets overall were flat, but one important news item that would contribute to Thursday’s route.

    The ECB’s latest tender operation for emergency 7 day liquidity – a kind of  dollar-denominated discount window for Europe, showed one bank borrowing $500M. This was noteworthy because borrowed  this facility had not been used since March 2011 and no one had borrowed in size since March 2010. Apparently, some major EU bank was feeling pressured, no surprise after the prior week’s reports that both Asian and US banks were cutting off European banks from overnight lending except for on a case-by-case basis. This lack of confidence in EU banks arose from fears that their exposure to GIIPS bonds and high leverage were making them too risky. We suspect this news was at least part of the reason for the strong plunge at the opening of Thursday trading in Asian markets.

    THURSDAY

    The Panic Returns On Renewed Fears About EU Banks, US Slowdown, Dim Prospects For A QE 2-Type Rescue For Markets

    • Asian stock indexes closed mostly 1%-1.5% lower, Europe and the US were down between 4%-5% (?!), ending any thoughts that last week’s wild swings were an aberration. Top market movers included
    • Renewed concerns over European Banking
    • First, there was the prior day’s report noted above that suggested at least one big bank was having trouble finding short term borrowing sources and needed to resort to a rarely used ECB facility.
    • Feeding concern about European banks was a WSJ story that now the US bank regulators, fearing that Europe’s banking crisis could spread to the US, were scrutinizing the US branches of Europe’s biggest banks to assess their stability and access to funding. The article stated that the NY Fed was very concerned about European banks facing funding difficulties in the US.
    • Second Annual Greek Bailout Looking Less Certain: Also out were reports that both Finland, then Holland, would not make further loans to Greece without collateral to guarantee the loans. The obvious risk is that Greece cannot offer that to all lending nations, so if too many demand it the rescue plan will collapse.
    • More Bad US Data Furthers Fears Of US Double-Dip Recession
    • Worse Inflation & Economic Data Lower QE 3 Prospects: CPI initial jobless claims, and existing home sales all printed worse than forecast. This combination of more inflation and lower growth will make it harder for Bernanke to justify more QE, which is what saved markets last summer after they plunged on EU worries. With markets again rattled as Europe deteriorates, many are hoping for more QE. However that becomes less likely with both inflationary pressures and any real evidence that the last stimulus package really helped. Bernanke may well be unable to help markets at this time.
    • Philly Fed Flops: Then at 10am EST (3pm GMT) the Philly Fed manufacturing report came out, and it was a disaster, printing at -30.7 vs. +3.2% forecasted, one of the worst showings in a decade. Markets spent the rest of the day plunging.
    Lessons For The Coming Week: More Of The SameEUROPE SOVEREIGN DEBT & BANKING CRISIS ANXIETY KEEPING MARKETS AT RISK OF DEEPER PLUNGES

    Europe remains the big threat, and it’s getting worse still.

     

     

    TO VIEW THE REST OF THIS ARTICLE PLEASE VISIT http://globalmarkets.anyoption.com AND FIND ARTICLE BY SAME NAME UNDER THE WEEKLY TAB

     

     

     

    DISCLOSURE /DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY, RESPONSIBILITY FOR ALL TRADING DECISIONS LIES SOLELY WITH THE READER. IF WE REALLY KNEW WHAT WOULD HAPPEN, WE WOULDN’T BE TELLING YOU FOR FREE, NOW WOULD WE?

     

     

     

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