Seeking Alpha

Cliff Wachtel's  Instablog

Cliff Wachtel
  • on Forex
Send Message
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
My company:
THE SENSIBLE GUIDE TO FOREX
My blog:
THE SENSIBLE GUIDE TO FOREX
My book:
The Sensible Guide To Forex: Safer, Smarter Ways To Survive & Prosper From The Start
  • COMING WEEK MARKET MOVERS: 10 REASONS THIS WEEK COULD BE HUGE 0 comments
    Apr 28, 2012 9:16 PM

    Part 2: Coming Week Market Movers

    The following is Part 2 of our weekly review and preview strategy guide for traders and investors of all major asset classes via both traditional instruments and binary options, covering coming week's market movers and trade ramifications.

    See Part 1 For Prior Week Market Movers, Lessons & Ramifications

    1. MAY 3 ECB MEETING

    As noted in Part 1 regarding the lessons of last week, the fall of the Dutch government and first round socialist victory in French Presidential elections both point to the EU's need to balance the pain of austerity with measures aimed at promoting growth among the struggling GIIPS block. Key points:

    • Needs To Show A Plan of Action: Per Citi's Steven Englander, markets want some to see progress towards easing risks of new contagion threats from the "too big to bail, too big to fail" twins, Spain and Italy. Keeping their rising yields in check is all about managing market confidence. No one expects solutions from Spain and Italy. It's up to the ECB and other EU leaders to show that there's some adult supervision on the scene. ECB inaction could undermine the relative calm and send borrowing costs soaring - which by itself is a renewal of the crisis.
    • Shift to US-Style Pro-growth Policies? A major theme of the past week was that political events in France, Holland, Spain, and Greece all suggest an unraveling of the consensus among EU leaders that sole reliance on German-style austerity is the road to recovery. Instead, there 's a growing acceptance that the EU nations have reached the point at which austerity alone is self defeating because it sends GDP falling just as fast as debt, thus preventing nations from making their debt/GDP targets, and there are increased calls for more of balance between spending cuts and pro-growth policies. For more on the coming rebellion against relentless austerity, see here.
    • Last Friday's US GDP figure supports that position. It was below forecasts, however….
    • After the UK (never mind Spain too) officially double-dipped back into recession after posting its second straight negative quarterly GDP result, even the US's 2.2% GDP figure from Friday looks good. Even though it missed consensus expectations of 2.5%, the US is still growing, which is more than much of the EZ and the UK can say.
    • Watch for hints of:
      • A new emphasis on growth policies to balance the pain of austerity
      • A new dovishness from the ECB, which would boost most risk assets. The EUR would likely suffer from continued falling rates, like any currency. However the pro-growth upside of lower rates could well limit its downside.
    2. MAY 4 US JOBS REPORTS

    As almost always, the monthly US jobs report is among the very most influential scheduled monthly reports, because of the size of the US economy, it's dependence on consumer spending (dictated mostly by the health of the job market and wage growth), and the Fed's use of jobs and spending data as the primary metrics for deciding policy. With the 4 week moving average of weekly jobless claims rising and Bernanke downbeat about the job market, expectations are not likely to be high. Thus anything but a huge miss will likely not shake markets or the USD much, and any significant beating of the consensus could produce a pop for both risk assets and the otherwise safe haven USD

    3, 4 & 5. MAY 6th ELECTIONS IN GREECE, FRANCE, ITALY

    These arguably have the most potential of all to set market tone for at least the near future.

    GREECE

    In theory, the risk here is that the mainstream New Democrats and PASOK parties fail to secure a combined majority, creating uncertainty about whether the new coalition that includes more fringe parties will be able to continue the charade that Greece is cooperating with the EU and is actually trying to reform and repay its debts. Few believe it will, but no one wants that day of reckoning now while the EU is still trying to get its banks ready for a full Greek default, spike in other GIIPS bond rates, contagion risk, etc. After the recent LTRO operations, GIIPS banks and the ECB are sitting on even more dubious GIIPS bonds, and are more vulnerable to a yield spike/price plunge for those bonds.

    Adding to the tension, even the relatively mainstream PASOK party's candidate, Evangelos Venizelos, has essentially said that is party will not participate in the next coalition unless there is no major further austerity - no new taxes or wage/pension cuts.

    FRANCE

    As half of the Franco-German duo that leads the EU, it's the second largest economy in Europe and so if its fiscal health comes into question then so does the survival of the Euro , EU, and EZ as we know it. Beyond its size, philosophically and geographically France is the Economist called"the swing country in the euro crisis, poised between a prudent north and spendthrift south, and between creditors and debtors." It plays good cop to Germany's bad cop, and is thus critical in selling harsh Teutonic fiscal discipline to its Southern brothers.

    The risk here is that:

    • The first round winner Socialist Francois Hollande wins the second round
    • He also actually believes and implements the ideas and policies he's espoused in the campaign

    Neither is a given, but if so that would policies focus more on raising taxes and government spending, rather than cutting spending and promoting wealth creation, hardly a formula likely to inspire market confidence. His opposition to more market friendly policies and a leaner government pushed by Germany in favor of preserving the statist French model could sabotage the tight cooperation needed with Germany to lead Europe to reforms needed to preserve the EU and Euro.

    Although there is considerable body of opinion that holds there is little material difference between what Sarkozy and Hollande would actually do, in the near term a Hollande victory provides enough uncertainty to rattle market confidence in the EU.

    ITALY

    Just regional elections here, but these could confirm or undermine support for current reforms. Significant signs of opposition could bring unwanted concern from credit markets which in recent weeks have focused on Spain.

    Again, it looks like Germany and the above nations are on a collision course unless the ECB and EU leaders can conjure up a convincing package of programs to promote growth that could ease the pain of further austerity needed to keep German cooperation and funding.

    6 - 10. OTHER CALENDAR EVENTS

    In addition to the above, this is a typical first week of the month economic calendar packed with market moving events from the world's most important economies. Note that there will be

    • a batch of earnings reports each day this week though as noted in Part 1 we expect their influence to wane as the tone for this earnings season is already set.
    • a significant number of PMI reports throughout the world that will provide the lasts reading of economic health in the relevant economies
    • the US reports that serve as preliminary guidance to the Friday monthly jobs reports. Depending on the strength of other news and the degree of surprise these provide, these too can move markets.
    • At least one or two of the others below (like some of the major PMIs) could also move markets on a given day (that gets us to at least 10 big potential market movers)

    Here's a daily breakdown. See any good economic calendar like that of forexfactory.com for details.

    Monday

    Canada GDP: BoC already expected to raise rates, disappointment could dampen those, market pleasing results would feed them

    US: Personal income & spending, Chicago PMI report.

    Tuesday

    A big day for PMI reports. In addition to those below, also have Japan and South Korea as a bonus.

    China: Mfg PMI

    Australia: RBA Rate Statement- markets are expecting a rate cut, the only question is how big and what hints will come about further cuts.

    US: ISM mfg PMI

    Wednesday

    UK: Construction PMI

    US: ADP NFP employment change - tends to get direction if not magnitude of the BLS report right, so it can move markets if it surprises materially alters expectations

    Thursday

    UK: Services PMI

    EU: ECB rate statement and press conference

    US: Weekly first time jobless claims, ISM Non-Mfg PMI

    Friday

    Australia: RBA rate statement & comments

    US: Monthly BLS NFP and unemployment rate reports, average hourly earnings

    Canada: Ivey PMI

    Lessons & Ramifications

    So what does a brief summary of the fundamental and technical picture tell us?

    THE FUNDAMENTAL PICTURE: MULTI-YEAR HIGHS LEAVE MARKETS VULNERABLE

    With risk assets, as represented by the major global indexes like the S&P 500, at multi-year highs, (and the S&P 500 only about 11% off its pre-crisis 2007 highs), and data of recent weeks (outside of earnings) mostly negative, markets are vulnerable to any excuse to take profits, even if just to retreat ~2% to the lower end of their multi-month trading ranges.

    The coming week provides abundant chances for such selloff catalysts.

    Moreover, as mentioned in Part 1:

    The primary short term market support, earnings, is likely to start losing influence as the season enters its 4th week.

    The primary longer term rally driver, hope from more stimulus, is likely to be frustrated in the coming weeks.

    So unless the coming week provides a very upbeat picture, where will the fuel come for further gains?

    THE TECHNICAL PICTURE: LONG TERM MOMENTUM INTACT

    Of course, the problem with fundamental analysis is that it doesn't provide great guidance for timing your position entries and exits. For that we need to look at the charts. For the sake of brevity, we'll take a quick look at the weekly S&P 500 chart.

    ScreenHunter 02 Apr 29 01 42 COMING WEEK MARKET MOVERS: 10 REASONS THIS WEEK COULD BE HUGE

    S&P 500 WEEKLY CHART MARCH 2011 - APRIL 2012 02 apr 290142

    Source: MetaQuotes Software Corp, globalmarkets.anyoption.com

    Overall, the index remains in its trading range since February but upward momentum remains intact. Note:

    • The index closed the week within its double Bollinger band buy zone (bounded by upper orange and green Bollinger bands) suggesting strong upward momentum (see 4 RULES FOR USING THE MOST USEFUL TECHNICAL INDICATOR, DOUBLE BOLLINGER BANDS)
    • All exponential moving averages are trending higher, with the more responsive shorter durations crossing above the longer duration EMAs and climbing faster (10 week EMA (dark blue) crossed over 20 week (yellow) which crossed over 50 week (red), while the longer term 100 week EMA (light blue) crossed over the 200 week EMA (purple).
    • Support at 1364 has held firm since February.

    Given the disturbing fundamentals (which ultimately drive technical trends) we are reluctant to add new long risk asset positions. However as long as the 1364 support holds we've no meaningful sell signal.

    Once that support is broken, we've a series of support levels from the 20 and 50 week EMA, soon followed by the 61.8% Fib retracement of the rally that began in September 2011. That means shorting risk assets and currencies is hazardous for longer term positions, but ok for those holding for a matter of hours or a few days.

    Diversify By Currency As Well As By Asset & Sector Class

    One of the repeating themes we see above is that in the EU, US, Japan etc, the risk is high for more central bank policies that should bring a long term loss of purchasing power in these currencies.

    To protect yourself against the risk of crashing markets and currencies dragging you down with them, the best help I can offer you is, THE SENSIBLE GUIDE TO FOREX, SAFER, SMARTER WAYS to SURVIVE and PROSPER from the Start. It's the first forex book ever published to show how both prudent active traders and long term investors with limited time and risk tolerance can tap forex markets to hedge currency risk and improve returns. See my profile page or the above link for details.

    The best way to fight central bank anti-saver policies is vote with your feet and move into assets denominated in currencies of fiscally responsible nations.

    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?

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

Back To Cliff Wachtel's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.