EUR/USD Dead Cat Bounce?
Good Morning,
So many charts to get to today, but first the fundamentals. Global economic growth is slowing and can definitely slow further - a lot further. In my opinion, the only fundamental reason why the equity markets are off less than 10% is coordinated central bank efforts (and the continued hope for more) and just as important, the search for yield.
What I mean by yield is where can your investments keep up with inflation? Real estate? Bond markets? No and no. Private investments? Possibly. High dividend yielding stocks? Maybe. The point is, equities have been performing very well and outperforming a lot of other investment vehicles and when the markets drop, equities become more fairly valued, both fundamentally and technically. Fundamentally as their yields rise and technically as they get closer to oversold levels.
So there you have it, my case for an overbought equity market based on the real economic data, yet an underlying bid in certain oversold areas due to these two major factors described above. But, it is important to keep an eye on future economic data as it may help you to decide where attractive buy in levels are based on how the data performs.
This week, we have:
**Durable goods. A wildly volatile number that has been underperforming 3 months in a row. How will capital spending be this month?
**Claims - trending higher - not a good sign!
Maybe we will see some sideways action this month instead of the downtrend we have seen in economic data over the past 12 weeks. This is important people! Three months of poor data. You should not be surprised that the market is dropping!
Technically, let's start with the SPX:
Past performance is not indicative of future results
We are back 61.8%. We need to see some buying start to come in, otherwise, look for 1276 to be tested.
Since I haven't talked about commodities in a while, here we go! We know most commodities have gotten hit very, very badly. Are they oversold? The SPX has retraced 62%, now look at silver (SLV) as it is findng support today rather than dropping:
How about natural gas?
Past performance is not indicative of future results
Speaking of natural gas, take a look at Cheasapeake Energy CHK (sorry Oklahoma City Thunder)? It is off only 38%:
Past performance is not indicative of future results
Now for everyone's favorite, GLD:
Past performance is not indicative of future results
If you own gold, that trendline is providing nice resistance. And finally, USO - it is making lower lows and still very much in a downtrend. Will the mid 70's in crude oil prices provide support?
Past performance is not indicative of future results
For all the excitement in equities, the forex markets seem a little tame. Look at the USD/CAD and its range over the past few weeks. 1.0150 to 1.0300 - a 150 pip range since June 10th. Can you see a relationship between oil prices possibly stabilizing and the USD moving back into the range off the resistance level it has had at the 1.0300 range? Or will USO continue to drop and the USD will surge higher?
Past performance is not indicative of future results
And finally, I feel the pressure from all of you to talk about the EUR/USD. If equities retest their lows and go through them, this could be a dead cat bounce as the EUR continues its trend lower:
Past performance is not indicative of future results
See you for Wednesday's IBFX webinar (click to regsiter)
Happy trading and Be Environmentally Cool
Coach Brian
Forex trading is one of the riskiest forms of investment available in the financial markets and suitable for sophisticated individuals and institutions. The possibility exists that you could sustain a substantial loss of funds and therefore you should not invest money that you cannot afford to lose.
