July 25 Daily Market Review
Daily Market Analysis by OptionRally
Financial Market Overview
Clouds darkening over Europe and a spate of disappointing corporate profits caused the markets to plunge yet again on Tuesday epitomized by the Dow Jones Index recording its third 100+ point drop in three consecutive days. Investors were particularly unnerved when the yields of the Spanish 5-year bond climbed above those of its 10-year counterpart for the first time since the middle of 2001. In addition, the 10-year bond yields just keep on climbing by registering another historic high at 7.6% yesterday which is indicative of unsustainable Spanish borrowing costs. European concerns mounted even further after a survey disclosed that the German private sector had contracted for the third consecutive month. Moody’s then announced its intentions to reduce Germany’s credit rating to negative. Adding more fuel to the fire, data revealing a decline in the Eurozone private sector augmented the viewpoint that the currency bloc was already in a full-blown recession.
Investors were seriously unhinged by these fresh European woes and many have now concluded that Spain will no longer have any option but to apply for a full sovereign bailout within the near future. The Corporate earnings season provided no comfort yesterday as well. After United Parcel Service (UPS) published worse-than-expected quarterly results and revised its 2012 outlook downwards citing a deteriorating global economy as the primary reason for this disappointing performance, the shares of the company plunged by 3.8% during yesterday’s trading session. The shares of Whirlpool Corp also tumbled by 6.4% on Tuesday after the biggest appliance manufacturer in the world issued quarterly sales and earnings which badly missed market expectations. The company advised that its business was suffering from a strong dollar and a drop in European demand for its products.
As the European drama continues to unfold, the stress on the Euro is relentless causing the EURUSD to continue its almost unstoppable spiral downwards yesterday with the pair printing a new 2.5 year low near 1.2040. The single currency is just getting slammed by the onslaught of disturbing developments from Europe particularly those from Spain which now seems on the brink of applying for a full-blown bailout from the Eurozone. In addition, the Euro did not gain any relief on Tuesday from the release of disappointing corporate earnings. With a strong bearish bias prevailing, sell the EURUSD if price slumps under 1.2035.
The British pound weakened against the USD yesterday for the fourth consecutive day, albeit by just about 10 pips. The GBP has recently presented better resistance against the greenback compared to other major currencies because it has acquired strength from the faltering US economic recovery. However, the new European problems that have surfaced this week have resulted in the GBPUSD plummeting as they have enabled the USD to extract fresh support in its mode as a safe-haven asset. As most analysts anticipate this trend to continue throughout this week, a significant bearish sentiment now resides over the pair. Consequently, sell the GBPUSD if price can sustain a clean break below 1.5464.
For the fourth consecutive day, the Australian dollar depreciated in value against the USD with the AUDUSD falling by almost 40 pips to close at 1.0250. The AUD is presently prone to weakness because investors are fleeing riskier assets, as the European debt crisis plunges to new depths of despair, in favor of safe-haven ones, such as the greenback and US Treasury notes. If the pair can now drop below its psychologically important 1.0200 level, then this breakthrough will expose its downside. With a substantial bearish bias now controlling the directional movements of this pair, open a new PUT currency option if price slumps beneath 1.0235.
This pair surged upwards on Tuesday by almost 70 pips to print a new 2.5 year high at 0.9970. The USDCHF has now climbed by almost 500 pips in a well-defined bullish channel since the start of July bringing its parity level into sight. The Swissie tracked the correlated Euro on Tuesday as the single currency continued to weaken against the USD amid fresh troubles arising from the European debt crisis. Analysts are now anticipating that the USDCHF will proceed higher this week as a result of Spain’s financial situation spiraling out of control and because of the global economic slowdown. As the USD will gain support from these negativities as a safe-haven asset, consider buying the USDCHF if price can attain a sustained break above 0.9976.
The price of gold registered a mild drop yesterday despite the collapse in stocks as the metal gained support from safe-haven purchasing following the announcement that Greece will receive additional debt re-structuring. After experiencing a sizeable slump earlier on Tuesday, gold pared most of its losses later in the session after Eurozone authorities advised that Greece’s debt needs to be re-assessed as the nation does not process the ability to service its debt obligations. With a deteriorating European debt crisis and global economic slowdown pressuring the gold markets, a bearish sentiment is in play. As such, sell this commodity if its price slips below $1,574.15 per oz.
Oil prices traded almost flat on Tuesday as fresh European woes countered data disclosing an improving Chinese manufacturing sector. With a bearish bias still hovering over the oil markets, sell this commodity if its price plunges beneath $87.71 per barrel.
Following the announcement by NRG Energy that it was purchasing one of its main rivals GenOn Energy for $1.7 billion in stocks, the shares of the independent power company rocketed by 8%. Many prominent market analysts welcome this news because this acquisition will produce the largest entity in the power sector which is presently suffering from the impacts of low US electricity prices. After the confirmation of this event, GenOn witnessed its shares appreciate by 27% earlier this week.
Under Armour Inc published an earnings report yesterday which beat market expectations. The company then proceeded to inform investors that it was revising its 2012 sales forecasts higher citing the success of its footwear products as the main reason for these impressive results. Following this announcement, the company saw its shares surge by almost 12% to an historic high during yesterday’s trading session.
Increasing European stress and disappointing corporate earnings caused the markets to slump yesterday dragging the shares of both Apple and Google lower with those of the former falling by 0.48% to $600.92 and those of the latter by 1.33% to $607.30. With a deteriorating European debt crisis subjecting stocks to a strong bearish bias, consider selling Apple if its share price drops beneath $600.28 and sell Google if its share price slips under $605.97.