By InTheMoneyStocks.com on January 20th, 2010 12:01pm Eastern Time
The market and key stocks like Goldman Sachs (GS), JP Morgan (JPM) and others are hovering on key support now on an intra day basis. This tells us the market is trying to put in a bottom for the day here. Watch as volume lightens up to see if the market is pushed slightly off the lows into the close. Anyway you cut it, this is an ugly down day. The markets have sold on the back of earnings from IBM, BAC, WFC, MS as well as the dollar ripping higher on the republican win in MA and some economic data this morning on Housing Starts and the Producer Price Index. Each time any major earnings are released the market is getting slammed. The key is to follow the technicals to find out if the market is going higher tomorrow or lower. Join the Research Center to get the calls that will make you rich.
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By InTheMoneyStocks.com on January 20th, 2010 12:07pm Eastern Time
After the markets were rocked off the upper channel trendline given to premium subscribers of the Research Center and Intra Day Stock Chat, an intra day in spirit of bull flag may be forming. This could have a small upside move in the works middle of the day on the SPY. Note the chart below. Join the Research Center and/or the Intra Day Stock Chat as the profits continue to flow.
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After the sharp volatility in the currency markets during the Asian and European trading sessions, this morning's mixed U.S. economic reports barely impacted the U.S. dollar. Instead, currency traders are still reeling from speculation that the Chinese government has taken another step to tighten their economy by asking their banks to cease all lending activity this month. Also, in our Daily Report last night, we talked about how Politics trumps Economics in the forex market - the Republican win in Massachusetts is extremely dollar positive because it deals a big setback to the health care bill. At a cost of more than $1 trillion, less government spending would help to reduce the U.S. budget deficit.
The latest Producer Price figures indicate that inflationary pressures are not strong enough for the Fed to even bat an eye. PPI increased 0.2 percent in December after rising 1.8 percent the previous month. Excluding food and energy prices, PPI was flat. Although this did not stop annualized PPI from rising to 4.4 percent, the highest level since October 2008, growth in core PPI yoy fell from 1.2 to 0.9 percent. The absence of inflationary pressures on a core level is more significant.
Meanwhile, the 4 percent decline in housing starts and 10.9 percent rise in building permits offer a conflicting outlook for the housing market. However the data suggests that the sector continues to recover because permits reflect plans for future activity and is therefore more significant than housing starts. Also, starts are subject to weather factors and inclement weather in December prevented the start of many housing projects.
Yet it is important to realize that the dollar's failure to rally against the Yen is also very significant because it indicates that the dollar is strengthening based upon safe haven flows and not improving fundamentals. Finally, the sharp rally in the U.S. dollar has taken the EUR/USD below 1.43, which was a very significant support level in the currency pair. At this point, it is very realistic for the EUR/USD to fall to 1.40 in the coming weeks.
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U.S. DOLLAR: POLITICS TRUMPS ECONOMICS
U.S. traders have returned from their long weekend and their presence can certainly be felt as volatility picks up in the currency market. The U.S. dollar traded higher against all of the major currencies except for the British pound thanks to stronger economic data and the possibility of a Republican win in Massachusetts. Although it is widely known to forex traders that politics always trumps economics, it is rare that a Senate race would receive as much attention from the financial markets as today’s election in Massachusetts. The reason why it is the primary event risk for the forex market this week is because if Democrats lose their 60th seat, it could delay the passing of the health care bill and any other initiatives. The equity markets sent health care stocks higher on the hope that a Republican win would deal a setback to the proposed reforms. The dollar is being bid up for the same reason because the health care plan was slated to cost more than $1 trillion. We are not passing judgment on whether this is positive or negative for the American public but rather what it would mean to the U.S. dollar. Deteriorating U.S. finances has been one of the primary reasons why foreigners have criticized the dollar and the Obama Administration have received heated questionING by the Chinese government on the costs of the health care plan and its impact on the budget deficit. Not having to pay these outlays is perceived as dollar positive simply from the perspective of fiscal finances. The Obama Administration has painstakingly stitched together the 60 Democratic votes needed to approve any future changes to the health care bill. The plan could still be passed if the Senate speeds up negotiations before the Republican Senator is sworn in or convinces certain Republicans Senators to reconsider the bill, but that may not stop traders from buying dollars on the hope that government spending will be curtailed. If the Democratic candidate wins, today’s moves in the equity and currency markets may be reversed.
Foreigners Still Buying Dollars
Meanwhile according to the latest U.S. economic reports, foreigners are still buying U.S. dollars. Net foreign purchases of long term U.S. securities increased by $126.8B in November, the strongest demand ever while total demand including sales of short term securities increased by $26.6B. The demand was particularly impressive considering that the dollar hit a 1 month low in November which means that foreign appetite was unaffected by the dollar’s weakness. The data also suggests that investors shifted their holdings from short to long term securities, which means that they may be growing more confident about the U.S. recovery. Producer prices and housing market numbers are due for release tomorrow and given the slower growth in CPI and import prices, we expect producer price pressures to remain muted. With the NAHB index falling to the lowest level since April, we do not expect a meaningful pickup in permits or housing starts. The earnings season is also heating up with Citigroup reporting a $7.6 billion loss this morning. Bank of America, Bank of NY, eBay, Morgan Stanley, State Street, U.S. Bancorp and Wells Fargo are amongst the large number of companies reporting tomorrow. The tone in the equity market should affect how currencies trade. Finally it is worth noting that China has once again increased their 1 year bill rate. Their continued efforts at tightening monetary policy is hurting risk currencies because of the fear that if China slows, the rest of the world will follow as well.
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Euro hit a twenty week lo dropping through the 1.4200 figure in afternoon Asian trade after concerns about Greece, tightening by China and massive stop running sent the single currency tumbling by more than 100 points in a matter of minutes. The situation in Greece continues to weigh on the unit with ratings agencies warning that the county must get its budget in order or risk further downgrade.
However the euro was also felled by a new round of risk aversion after the Shanghai index dropped nearly -3% on overnight trade. The decline in Chinese equities was triggered by reports that China’s banking regulator told several banks to stop lending for the rest of the month. The reports were denied, but the markets reacted anyway on fears that Chinese monetary authorities are becoming serious about curbing excessive credit creation as inflation pressures begin to build in the economy. The PBOC has made several tightening moves over the past month raising the rate on it weekly funding bills.
Economic news was of no help to the euro as well as German PPI data turned negative in December declining -0.1% versus estimates of 0.2% rise. The latest PPI numbers show that price pressures are nonexistent in the region and suggest that the ECB has no reason to consider tightening its monetary policy for the foreseeable future.
The pair appears to have stabilized at the 1.4200 level for the time being, but sentiment against the euro remains negative and if eco data does not offer a glimmer of hope sometime soon, the markets may want to take a run at the psychologically important 1.4000 level in the near future. As we’ve noted earlier, tomorrow’s EZ PMI data becomes even more important within the context of the current price action. If the PMI report misses expectations it could trigger yet more selling as market comes to the conclusion that the economic recovery in the region has stalled.
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By TRADER X on January 19th, 2010 3:54pm Eastern Time
IBM is scheduled to announce earnings after the bell today. The stock continues to remain strong on the charts. However, one must ask themselves if the earnings are already priced into the stock? There will be daily resistance at 135.00 and then 140.00 should the stock react positive after earnings. We shall see.
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By InTheMoneyStocks.com on January 19th, 2010 2:03pm Eastern Time
After earnings announcements from Alcoa Inc. (NYSE: AA), Intel Corporation (NasdaqGS: INTC) and JP Morgan Chase Co. (NYSE: JPM) did not live up to expectations and their stocks fell, the market is beginning to get a little nervous. We have seen the market have some recent sharp declines on these earnings, each following day it has bounced back and recovered most of its losses. What we are seeing here is the market either putting in a technical topping pattern or beginning to lose its mojo (energy). This four day week looms as the major week to dictate which way this market goes.
Why is this the week to make or break the market? Because Wall Street is beginning to get nervous over these disappointed earnings announcements. In addition, this week sees a mega ton of announcements that will either confirm or deny the earnings announcements from AA, INTC and JPM that already hit The Street. Wall Street awaits Intl Business Mach. (NYSE: IBM). They will report earnings after the bell today. Earnings whisper numbers hover around $3.50 for the fourth quarter of 2009. In addition, the stock has just hit a new 52 week high today. In general stocks that move up or hit 52 week highs into earnings see approximately a 65% chance of a pull back. Watch closely with IBM as it will set the tone for tech tomorrow.
IBM is just one of the companies reporting this week. Wednesday, prior to the open the market will get earnings from Morgan Stanley (NYSE: MS), Wells Fargo & Co. (NYSE: WFC) and Bank Of America (NYSE: BAC). Watch for the credit card defaults and other issues on the credit side with these banks. Wall Street and Main Street have been on a different track of late. Recent earnings are beginning to make people wonder if Wall Street got too far ahead of Main Street. These bank earnings will show much more clearly if this is true.
Later this week earnings from Goldman Sachs Grp. (NYSE: GS), American Express Inc. (NYSE: AXP), Google Inc. (NasdaqGS: GOOG) and General Electric Co. (NYSE: GE).
The key to looking at this market and whether or not it is topping or getting ready to blitz higher is in these reports. The market is on edge and will bet analyzing these to see if a recovery is truly underway. As the Chief Market Strategist at InTheMoneyStocks.com, I feel this market is near term overbought and due for a pullback. However these reports will tell the tale. Watch closely. Live, Learn, Profit!
Gareth Soloway
Chief Market Strategist
InTheMoneyStocks.com
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By InTheMoneyStocks.com on January 19th, 2010 1:39pm Eastern Time
Technical Education 101: Gap fill is often one of the highest percentage plays available to the scalp trader on an intra day basis. In addition, on a swing trade basis off the daily chart, gap fill is a great play as well!
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By Nicholas Santiago on January 19th, 2010 12:57pm Eastern Time
International Business Machines (NYSE:IBM), Apple Computer (Nasdaq:AAPL), Google (Nasdaq:GOOG) and most other technology stocks are are leading the markets higher today. This looks to be a run up into earnings as most major technology stocks will be reporting earnings within the next few weeks. As for AAPL they are unveiling a new product called the Tablet and this could be a buy the rumor sell the news type of event into the release of the new product.
The technology heavy NASDAQ has rallied over 80 percent from it's March 2009 lows. There is just one big question to ask. Is this earnings season already priced in? Many tech leaders are near or at new 52 week highs. Even tech bell weathers such as Cisco Systems (Nasdaq:CSCO), Microsoft (Nasdaq:MSFT), and Oracle (Nasdaq:ORCL) are all at new 52 week highs. These particular stocks have a tremendous amount of shares outstanding. The moves that have taken place in 2009 are nothing short of amazing. How much can be left in the tank after this earnings season?
From a chartist's or technical trader's point of view it would seem that a fair share of the move is baked into the current price already. This does not mean that certain stocks won't trade higher. Many will move to new highs. However, most stocks that have already moved higher into their earnings release, may and often pullback after its announcement. This is how most professional technical traders will view the markets during earnings season.
Nicholas Santiago
Chief Market Strategist
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By InTheMoneyStocks.com on January 19th, 2010 12:19pm Eastern Time
IBM Earnings Whisper Number Is $3.50. In Our Opinion, It Must Do Much Better Than Even That To Continue To Move Higher.
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Greece continued to be the focus of attention at the Eurofin finance ministers meeting in Brussels as officials grappled with an array of policy choices to solve Greece’s mounting fiscal problems. Although the country has pledged to assume tough austerity measures to control its widening deficit, there is growing doubt that Greece can tackle these issues alone given the spotty accounting of its finances.
Although European monetary officials have vehemently denied the possibility of any rescue package, European finance ministers have started to explore that option. One critical barrier to any outright loan package to Greece is the fact that the European Central Bank does not carry a mandate as a lender of last resort and is therefore unable to provide direct assistance to Greece. Last week ECB Chief Jean Claude Trichet was adamant that the central bank would not be able to relax its rules on collateral indicating that Greek sovereign will not be accepted if its rating fall below investment grade.
With the European commission budget simply too small to offer Greece any meaningful restructuring deal, attention is turning to the possibility of the IMF as the institutional instrument of choice to restructure Greek finances. Although Greece comprises only 3% of the EZ GDP and therefore the threat of its exit from the union would have little economic impact, it is being watched by the market as a test case solution for the broader based fiscal problems of other Southern European economies such as Spain, Portugal and even Italy.
The euro has been hobbled by these issues for the past several sessions as the pair remains capped at the 1.4400 level for now. We continue to believe that the unit could trade heavy for the rest of the week unless it receives a boost from better than expected economic data. Today’s ZEW survey will provide the first glimpse of investor sentiment in the region, but the true marquee event f the week will be this Thursday’s January flash PMI data for both the manufacturing and services sectors.. Aside from the fiscal problems dogging the region, the euro has been weakened by market concerns that the economic recovery in the 16 member region is beginning to stall and this week economic releases could provide further proof to that bearish thesis.
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FOREX: WHERE DO CENTRAL BANKS STAND?
It has been an extremely quiet day in the foreign exchange markets and in the words of my colleague Boris Schlossberg, it feels like a Sunday. Even though U.S. markets were the only ones closed for trading today, the absence of U.S. traders and U.S. equities as a guide for the dollar was certainly felt across the globe. The lack of economic data from Europe also contributed to the lack of volatility in the forex market. The U.S. dollar weakened modestly against all of the major currencies but the trading range in the EUR/USD was limited to 70 pips and the range in USD/JPY was limited to approximately 50 pips. With the dollar ending the NY trading session near its low, there is a good chance that the sell-off in the greenback could gain traction on Tuesday. The only pieces of U.S. economic data due for release tomorrow are the Treasury International Capital flow report and NAHB housing market index. As usual, it would be interesting to see if dollar weakness prompted foreign investors to reduce their exposure to dollar denominated assets. The greenback hit a year to date low in November and did not strengthen until the last month of the year.
Where do the Central Banks Stand?
On quiet trading days such as today, we love to explore topics beyond the day to day fluctuations in the forex market. A topic that is extremely relevant to the outlook for the major currencies is how central banks compare in their degree of dovishness and hawkishness. Of the 8 major central banks, the most hawkish is undoubtedly the Reserve of Australia who raised interest rates 3 times in a row last year and is slated to raise them again in February. In fact, we could see another 75bp of tightening from the RBA when all is said and done. The Reserve Bank of New Zealand is next in line to raise interest rates. They have been riding on the coat tails of the Australian economy and have been open raising rates in the first half of the year. Next in line are the Bank of Canada and the ECB. The BoC previously indicated that they plan on raising rates this year, but most likely not until June at the earliest. The ECB has recently toned down their degree of hawkishness amidst problems in their member nations but they are still more likely to raise rates before the Fed. The market is divided on how much tightening the U.S. central bank will deliver before the end of the year. Based upon Fed Fund Futures, there is only a 43.8 percent probability that U.S. rates will be at or above 0.75 percent by November. Depending upon how the U.K. economy performs this year, there is scope for a small degree of tightening towards the end of 2010. The Swiss National Bank and the Bank of Japan on the other hand are expected to remain on hold throughout 2010. Interest rates are the number one driver of currency fluctuations which means that the willingness of a central bank to raise rates compared to their peers will determine how their currency trades.
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EURUSD now at risk of retesting the elusive 200-day MA of $1.4280, especially if it fails to reclaim the preliminary resistance of $1.4450. The lack of first category economic release this week from the US and the Eurozone gives way to the round of earnings releases from the major US banks, which will influence overall risk appetite and the US dollars recently improving foundation. UK Dec CPI tomorrow exp +2.6% y/y from 1.9% could further prop GBPUSD back above the $1.6350 resistance (50% retracement), but a close above it would be convincing if we close above $1.64.
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