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APRIL 18-22 MARKET MOVERS TO WATCH: EARNINGS, THE EU, & QE 2

|Includes: BAC, FXA, FXB, FXE, Alphabet Inc. (GOOG), HAL, IBM, INTC, JPM, SLB, SPY, TI, UUP

 BEWARE THE CONTINUED “BEARISH EQUALS BULLISH” WORLD OF QE 2

While much of the potential market movers below may be bearish on the surface, remember that in this market, if news is bearish enough to suggest new stimulus, it can cause markets to rise.

SPECULATION ABOUT THE END OF QE 2 AND ITS BEARISH IMPACT

The fate of the market/economy once QE2 ends, is one of the hottest questions facing us. Given the outsized strength of the rally in risk assets since September,  compared to the less compelling actual underlying growth prospects we’ve seen, many believe that the rally since September has been mostly based on stimulus cash from QE2, and so once this ends, assuming no QE 3, so will the rally. See here for details on why.

Market participants widely assume that QE operations will continue through June, and thus they are relatively “safe” to take speculative risk until then. However, the end may come far sooner.

The next FOMC meeting is on April 26-27. There has been some debate on whether the Fed might decide at that meeting to terminate QE2 early, however that debate is actually moot. By then, QE2 will already be at least 85% complete. See here for details.

US EARNINGS

Unlike last week, the coming week brings quarterly results from a larger group of widely held names, and will more clearly set the tone for the Q1 2011 earnings season, which has been one of tepid thus far from the big names of the past week, like Alcoa (NYSE:AA), Google (NASDAQ:GOOG), and Bank of America (NYSE:BAC).

The coming week includes top technology and financial company reports, including Yahoo (YHOO), Intel (NASDAQ:INTC), IBM, Texas Instruments (NYSE:TI), Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS) and Citigroup (NYSE:C).

Among others expected to report next week are several oil services companies, including two of the sector’s biggest names, Halliburton Co. (NYSE:HAL) and Schlumberger Ltd (NYSE:SLB).

FOR SPECIFIC DATES SEE ANY GOOD EARNINGS CALENDAR LIKE THAT OF YAHOO FINANCEhttp://biz.yahoo.com/research/earncal/20110418.html

SPECULATION ABOUT THE END OF QE 2 AND ITS BEARISH IMPACT

The fate of the market/economy once QE2 ends, is one of the hottest questions facing us. Given the outsized strength of the rally in risk assets since September,  compared to the less compelling actual underlying growth prospects we’ve seen, many believe that the rally since September has been mostly based on stimulus cash from QE2, and so once this ends, assuming no QE 3, so will the rally. See here for details on why.

Market participants widely assume that QE operations will continue through June, and thus they are relatively “safe” to take speculative risk until then. However, the end may come far sooner.

The next FOMC meeting is on April 26-27. There has been some debate on whether the Fed might decide at that meeting to terminate QE2 early, however that debate is actually moot. By then, QE2 will already be at least 85% complete. See here for details.

EU DEVELOPMENTS MAY SCARE MARKETSGROWING RESTRUCTURE TALK

Per a Financial Times report, Germany is working on a Greek debt restructure plan, despite ECB objections. This fits with the public admission (reported by Reuters here) by German FinMin Wolfgang Schnauble, a first for a leading EU official after many off the record statements, that a Greek restructure was inevitable.

The plan is not finalized, though one possible resolution includes the swapping of Greek debt with Euro-zone backed debt. Presumably, the Euro-zone debt would have a lower yield, but the likelihood of receiving payment on this asset would be higher. The EFSF, the region’s bailout fund, may also be used to buy Greek debt.

The problem with a plan is the potential impact on Greek and other European banks that would get stuck with losses arising from holding lower yielding bonds. That’s what worries the ECB, and the Greek government.

The French banking giants of Societe Generale and BNP Paribas were listed as two of the most exposed to Greek debt last year. Greek sovereign debt is likely to remain under pressure, even though the country’s government proposed new austerity measures this week.

Of course one restructure raises the prospects of others for Ireland and Portugal. These in turn raise the chances that those holding the bonds, mostly big EU banks, will be taking further hits, casting further uncertainty on EU banking, and thus on risk appetite, which has remained resilient while long as QE 2 funds continue to flow. Keep an eye on PIIGS bond yields and CDS rates for the latest on market sentiment on the EU crisis.

FINNISH ELECTIONS

Finland’s election this Sunday may well result in an anti-bailout government that could block a Portugal bailout, even if a caretaker government can come together in time to commit Portugal to the terms of a bailout. Last week it was reported that political parties opposing European bailouts continue to gain in Finland, and now have a 50% chance of winning a majority, and thus able to block a rescue of Portugal. Such action would likely fuel opposition parties in Germany, calling the whole EFSF into question.

 

CHINA SUPPORT FOR SPAIN BONDS COULD BUY TIME FOR SPAIN

Earlier in the weak there reports that China would be a big buyer of Spanish bank bonds. Later in the week there was some backtracking on this from Spain. Even if the reports prove true, rising ECB rates risks inflicting more damage on these banks from bad real estate loans now weighted down with yet higher rates, and make recapitalizing Spanish banks a much bigger job. Still, Chinese support would buy Spain, the EZ, and the Euro, precious time.

CALENDAR EVENTS

Excluding scheduled earnings releases, next week’s economic calendar is relatively light.

Highlights  include:

SUNDAY: NZD CPI Q/Q

MONDAY: NONE

TUESDAY: AUD RBA MONETARY POLICY MEETING MINTUES, FRENCH/GERMAN/EZ FLASH MFG N SERVICES PMIS, CAD CORE CPI M/M, USE BUILDING PERMITS

WEDNESDAY: GBP MPC MEETING MINUTES, USD EXISTING HOME SALES

THURSDAY:

AUD PPI Q/Q,

EUR GERMAN IFO BUSINESS CLIMATE

GBP: PUBLIC SECTOR NET BORROWING, RETAIL SALES

CAD: RETAIL SALES

USD:  FIRST TIME WEEKLY CLAIMS, PHILLY FED MFG

FRIDAY: NONE, many markets closed Friday for the Easter holiday. Expect illiquid markets, meaning either very quiet trade or, if some major news breaks, very volatile trade.

CONCLUSION: GIVEN THE ABOVE, A KEY TECHNICAL INDICATOR SUGGESTS THE UPTREND IN RISK ASSETS MAY BE STALLING

Note the weekly S&P 500 chart below.

ScreenHunter 02 Apr 17 00 02  APRIL 18-22 MARKET MOVERS TO WATCH: EARNINGS, THE EU, & QE 2

S&P 500 WEEKLY CHART COURTESY OF ANYOPTION.COM  02APR16 0002

This past week (the right most candle), the longer term uptrend of the S&P 500, a key barometer for risk assets, flashed a potentially bearish signal: price closed below the Double Bollinger Band Buy Zone, the area bounded by the upper 2 orange and green Bollinger Bands. This signifies weakening momentum. For more on interpreting Double Bollinger Bands see:

4 RULES FOR USING THE MOST USEFUL TECHNICAL INDICATOR, DOUBLE BOLLINGER BANDS

This is the second time in 6 weeks the index has fallen below the buy zone. The last time this happened was 6 weeks ago, and it foretold a modestly lower close the following week as well. Whether that happens again will depend greatly on how the fundamental drivers discussed above play out.

TRADING RAMIFICATIONS

Those seeking to trade in line with multi week trends, be they traders of stocks, stock indexes, commodities and forex, via spot market instruments, ETFs, or binary options, must consider that the above indicator suggest risk trends are at a crossroads. Consider standing aside until either

The S&P 500 re-enters the Double Bollinger Band Buy Zone in your chosen time frame, a signal to return to long position in risk assets such as binary option calls on the S&P 500 or AUD/JPY.

The S&P 500 shows signs of further pullbacks. For example, it drops into the Double Bollinger Band sell zone (the area bounded by the lower 2 Bollinger Bands) in your chosen time frame.

DISCLOSURE/DISCLAIMER: NO POSITIONS. THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY. ALL TRADE DECISIONS ARE SOLELY THE RESPONSIBILITY OF THE READER.