A Couple of Things to Watch

Good Morning, Friends, I live during the week, and work, in lower Manhattan, and the police presence on this bright, sunny day is truly impressive. While I was in Boston at the time, a fair number of my colleagues were present when the planes slammed into the towers across the street, and while no lives were lost here, it was, from what I understand, a terrifying day, and the mood is on the somber side. It’s always appropriate to count blessings, and remember those who were lost.

We still, however, have a market to deal with. I wanted to take a moment to point out two events that may have an impact over the remainder of the week. Tomorrow, the German constitutional court will decide if a European-wide bond sovereign buying program (European Stability Mechanism, or ESM)  is permitted. They are expected to say “Ja”, but with conditions. Any sense that Germany will not be able to participate fully – that is, fund the program – will be a real negative for the recently less weak Euro, and might well push stocks lower here. The rally last week was started by ECB President Mario Draghi, but what Europe gives can be taken away again.

A two-day FOMC meeting begins tomorrow, and the market is very much expecting an announcement of QE3, with the Fed pledging to buy mortgage-backed securities. I’m not sure that this will work out as scripted, and I’m concerned that if that’s the case, bonds and stocks could both get dinged. Perhaps the voters on the FOMC will just do what they’re expected to do; we’ll know soon.

All of which is just to suggest that stops be maintained, particularly ahead of the Fed’s announcement on Thursday afternoon. Depending on the price action beforehand, using a strategy akin to Todd’s First Half Hour Breakout might be appropriate, looking to capture the first move out of the prior range.

Speaking of the Euro, it’s moving generally higher against USD this morning. Stochastics are elevated enough to make a reversal potentially worth grabbing, but the (barely) inside vertical bar from yesterday has been taken out to the upside; as Todd points out, this is generally a bullish signal.  A move back to somewhere between 1.2535 and 1.2445 looks buyable on the daily chart, but a move of that magnitude will likely require several days of selling. Given the relationship of the moving averages to the 50% retracement level, 1.2440/45 looks to have a very good chance of holding on the downside.

Best of luck!



About the Author Brian Keith


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