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European Shares Fall Lower On News That Van Rompuy Is Tasked To Develop A European Nation Sovereign Debt Default Mechanism … US Treasures Fall Lower In Front Of QE 2 Announcement … Japan Shares Enter Their Fourth Week Of Falling Lower … Both The US Dollar

Financial Market report for November 1, 2010


The EU Leaders' European Economic Governance October 2010 call for a sovereign debt disolution mechanism turns the European stocks lower. Bond Vigilantes call interest rates higher on US Treasuries, turing their value lower. A higher US Dollar, rising volatility and other factors signal a downturn in US stocks..

The European Shares fell on news that Herman Van Rompuy has been tasked with preparing the legalities and procedures for a nation’s sovereign debt default. European Financials, EUFN, fell 1.5%. Europe Small Cap Dividends, DGS, fell  1.6%.  Spain, EWP, fell 2.7%. Italy, EWI, fell 1.8%, Austria, EWO, 1.2%. European stock, VGK, fell 0.6%. Financial Times reports that European Central Bank President Jean-Claude Trichet warned that a future rescue mechanism for indebted countries, designed to shift responsibility to investors from taxpayers, could inadvertently push up their borrowing costs, citing European Union officials.

The Yen, FXY, closed 0.15% lower at 122.74.   

The US Dollar, $USD, rose 0.35% to 77.31, stimulating the Developed Currencies, DBV, to manifest what may be an evening star candlestick, but this will require a day or two of trading to confirm. The Dollar Bull ETF, UUP, rose.

The USD/JPY rose.

The Euro, FXE, closed lower 0.24% lower at 138.36. The chart shows that today’s value is in the middle of a broadening top patter. As Street Authority relates: when you see the broadening top, the market will eventually drop.

The EUR/JPY, traded lower as can be seen in the chart of FXE:FXY.

The Emerging Currencies, CEW, rose 0.17%, stimulating the Emerging Markets, EEM, to rise 1.1% to close at 46.63, but below their October 13, 2010 high of  46.85.    

The Bear Market in stocks that commenced on October 14, 2010, endures as the world shares, ACWI, traded up to 44.89; but resides below the 10-14-2010 high of 45.13.

The Bear Market in bonds, that commenced on October 13, 2010, endures as total bonds, Bonds, BND, traded unchanged and remains below the 10-13-2010 high of  82.62. The 10 to 20 Year US Government bonds, TLT, fell 0.4%. The Zeroes, ZROZ, fell 0.8%. World Government bonds, BWX, fell .2%.

The bond vigilantes were active today, in front of the US Federal Reserves QE 2 announcement, calling the Interest Rate on the 30 Year US Government bond, $TYX, higher to 4.017%; its charts suggests that a breakout out through triangular consolidation is at hand. And the Interest Rate on the 10 Year US Government bond, $TNX, rose to 2.659%. the Interest Rate On The 2 Year US Government Note, $UST2Y, traded unchanged at 0.34%. Higher interest rates means The End of Credit has commenced.

Finviz Chart shows that the Japanese shares, EWJ, have now entered their fourth week of falling lower. Japan, EWJ, fell 1.0%; fell its chart is terrifically bearish. The 200% Japan EZJ, fell 2.9%.

A number of bearish factors indicators emerged today.

Junk Bonds, JNK, fell 0.4%, suggesting that peak investment liquidity has been achieved.

New York Composite Shares, NYC, traded a massive 18, 798 contracts, manifested bearish engulfing and fell 0.5%.

Nasdaq Community Banks, QABA, fell 2.1. Banks, KBE, fell 0.5%.

Consumer Staples, XLS, fell 0.45.

International Utilities, IPU, fell 1.0. The 200% Utilities, UPW, fell 2.3%.

International Dividend Payers DOO fell 0.5%.

Clean Energy, ICLN, fell 1.0%.

Health Care Small Caps, XLYS, fell 1.8%; US Healthcare Providers, IHF, fell 0.35.

Mortgage Finance, KME, fell 1.5%.

Volatility, VXX, rose.

I expect bonds, BND, to continue to fall lower as the US 30 Year Interest Rate, $TYX, to rise over 4% on growing concerns that QE 2 monetizes debt. And hence as a result, I expect the major currencies, DBV, except the US Dollar, $USD, component, turn lower, and to a lesser degree, I expect the developing currencies, CEW, to turn lower as well, causing stocks, ACWI, to fall lower.

Deft deflation will get actively underway in both bonds and stocks this week.

Concerns over the European Financials, EUFN, and their exposure to sovereign debt of Portugal, Italy, EWI, Ireland, EIRL, Greece, and Spain, EWP will turn down all European stock.

Concerns over US Banks, KBE, and the US Community Banks, QABA, and the Mortgage Financiers, KME, will turn down the US Shares, VTI, and the Russell 2000, IWM, which is so critically dependent upon low-cost and easy access to financing.    

The fall lower in Tax Managed buy Write Opportunities, ETW, since October 1, 2010 is definitely a  canary in the stock market coal mine warning investors to get out.

Mike Mish Shedlock presents the Trader’s Narrative Sentiment Overview: Week Of October 29th, 2010 documenting the bull ratio is now slightly above 70% – something we hadn’t seen for almost 3 years; this is a contrary indicator suggesting that it is now time to go short.

A number of stocks represent excellent short selling opportunities as they have not fallen as of yet.. These include Nicholas Financial, NICK, which traded unchanged. The Asian high yielding financials, DNH, rose 0.4% manifesting a dark filled candlestick suggesting that the end of its rally is over. Poland, EPOL, fell  1.4%; the yen carry trade investments in it will cause a fast fall. Nanotechnology, PXN, fell 1.05. Small Cap Consumer Discretionary, XLYS, fell 1.2%. Retail, XRT, fell 1.0%. Small Cap Pure Growth, RZV, fell 0.9%. Solar Energy, TAN, fell 1.3%. The Russell 2000, IWM, fell 0.7%. Sweden, EWD, fell 0.35. I will provide a no-charge listing Chart List of ETFs And Stocks To Sell Short For A Debt Deflationary Bear Market through the end of the end on for one’s reference.

Bottom line: the investor should be have gold in one’s personal position or be short stocks and bonds; preferable the former more so than the latter.

Disclosure: I am invested in gold bullion