May 11 Daily Market Review
Daily Market Analysis by OptionRally
Financial Market Overview
An economic data release yesterday showing that US unemployment claims had declined during last week helped to partially offset the recent anxiety caused by the very poor labor report issued last week. The Dows Jones Index responded by rising for the first time in seven sessions while the EURUSD also climbed after registering nine consecutive daily drops. The Spanish government took a drastic step yesterday in an attempt to gain control of a 4 year banking crisis when it nationalized one of its largest banks, Bankia SA, and issued a statement informing the markets that it will define additional measures to address this problem on Friday. On an equally dramatic note, Greece forestalled a looming financial crisis after it received a bailout payment late Wednesday evening. The Euro managed to stabilize following an eight day continuous sell-off after this event was confirmed which allows Greece to meet its imminent large debt obligations.
Analysts summarized the developments on Thursday by stating that they now considered that stocks were oversold after seven consecutive daily declines. They also advised that although European debt contagion, the prime cause for this development, had not been resolved in any definitive way, new problems were emulating from this crisis in a sequence of waves with the last one currently receding. The prospects of global economic growth also took a turn for the worst on Thursday following the Chinese release of anemic import growth figures and poor export data. As a result, China will need to pursue its policy of additional quantitative easing in order to stimulate and revive growth its stalling economy. The Dow Jones industrial average finished the day by rising 0.16% to 12,855.04; the S$P500 was up by 0.25% at 1,357.99 although the NASDAQ fell by 0.04% closing at 2,933.64.
This pair managed to stall its progressive downward spiral yesterday after the release of good US unemployment data and the news that Greece had received its promised bailout payment the evening before. However, these developments can hardly be viewed as significant solutions to the European debt crisis and global economic slowdown but are more indicative of the sheer size of these problems. The EURUSD still failed to break above its immediate resistance at 1.2980. The ADX reading also rose again yesterday indicating that the strength of the new bear channel was currently on the increase. With a strong bearish sentiment prevalent, the pair is still favored to weaken further and a new PUT currency option using the EURUSD as its underlying asset should be seriously considered if price drops below 1.2935.
The Bank of England announced yesterday that it will not be providing any addition quantitative easing to help stimulate the UK’s ailing economy which has just entered a new recession. The BOE based its decision on the premise that obstinately high inflation was a more serious problem than the dangers emulating from an extended British recession and those generated by the European debt crisis. The British pound should strengthen as a consequence of no further stimulus which would have devalued it otherwise. As a result, the GBPUSD rose yesterday partially because of this news but also because of the good US unemployment report. The pair is now subjected to a mixed sentiment with the GBP benefitting from no devaluation threats while the USD will strengthen, in its guise as a safe-haven asset, from the festering European problems. As the latter possesses more sway, downward GBPUSD movement is the slight preference and a new sell position should be evaluated if its price drops below 1.6105.
This pair did not benefit so much from the release of the good US unemployment figures yesterday than other ‘majors’ as this positive news was partially offset by the weaker-than-expected economic data released from China. Australia is particularly vulnerable to any negative economic changes registered by its giant neighbor and its government must always be vigilant by constantly evaluating and instigating the necessary stimulus measures that can counter any deteriorating developments. Consequently, the AUD is most likely to weaken further in the near-term as a result of a Chinese economic slowdown as well as any new negativity arising from the European crisis. As the AUDUSD is subjected to a strong bearish sentiment, a good position to activate a PUT option with it as the underlying asset will occur if price breaks below 1.0005.
The pair’s recent bullish movements were stalled yesterday after the CHF received a boost from both the good US unemployment data and the positive news about Greek’s bailout payment. However as the day progressed, this influence began to wane because the CHF is very vulnerable to the persistent pressure brewing within Europe due to its close proximity. After forming a new bull channel recently, the strength of this trend is on the increased as supported by the rising values of the ADX trend strength indicator. In addition, with the constant threat that the Swiss National Bank may weaken the Swissie at any moment, further upside movement of the USDCHF is favored. This bullish sentiment should be sufficient to force the pair higher producing a good buying opportunity if price can achieve a sustained break above 0.9300.
Gold appreciated in value yesterday, terminating three consecutive days of losses, primarily as a result of investors seeking bargain-buying opportunities. This is because the price of gold as plummeted this week as a direct result of the increasing chaos in Europe. Gold tracked stocks higher following the news yesterday that Greece had obtained its agreed bailout payment and that the debt problems in Spain had abated slightly. Traders have been reducing their bullish gold bets lately because of diminishing hopes that the Fed will instigated fresh qualitative easing. Despite its performance yesterday, gold is still subject to a strong bearish sentiment. As the metal is favored to weaken further, a new sell position should be considered if its price drops below 1,594.10.
Yesterday, OPEC’s monthly report advised that oil supply was abundant and exceeding market demand. Although U.S. crude climbed by 0.28% to close at $97.08 a barrel, it is still subject to a strong bearish sentiment that should cause it to weaken further. Consequently, consider a sell of oil if its price drops below $95.17 per barrel.
Shares of Cisco Systems plummeted in excess of 9% early yesterday because of investors’ worries about lack of European and US government investment in this sector. As a result, Cisco’s shares hit a $17.02 low achieving their biggest fall in over a year. In contrast, shares of Audience appreciated yesterday which many analysts think is a healthy demonstration of investors’ interest for stocks in the technology sector. Audience builds the silicon chips that are utilized by Apple in their iPhone because their products help filter out background noise improving voice quality in mobile phones.
Both Apple and Google shares rose yesterday in unison with the stock markets in general after the release of good US unemployment data and abating stress in Europe. However, although this was an encouraging sign and that the stocks of both companies possess good buy ratings, they are still subject to the strong bearish sentiment influencing the stock markets at present. Consequently, shares in both Apple and Google could well experience further weakness as a result of the chaos arising from Europe unless this pressure can be alleviated by the release of good economic data or the postings of better-than-expected corporate earnings. A new PUT stock option using Apple shares as the underlying asset could occur if price drops below $568.99. Consider selling Google shares if their price falls below $ $612.98.