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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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  • COMING WEEK MARKET MOVERS: NINE REASONS TO STAY ALERT THIS WEEK 0 comments
    May 5, 2012 10:21 PM | about stocks: SPY, EW

    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

    The coming week belies the saying "sell in May and go away." Below are 9 very good reasons to stay alert this week. Actually I've counted 11, though the last two are of significance only for those with position in the UK or Australian markets, or in the GBP or AUD.

    1-3. REACTION TO ELECTIONS IN GREECE AND FRANCE

    France: The projected winner, the socialist candidate Hollande, introduces near term uncertainty because some of his stated policies are at odds with those of Germany and so threaten the unity of the EU's Franco/German leadership, and so risk further hampering its ability to act. That makes some kind of EUR pullback likely. Whether that pullback lasts depends greatly on whether he succeeds in calming markets by appearing conciliatory and flexible towards Germany. An upset Sarkozy victory avoids that uncertainty and so would likely be positive in at least the short term for the EUR.

    Greece: The result here is less likely and the risks to the EU are greater. If opposition parties that did not provide written commitments to fulfill enact austerity steps demanded by the IMF, that could mean the swift end of further aid, a messy Greek default that could easily spark a panic induced wave of similar sovereign and banking defaults unless the ECB and Germany agree to engage in a new round of aid or money printing to fund yet another bailout. If the past years are any guide, after a bit of drama Germany gives in and opts for avoiding a crisis now, at the risk of a bigger crisis later when Greece defaults on yet even more debt.

    Italian & German Regional Elections: Not nearly as important as the above but they could still hurt risk appetite if they suggest growing opposition to the EU.

    4. DELAYED REACTION TO US JOBS DATA, ESPECIALLY IN ASIA

    Because US jobs reports come out after Asia closes, it's reaction doesn't come until the start of the following week. Unless some great news comes out before then to balance the bad US job figures, Asia should open lower. The above elections could provide that balance, or greatly exacerbate the negative response from Asia.

    That makes market response to these elections important, because a strong pullback in Asia to start the week could introduce and additional bearish factor….

    5. BREAKS BELOW TECHNICAL RESISTANCE LEVELS FOR MAJOR RISK ASSET MARKETS

    As noted in our weekly review of the prior week, many closely watched markets are now testing strong support after last week's pullback. A significant break below that support risks setting off a wave of sell orders and pullback that could feed on its own growing momentum as that breaches multiple support levels. Remember that many risk markets like the S&P 500 remain near multiple yea highs despite months of steadily growing signs of slowdown.

    6. COMING BANK DOWNGRADES FROM MOODYS

    As we noted last week, Moody's said they'd be releasing credit rating updates starting in early may. Given the relatively light economic calendar this week, any big surprises here could have disproportionately large influence on markets for good or bad. Many may be in the presumed healthy Northern Europe, so downgrades could be especially worrisome.

    7. ITALIAN BOND SALES

    Italian bond auctions on May 11 and 14 will provide the latest look at Italy's creditworthiness. Given the light economic calendar this week, a surprise here too could have an unusually strong influence on market sentiment.

    8-11. OTHER TOP CALENDAR EVENTS

    After the above, the coming week's calendar is relatively short on likely market moving events.

    • US: The only significant US calendar reports are trade balance and jobless claims on Thursday followed by producer prices and the University of Michigan Consumer Confidence index on Friday.
    • China: Risk appetite will therefore pivot on Chinese data, of which we have plenty. Trade, inflation, industrial production and retail sales reports are all scheduled for release. Based on the latest PMI reports, As long China continues to be in "soft landing" mode, it poses no major threat to global growth. However, if next week's reports show China slowing hard, we could be in for some additional volatility as a simultaneous slowdown in China and the U.S. would be bearish for the global economy.
    • UK: Also, the BoE has a rate statement coming out, and monthly manufacturing production report, both of which could be significant for those with short term GBP positions
    • Australia: There's a batch of important Australian retail, jobs, and other data that should be watched by anyone with short term AUD positions (in addition to the above China data, to which the AUD is particularly sensitive).

    Consult any good economic calendar like that of forexfactory.com for details

    CONCLUSIONS

    Here are the key take away points.

    BEST CASE SCENARIO - RELATIVE QUIET, WORST CASE, HARD SELLOFF

    This is the kind of week that could be very wild or quite, depending on how the above 11 market drivers interact. If the early week combined reaction to the elections in Europe and US jobs figures avoids a pullback strong enough to decisively break through current support levels that could ignite a wave of sell orders that start feeding on each other, then barring any major bearish surprises, markets have a good chance of avoiding a pullback. Given the overall bearish tone and potential for pullback, given the already elevated prices of most risk assets, that's the likely best case scenario.

    DIVERSIFY YOUR CURRENCY EXPOSURE

    Regardless of what happens, most major central banks continue pursing low rate, easy money policies that are likely to ease their debt repayments, but at a cost of cutting the value of their currencies and anything denominated in them- including your assets.

    Therefore, just as you diversify by asset class and sector, you need to diversify your currency exposure. There are a range of low risk, simple ways to do this without engaging in the kinds of high risk demanding forex trading at which most fail. The best and only guide to currency diversification for the risk averse mainstream trader or passive investor is THE SENSIBLE GUIDE TO FOREX, SAFER, SMARTER WAYS to SURVIVE and PROSPER from the Start (Wiley & Sons, September 2012). It's the first book to show how both prudent active traders and long term investors with limited time and risk tolerance can tap forex and commodity markets to hedge currency risk and improve returns.

    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.

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