July 11 Daily Market Review

Daily Market Analysis

Daily Market Analysis by OptionRally

Financial Market Overview

The stock markets plunged yesterday as the worst fears of investors turned into reality. At closure, the S&P500 had fallen by 0.81%, the NASDAQ had slumped by 1% while the Dow Jones Index recorded a drop of 0.65%. The damage was caused by a stream of corporations advising the markets that their revenue forecasts will be weaker than predicted because of the adverse impacts of the European debt crisis and the global economic slowdown. Analysts summarized the situation by stating that the prospects for the new US earnings season were now beginning to look very grim. They also added that without the support of healthy company balance-sheets, there was little else to prop-up the markets. The recent release of disappointing economic indicators from the USA, China and Europe had already pressurized investors yesterday before a spate of US firms, with significant European exposure, began to issue warnings about the vulnerability of their profits.

In particular, both chipmakers Advanced Micro Devices and Applied Material issued weak revenue forecasts before the engine maker Cummins followed with a similar statement. Advanced Micro Devices witnessed its shares crashing by 11.2% after it drastically reduced its Q2 revenue forecasts citing deteriorating sales from both China and Europe as the primary reasons for this disappointing development. The shares of Applied Materials slumped by 2.7% after the silicon chip producer informed the markets that both its third quarter and full year results will be much weaker than originally predicted. Cummins completed this depressing sequence by stating that a strong dollar and European exposure had forced it to slice its full-year sales. Depressed investors are now adopting a stronger risk aversive stance which will subject the markets to an extensive bearish bias over the coming days.


Following a limited rally on Monday, the EURUSD crashed to a fresh two year low yesterday by hitting 1.2237. After achieving a daily high located at 1.2337 earlier in the session, the pair then retracted sharply to test its important support level at 1.2250. The primary reasons behind why the Euro came under fresh pressure from the USD were concerns about a pending German court ruling and disappointing profit warnings from US firms. A hearing commenced yesterday by the top court in Germany to decide whether pending adjustments to the Eurozone budget rules were in compliance with German law. Evidence also emerged on Tuesday demonstrating that global economic problems could well have significant adverse impacts on the new US corporate earnings season. With a powerful bearish bias now hanging over the EURUSD, sell the pair if price drops under 1.2218.


The GBPUSD rose to a daily high at 1.5547 after European financial ministers agreed that the first tranche of bailout funds to Spain, equaling 30 billion euros, would be released before the end of July. However, this early market optimism could not be sustained as a spate of profit warning issued by a number of US corporations helped the USD exerted fresh pressure on the British pound. As a result, the pair retracted sharply by plunging below 1.5500, hitting a daily low at 1.5476 before rallying later in the session to close at 1.5519. Despite achieving three consecutive days of limited rallies, the directional movements of the GBPUSD are still primarily dominated by a bearish bias. As such, look to sell the pair if price can achieve a sustained break beneath 1.5500.


The Australian dollar surged to a daily high against the USD at 1.0243 following the encouraging news that the Spanish bailout funds will be released before the end of July. However, the AUDUSD was then subjected to an intense bout of selling pressure which produced the large wick (high to close) on the rightmost candlestick. The pair weakened later in the session amid fears that a German court could soon issue a ruling rejecting changes to Eurozone budget rules. This movement also gained support from the warnings issued by a number of corporations advising that their revenue forecasts would be adversely affected by the European debt crisis and the global economic slowdown. As the USD strengthens in its capacity as a safe-haven asset from such developments, the AUDUSD is forecasted to weaken over the coming days. Consequently, sell the pair if price slips below 1.0138.


The USDCHF plunged earlier in the session yesterday as the Swiss Franc strengthened in unison with strong rallies made by both the Euro and the Stock Markets. The USDCHF plummeted to a daily low of 0.9738 following the announcement about the pending release of the first tranche of Spanish bailout funds. However, the USD then regained its footing later in the day by surging above its psychologically important 0.9800 for the first time since December 2010. The primary reason for this last movement was that the USD acquired fresh support in its capacity as a safe-haven asset following the distressing profit warnings issued by a number of US corporations. With a strengthening bullish bias dominating the USDCHF, consider buying the pair if price leaps higher than 0.9827.


The price of gold slumped on Tuesday as investors fled riskier assets in favor of safe-havens, such as the US dollar. Market fear rose yesterday after profit warnings were released by a spate of US companies advising that their revenue forecasts would be seriously compromised by the adverse effects arising from both the European debt crisis and the global economic slowdown. Investors are now worried about a potential crash if the new US corporate earnings season is not able to lend support to the markets. With a strong bearish sentiment gaining an increasing hold over gold, sell this commodity if price drops under $1,564.71 per oz.

The price of oil plunged yesterday amid fears that the new US Corporate earnings season will produce disappointing results. With a strong bearish bias dominating the markets, sell oil if its price drops beneath $82.10 per barrel.


The new CEO, Thorsten Heins, of embattled Research In Motion Ltd (RIM) promised shareholders at the annual meeting yesterday that he intends to instigate immediate steps to transform the ailing firm back into a ‘lean, mean, hunting machine’. However, after analysts had concluded that he was just placing blind hope in the success of the new range of Blackberry mobile devices due for release in 2013, the firm’s shares plummeted by 5%.

Patriot Coal Corporation informed the markets on Tuesday that it was filling for immediate bankruptcy. This announcement caused the shares of the coal mining sector to slump during yesterday’s trading amid fears that other firms in the industry will do the same.

Profit warnings issued yesterday caused the Stock Markets to plummet dragging the shares of both Apple and Google lower with those of the former falling by 0.93% to $608.21 while those of the latter dropped by 0.74% to $581.70. With a bearish sentiment gaining dominance over the markets, consider selling Apple if its share price slumps beneath $606.15 and Google if its share price breaks below $579.35.

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