22 August Daily Market Review
Daily Market Analysis by OptionRally
Financial Market Overview
Tuesday produced quite a volatile session with the stock markets surging initially only to pare all their gains, plus more, so that they eventually recorded losses. This movement was typified by the Dow Jones Index climbing by over 50 points to register a daily high at 13,330.80 before plunging by over 120 points to close at 13,208.58 with a daily loss of 68 points. The early bullish movement was generated by headline news released from Europe yesterday that countered the anti-stimulus ones posted on Monday. Specifically, the European Central Bank (ECB) adopted a more positive tone regarding its intentions to restrict the borrowing costs of Italy and Spain by using aggressive bond-buying. The markets responded by climbing to such an extent that the S&P500 hit a four year high. However, at that point a strong resistance was encountered which encouraged investors to take profits creating plunges of such magnitudes that the markets closed with losses.
Renowned analysts issued statements yesterday identifying the difficulties investors are experiencing with the current trading conditions. They advised that the ECB must start releasing definitive statements and activating assertive actions in order to resolve the region’s debt crisis. They further stressed that the ECB cannot continue generating ambiguous leaks and misleading promises which are merely confusing and aggravating the markets. One expert went so far to comment that the ECB is currently vying with Facebook to win the 2012 coveted award for possessing the world’s most incompetent management team. Investors will shift their attention today to focus on the release of the minutes from the last meeting of the Federal Open Market Committee (FOMC). They will scour this documentation for any clues that the Fed is considering instigating a new bout of quantitative easing in the imminent future in order to bolster the anemic growth of the US economy.
As a result of Europe publishing information yesterday that completely contradicted that which was issued twenty-four hours earlier, the Euro strengthened considerably against the US dollar with the EURUSD surging by over 110 pips to close at 1.2466. After the ECB threw cold water on previously advised plans to enter the bond markets, yesterday it reversed its tune again just a day later. Such confusion is making this pair difficult to trade because it is so sensitive to headline risks. Currency analysts are now advising that despite its bullish performance on Tuesday, the EURUSD lacks serious upward momentum because of the deteriorating European debt crisis. As such, sell the EURUSD if price drops below 1.2410 but keep an eye on headline news.
The British pound strengthened against the USD on Tuesday with the GBPUSD surging by over 80 pips, temporarily breaking above its psychologically important 1.5800 level before retracting and closing at 1.5770. The GBP received a boost yesterday following a speech made by the Fed voting member, Dennis Lockhart, whose dovish comments revived expectations of imminent Fed stimulus action. As such measures would effectively devalue the US dollar; the pair rocketed to highs not seen since the end of May. With the British pound in a position to achieve further gains against the USD because of inconsistent US economic data releases, a bullish bias has settled over the pair. As such, buy the GBPUSD if price can sustain a clean break above 1.5813.
Minutes from the last meeting of the Reserve Bank of Australia (RBA) disclosed that no new stimulus actions were under consideration and that the economic growth of its main exporter, China, was in the process of stabilizing. However, this documentation also advised that the Australian dollar was still vulnerable to the developments of the European debt crisis. As a result, the AUDUSD initially rose yesterday by breaking back above its 1.0500 level and hitting a daily high located at 1.0519. However, the pair then underwent a retraction in unison with declines in the stock markets later in the day to close at 1.0472. As the pair again failed to break out of its current bearish channel, the Australian dollar is still prone to weaken further against the USD. With other fundamental events occurring this week which are also anticipated to be supportive of downward movements, consider selling the AUDUSD if price breaks beneath 1.0459.
The Swiss Franc powered its way against the US dollar on Tuesday with the USDCHF collapsing by over 90 pips to hit lows last seen in earlier July and to close at 0.9634. In doing so, the pair plummeted beneath its important support zone located between 0.9700 and 0.9680 and now seems set on a bearish run to target its psychologically important level at 0.9600. Currency analysts are subsequently advising that because the pair has broken out of its previous bullish technical formation and with key technical indicators pointing to further weakness, the USDCHF could even drop to test its 0.9500 level in the near term. They also stated that as long as the pair does not leap above its resistance zone located between 0.9680 and 0.9700, a bearish bias will gain control of the directional movements of the USDCHF. As such, considering opening a new PUT currency option with this pair as its underlying asset if price can break below 0.9618.
Expectations increased on Tuesday that the European Central Bank (ECB) is on the verge of implementing a new bout of quantitative easing with the prime intent of easing the debt problems of Spain and Italy. As gold is renowned to responding positively anytime global central banks instigate new stimulus measures, the price of the precious metal soared by 1.23% yesterday to record its largest daily gain in almost a month and to hit highs last seen in May. As long as stimulus speculation remains positive and there are no further negative headlines released, such as those on Monday, then commodity analysts are advising that the gold markets will continue to be subjected to a bullish sentiment. As such, look to purchase this commodity if its price climbs above $1,652.80.
The price of oil received a boost yesterday amid encouraging statements advising that the ECB may activate new stimulus measures soon. If this fresh optimism is not quenched, then buy oil it if its price surges above $98.05 per barrel.
After Dell revised its 2012 earnings forecasts downwards and warned of operational difficulties that it could encounter during the second half of this year, the manufacturer of personal computers witnessed its shares plunge by 4% on Tuesday. Management cited that the prime reason for these disappointing developments were a significant reduction in retail sales resulting from its clients awaiting the release of Microsoft’s window 8 before making fresh purchases. Dell also advised that its products were facing stiff competition from PC tablets, such as the Apple iPad.
Lawsuits were filed against the Dunkin’ Brands Group yesterday alleging that it operated racial discrimination against Asian Indian women and African Americans. Following this disclosure, the Dunkin’s shares plunged by 5% during Tuesday’s session.
Profit taking by investors caused the stock markets to slump yesterday dragging the shares of both Apple and Google lower with those of the former falling by 1.37% to $656.06 while those of the latter dropped by 0.89% to $669.51. With new stimulus measures still hanging in the balance, sell Google if its share price breaks beneath $668.58 and sell Apple if its share price plummets below $653.65.