July 19 Daily Market Review
Daily Market Analysis by OptionRally
Financial Market Overview
Solid corporate earnings and stimulus optimism helped propel the stock markets higher yesterday with the Dow Jones Index rising by over 100 points, the S&P500 hitting levels not seen since early May and the NASDAQ climbing by 1.12% during the session. After Honeywell posted an earnings report on Wednesday disclosing profits that easily beat analysts’ expectations, the shares of the company surged by 6.5% to $58.10. Shortly afterwards, Intel, one of the world’s leading chipmakers, also published a healthy profit for the last quarter despite informing the markets that it was revising its growth forecasts downwards. Although both companies contributed to the impressive performance of the S&P500 yesterday, they did, however, emphatically state that their businesses were experiencing difficulties arising from the European debt crisis and the global economic slowdown.
While testifying before the US Congress on Wednesday, Ben Bernanke, the Fed Chairman, re-emphasized the Fed’s pledge that it was already prepared to instigate further quantitative easing should the labor market continue to struggle or if the threat of deflation increased. After major corporations, such as Intel and Honeywell, advised that they were nervous about their growth prospects in a deteriorating global economic environment, investors lifted the markets higher on increased hopes about imminent stimulus actions by the Fed. Prominent analysts summarized Wednesday’s developments by stating that a theme was developing that indicated US corporations were operating leaner and meaner enabling them to report good profits despite reduced revenues. They also added that the markets are now desperate for the Fed to activate a new bout of quantitative easing and that they were viewing Bernanke’s grim picture of the economy as a sign that such a move could be soon.
The Euro came under broad pressure from most of the other major currencies on Wednesday following comments made by the German Chancellor, Angela Merkel. As a result, the EURUSD plunged by almost 70 pips to a low of 1.2217 before rallying later in the session. Merkel issued the following quote yesterday by stating: “We have not yet shaped the European project so that we can be sure that everything will turn out well, we still have work to do”. She also reiterated her viewpoint that the Eurozone governing authorities will succeed and that the Euro will be preserved. After studying her comments, analysts concluded that just by mentioning the Euro was enough to unhinge already nervous markets. As a result of these developments, sell the EURUSD if price drops beneath 1.2260.
The USD exerted serious pressure on the British pound earlier during yesterday’s session sending the GBPUSD plunging by almost 70 points to a daily low at 1.5580. However, similar to its trading performance on Tuesday, the pair then rallied sharply by breaking back above its important 1.5600 level and producing for the second consecutive day a rightmost candlestick possessing a large tail (Low to Close). These tails are indicative of strong buying pressure and are supportive of the viewpoint that the pair is oversold possessing an increasing bullish tendency. The pair now needs to achieve a sustained break above 1.5737 to open up the upside. As such, with a slight bullish bias in control, buy the GBPUSD if price can surge above 1.5692.
This pair adopted a strong bullish stance yesterday with the AUDUSD breaking above its psychologically important 1.3300 before hitting highs near 1.3350 not seen since the start of May. The Australian dollar tracked the stock markets higher before the AUDUSD hit a firm resistance representing the 61.8% Fibonacci retracement level of its recent downward movement from 1.0850 to 0.9590. The pair now needs to break above its next resistance level located at 1.0376 to access its upside and target 1.0446. However, a number of key technical indicators are signifying that the AUDUSD is now operating in overbought territory and vulnerable to a bearish correction. As such, consider opening a new PUT currency option with this pair as its underlying asset if price drops below 1.0284.
The USD surged against the CHF during the early part of yesterday’s trading to hit a daily high near 0.9830. However, once again the pair was rejected forcing it to retract by almost 50 pips to close well below its 0.9800 level. The pair is having serious difficulty breaking above its strong resistance zone located between 0.9850 and 0.9750 as demonstrated by the creation of sizeable wicks (high to low) on four of the last five rightmost candlesticks. This feature is indicative of a pending bearish action which would cause the USDCHF in undergo a correction in the near-term. However, as the overall bias of the pair is bullish any such retraction would provide an excellent opportunity to buy the pair at a good discount. With a bearish bias prevailing in the short-term, sell the pair if price falls below 0.9733.
The price of gold tumbled on Wednesday amid fresh concerns about the European debt crisis and vague forecasts issued by Ben Bernanke. The precious metal came under pressure after remarks made by the German Chancellor, Angela Merkel, bought the Eurozone debt crisis back into the spotlight. The situation was further aggravated by the International Monetary Fund (IMF) advising that the European Central Bank (ECB) should exert more influence in solving the debt problems of the region. In addition, gold’s appeal as a hedge against inflation was reduced yesterday as a result of the stimulus uncertainties expressed by Bernanke. With this commodity under pressure, sell gold if its price breaks below $1,567.90.
The price of oil appreciated for the sixth consecutive day amid fresh concerns about the Iran nuclear program and fighting in the Middle East. With such events threatening its supplies, buy oil if its price climbs above $92.52 per barrel.
The shares of EBay surged by 3% yesterday to close near $40.20 after hitting a daily high of $40.60. This movement was caused by speculation that the company will post better-than-expected revenues and profits. The source of this optimism is a speech made in June by Devin Wenig, an EBay executive, disclosing that the number of subscribers to the firm’s online marketplace had rocketed by over 10% in the previous 12 months. Market analysts are now anticipating better performance figures as a result of this impressive development.
A report was issued on Wednesday informing that the demand for Starbucks’s coffee products had decreased during June and that its US growth forecasts for the third quarter would be trimmed downwards. As a result, the shares of Starbuck slumped by almost 2.7% yesterday.
Strong corporate results and stimulus optimism caused the markets to surge yesterday producing mixed results for Apple and Google with the shares of the former dropping by 0.11 % to $606.26 while those of the latter rose by 0.70% to $580.76. With a bullish bias gaining strength, consider buying Apple if its share price climbs higher than $607.14 and buy Google if its share price surges above $581.85.