May 9 Daily Market Review
Daily Market Analysis by OptionRally
Financial Market Overview
The financial markets experienced serious losses yesterday by dropping to their lowest values since early March as investors became increasingly more worried about whether European debt contagion can be promptly resolved in a timely and organized manner. The Dow Jones Index suffered a 70 plus point decline after rallying late in the day while the S&P 500 plummeted to a two-month low. The prime reason for this development was the recently released French and Greek election results that instigated fresh intense pressure against the current austerity policies of the central government. In addition, this bearish sentiment was augmented by worries concerning economic growth in both China and the United States. European problems increased after the two major pro-bailout parties failed to secure a majority in the Greek elections last weekend leaving the country on the brink of bankruptcy and a possible Eurozone exit. In addition, the new French President-elect, Francois Hollande is in favor of introducing growth oriented policies to solve the European debt crisis which would be in direct conflict to the austerity strategy preferred by Germany.
Greek politicians made attempts yesterday to create a coalition government and issued aggressive statements that rejected the present bailout plans as well as proposing the nationalization of Greek banks. Investors are growing progressively concerned by the fact that as many major U.S. firms have large European commitments their profitability could well be adversely affected by the deteriorating debt situation. In fact, this viewpoint has acquired credence already as an increasingly number of US companies have missed expectations as the present earnings season has progressed compared to the majority that succeeded during the earlier stages. Specifically, only 66.8% of the S&P 500 members have now exceeded estimates as of yesterday compared to more than 80% achieving such a result at the start of the earnings season.
Pressure increased on the euro yesterday resulting from concerns that the new political unrest in France and Greece could disrupt the present austerity policies viewed by many analysts as vital to resolving the European debt crisis. As a result, the EURUSD plunged below its important support level of 1.3000 for the second time in two days. This event occurred immediately after statements issued by the leader of the Greek Left Coalition party advised that the present bailout plan would not only rejected but could also be illegal. In addition, as Hollande’s socialist opinions could adversely influence the markets, some analysts are now predicting that the EURUSD could drop to 1.2000 in the short-term. Consequently, a good opportunity to sell this pair will occur if price can achieve a sustained break below 1.2965.
This pair experienced significant pressure yesterday morning forcing it to drop to a low of 1.6123 before rallying later in the day to a close about 1.6150. The UK is releasing important economic data tomorrow including its official Bank rate and Manufacturing Production (MP) figures. The Bank of England is not expected to alter its present interest rate at 1.0% although investors will scrutinize any subsequent statements that it may issue in an effort to acquire clues about the reaction of the central bank to the UK’s new recession. Analysts are forecasting a better MP posting for May after the disappointing April release, which was the worst recorded in 2012. Overall, the sentiment on the GBPUSD remains bearish because of both the European debt crisis and UK economic concerns. Consequently, a good opportunity to sell the GBPUSD will arise if price can penetrate below 1.6105.
The AUD plunged again yesterday hitting a low of 1.0087 before closing near 1.0110. Important labor figures are due for release tomorrow and analysts are predicting a decline of 4.2K. A minor increase in the Unemployment Rate from 5.2% to 5.3% is also anticipated. In addition, China will post its Trade Balance data also on Thursday which is expected to show a surplus of 9.8 billion. Investors will keenly await these numbers because they may provide insights into what new quantitative easing measures the Australian government may need to instigate in order to boost its stalling economic growth. Presently, AUDUSD sentiment remains bearish because of Australian stimulus, global economic worries and the European debt crisis. Consequently, a good opportunity to sell this pair will occur if price can break below 1.0070.
This pair climbed again yesterday as a result of increasing worries over the resolution of the European debt crisis. The USDCHR surged to a high of 0.9249 before retracting moderately by closing at 0.9235. The USDCHF has been trading in an upward channel since the start of May after range trading during most of April. Despite a mixed bag of US economic data that has been recently released, the main driver behind the creation of the USDCHF price formations is the daunting developments in Europe. In addition, investors are concerned about the ever-present threat that the Swiss National Bank will weaken the Swissie at any time. Consequently, a good opportunity to buy this pair will occur if price can achieve a sustain break above 0.9280.
Gold plummeted yesterday achieving new lows for 2012 after briefly piercing below the important support level at $1,600 an ounce over concerns about Greek’s future, in particular, and the European debt crisis, in general. As a result, gold finished the day by recording its largest drop in over two months. Analysts are now advising that the gold sell-off could well escalate as a direct result of it failing to rally during periods of economic uncertainties during this year and because it has now broken below its daily, weekly and monthly supports. Consequently, a good opportunity to sell gold will arise if its price falls below $1,597.11.
Oil prices plummeted for a fifth trading session in a row as the result of weakening economic growth on both sides of the Atlantic. This commodity fell by 0.93% to finish at a new low of $97.01 per barrel. Consequently, an opportunity to sell oil will arise if its price can drop beneath $95.34.
Discovery Communications advised the markets yesterday of its quarterly profits, which were much worse than analysts were expecting. The reason cited for this disappointing performance were the losses registered recently by the Oprah Winfrey Network (OWN). As a result, the shares of Discovery Communications dropped by 6.5% during yesterday’s trading. OWN, which is a joint venture between DC and Winfrey, has been recently plagued by poor ratings and, as such, was one of the primary reasons why DC registered an almost 30% slump in its Q1 earnings. OWN has already attempted to correct this situation by axing 30 employees and scratching its Rosie O’Donnell talk-show. The network has also just introduced a string of new reality shows in an attempt to help it back to profitability.
In general, the stock markets declined yesterday although they managed a rally towards the end of the day. The main drivers behind this movement were the global economic slowdown and the deteriorating debt crisis in Europe. As such, stocks still have a bearish sentiment as the full effects of these negative influences have not yet been fully felt. Apple shares dropped and then rallied yesterday in unison with the generally trend. Consequently, a good opportunity to sell this share will be if price can drop below $559.76. Although Google’s shares bucked the trend yesterday rising by 0.86% to close at $612.79, they are still subject to the same bearish drivers. Consequently, a good selling opportunity will arise if its price declines below $607.65.