Why We Are Not Seeing A Crash In The Euro

Includes: AAPL, IVV, SPY, VOO
by: Market Bulls

Market news headlines are clearly focused on the financial unraveling of the Eurozone (with Cyprus being just the most recent example), and while we have seen some weakness in the euro (relative to near-term historical averages), we have certainly not seen an outright collapse in the currency. The general expectation in situations like this would be that safe haven assets (think gold and the US dollar) would see massive rallies. But this has only been true to a limited extent and the reason for this can be found in the size of the Cypriot economy and the general expectations of the ECB in stabilizing the economy.

With the extreme scaremongering we have seen in Cyprus, most traders have been left with more questions than answers. We have seen clear statements showing the intention to withhold Emergency Liquidity Assistance (ELA) if Cyprus does not manage to find agreeable terms. These threats have some validity, given that Cyprus enacted an unscheduled bank holiday (in an attempt to prevent a run on the banks). We have previous examples of many of these factors (think Greece) and in each case, the Eurozone has managed to avert a crisis in the 11th hour. Markets are currently operating under similar expectations, and with the Cypriot contribution making up only 0.2% of the economy as a whole, investors have been willing to buy the Euro at cheaper levels, and avert an all-out collapse in the currency. Chart analysis also supports an upside move, and favorable developments here will present buying opportunities in the EUR/USD, S&P 500 and in market-favorite stocks, such as Apple (NASDAQ:AAPL).

Market Response

When looking at the market response so far to these events, somewhat surprising reactions can be seen. In the EUR/USD, we are seeing prices stall just below the psychological 1.30 level (with recent breaks of short-term trend resistance). So far, we have seen prices fall to limited new lows for the year, and because of this, further upside is becoming increasingly likely. Specifically, an upside break of 1.3020 will remove the medium term downtrend channel that investors have been watching for most of the year and continued positive momentum from current levels would bring the Euro back above its medium-term historical averages.

Bottom Line: Downtrend has found a bottom, and market events are having only a limited impact on investor sentiment

In the S&P 500, a different picture emerges. Prices are now flattening out near their all-time highs, while creating higher lows (an ascending triangle). This increased demand is seen just below the all-time highs above 1565. An upside break of the triangle suggests a retest of these highs, where market supply is unlikely to hold on to another push, given the strong surge from near term lows.

Bottom Line: Expect the S&P to hold near its all-time highs for the medium term. Relevant ETFs: SPDR S&P 500 ETF (NYSEARCA:SPY), the iShares S&P 500 Index Fund (NYSEARCA:IVV), and the Vanguard S&P 500 ETF (NYSEARCA:VOO).

Next, we look at the impact on individual stocks. For "Market Darling" Apple, we are seeing the confluence of historical supply and demand levels just above $400 area. This coincidentally is where the 200-day EMA rests (and this suggests prices will find a long-term bottom at current levels).

Bottom Line: Downside Correction has run its course, creating an opportunity for long-term buys. Single stock plays here for those looking to ride the general market trend.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Business relationship disclosure: The article has been written by Market Bulls, Writer. Market Bulls is not receiving compensation for it (other than from Seeking Alpha). Market Bulls has no business relationship with any company whose stock is mentioned in this article.