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The European Stability Mechanism (ESM) that was created to fund the bank bailouts is grossly underfunded at this point, and hasn’t even yet been ratified by all of the members whose ”YES” votes are needed for the program to proceed. We all know about the hesitation of Merkel and the Germans to move forward with the plan, but other countries like Norway, and even the Netherlands are threatening to vote “NO.” When it comes to currency movements, much of the tide can be shifted based on confidence, and confidence is waning for the Eurozone. Unless more positive developments are released out of Europe, markets could be heading down regardless of anything else happening around the world.
Chinese ADR's are weaker than the overall market today. This is mainly due to poor economic data from China over the weekend. It showed a current solid slowdown is definitely taking place, larger than most had anticipated. Baidu.com, Inc. (ADR)(NASDAQ:BIDU) is trading at $112.23, -2.75 (-2.39%) while SINA Corporation (USA)(NASDAQ:SINA) is trading at $49.64, -2.17 (-4.19%).
In general, the daily charts show these Chinese stocks will head low into the second half of 2012. The key level to follow on BIDU is $101.00 and $94.00. Each should have a big bounce and it is likely that the $94.00 level will have a sustained major bounce at the end of this year. SINA will have support at $40.00 and major support at $32.00. Like BIDU, the $32.00 level will be a longer hold for a larger gain.
China is the major trading partner with Europe. The European woes have hit China hard and will continue to be a drag on their economy. Let these Chinese stocks continue to float lower in the short term until major supports are hit.
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Gareth Soloway
Chief Market Strategist
www.InTheMoneyStocks.com
On Friday, we outlined all the reasons why the EU announcements have not ended Europe's sovereign debt crisis but as Traders First and Analysts Second, we have to respect the price action. Sentiment shifted with the plans for a banking union under the watch of the ECB and this could be enough to keep European yields low for the next two months. This means we should be moving into a period of summer consolidation or range trading for the U.S. dollar.
