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The Week Ahead: 3 Key Market Drivers May 31st – June 4th Short Version



 

Market Realities Squash Bulls’ Attempts At Rally On Technical Oversold Bounce

Or,

The Pain In Spain Sends Markets Down The Drain (and so could at least 7 other things)

NB For details see: The Week Ahead: Stocks, Commodities, Forex - 3 Key Market Drivers May 31st – June 4th

Summary of Week’s Likely Prime Market Movers

 

  1. Updates on the ongoing EU debt crisis: No enduring market rallies without real progress on the EU debt crisis
    1. The Pain In Spain sends markets down the drain
    2. Spain bank takeovers, bailouts pressure markets all week
    3. Fitch downgrade wipes out week’s gains
    4. EU Commissioner Aluminia warns a big Spanish bank could be next
    5. RBS: Greek, Portuguese, Spanish debt worse prior estimates
    6. Spanish strikes next week further undermine confidence in PIIGS’ ability to avoid default or restructure
    7. Euro traders beware of further ECB, SNB, PBOC, or other central bank support for the Euro which would spark a short squeeze rally in the Euro, possibly other risk assets, and a selloff in gold and the USD

 

Wild Cards: Updates On:

  1. No shelter from housing troubles:
    1. China construction and real estate bubble
    2. US oversupply and its ramifications for banking, jobs, and spending
  2. BP Oil Spill: Reports of US military taking over operations for a literally nuclear desperation solution
  3. US, global banking reform news and events outside of the EU debt crisis
  4. G20 meeting: opportunity to calm or scare markets

 

  1. Packed economic calendar might actually matter barring major news from the above
    1. -US data resumes importance next week with monthly jobs and ISM survey data
    2. -Other Key Events: RBA and BoC rate decisions

                     i.      --Canadian and Australian GDP figures

                    ii.      --European money growth and employment

                   iii.      --UK public debt updates

Introduction

 

 A superficial look at the below chart of the bellwether S&P 500 index, our favorite single picture of risk appetite, suggests a relatively quiet consolidation week after the panicky plunges of prior weeks.

 

 

S&P 500 Daily Chart April 27th – May 28th 06may29

 

In fact, the modest gain for stocks masked a nearly balanced struggle of gargantuan bullish and bearish forces:

  • Bullish: with risk assets close to very potent support their 200 week moving averages, there was every reason to expect some kind of oversold reaction bounce or at least stabilization barring anything but very bad news

 

  • Bearish: lots of very bad news suggesting things will get worse yet

 

The big takeaway lesson this week was that no matter how significant the technical support levels, they will provide nothing more than temporary respite from the downtrend without notable progress on the same array of troubles that have confronted the markets for months

Results for the month

US Stocks (best overall market barometer): Dow -7.9 %, S&P  500 s-8.2 %, Nasdaq -8.3 %. The declines were the worst for the Dow and S&P since February 2009, for the Nasdaq since November 2008

Forex: Strong bias to safe-haven JPY and USD vs. higher yield and risk currencies (see table below)

Results for the week: Overall trend is down for both multi-week  and longer term – bear market rules apply

Stocks-Flat: Dow -0.6 %, S&P 500 +0.2 %, Nasdaq +1.3 %

Key Commodities-Up: Oil- WTI +5.6%, Brent +3.26%, Gold +3.07%, Copper +1.37%

Forex-Bias to safe-haven JPY and USD (see table below)

Top Moving FX Pairs Courtesy of dailyfx.com homepage     05may29

Ramifications: Key Representative Support/Resistance Zones

 

Note that technically we are in a short term bear market based on the bellwether S&P 500 being below its 200 day SMA for over a week. We remain in a longer term bear market based on it being below it’s 200 month SMA for nearly a month. This means the guiding overall trend is down. View rallies as opportunities to sell long positions and enter new shorts on risk assets once these rallies begin reversing per your reversal criteria.

Stocks: S&P 500 – range of 1140-980. Currently around1093 is both the 23.6% Fibonacci retracement and 200 week SMA. We’re right there now. Next support (if long) or resistance (if short) is at 1060, then 1020, then 980. Upside appears limited to 1140 barring a major breakthrough in the EU debt crisis.

Gold: 1240 upside – 1180 downside

Crude Oil: $65 downside - $80 upside

Forex: Overall, we expect the past 2 weeks trading ranges to hold barring any really major news. In particular, the EUR/USD trading range should remain 1.2200/1.2000 downside, max upside 1.2600 barring a major breakthrough in the EU debt crisis.

Disclosure: No Positions