Euro

Because we called the latest Eurobailout a PR hoax in our most recent commentary, we’ll give equal time to a quite different point of view posted in the Rick’s Picks forum.  The author is “Cameroni,” a frequent contributor who says the European Union deserves praise for not shunning Greece and the PIIGs, especially since it will require considerable sacrifice on the part of the “haves.” Here’s Cam: “The European Union must be congratulated. They have acted responsibly by choosing union over self interest and Nationalism. Instead of shunning Greece, shutting her out and locking the door behind them they have instead made a tremendous sacrifice and have opted instead to take a share in Greece’s misfortunes despite the obvious risks. And they have put their collective neck on the line for the whole union by establishing what amounts to an insurance program for the rest of the sick patients in the group. The pain will be shared while expectations of future growth have been lowered. “At the same time they have sent a clear message to bond rating agencies. You can be replaced. Nobody needs a Rhodes Scholarship anymore to see the clear connection between the Bond raters and currency speculators. Nor do we need a microscope to see how destabilizing those influences can be nor how quickly the global financial system can be brought to the brink of economic calamity. The events of the last two weeks has made it clear to all just how disruptive those influences can be and what negative implications it has for both political stability and global markets. Their blunder will bring on change. No Child’s Game “This is not a child’s games anymore. Future financial reforms may well include putting limits on the speculation of currencies. We will see what transpires with the

At last, the European Union has decided to do a USA-style bailout – one with a quintessentially American, trillion dollar price tag and a shining vision of success.  “[The agreement] will ensure that any attempt to weaken the stability of the euro will fail,” said European Commission President Jose Manuel Barroso.  Yeah, but for how long?  We wonder if Mr. Barroso noticed that the euro finished on a downswing yesterday (see chart below), even as the ink on this latest deal was drying. Still, we hate to rain on the EU’s parade, and even if the Mother of All Eurobailouts failed to inspire a show of confidence in the euro, it nonetheless did pump up the world’s stock exchanges with  trillions of dollars’ worth of dubious new valuations. European shares registered their biggest single-day gain in a year-and-a-half, and U.S. stocks were not far behind. This bailout is a far cry from the paltry $60 billion credit line provided to Greece just a couple of weeks ago. We’d noted at the time that trying to do these rescue packages on-the-cheap would only invite doubt and derision. Probably the last thing those humorless stiffs in Brussels want is derision, and so no one should have been surprised to see them throw caution to the wind by ponying up a proper sum for a pan-European rescue. Greece will now be less likely to get kicked, punched and insulted when it heads for the discount window, and Spain, Portugal Italy and Ireland won’t have to worry so much that all of the rescue money will gone by the time Greece is done with it. Soup to Nuts It’s hard to say how long the good feelings will last, though, since we know from America’s experience that even a trillion dollars doesn’t go very

Bruised and bloodied bears must have felt a rare sense of exhilaration yesterday as trading on the NYSE drew to a close. That, and a twinge of anxiety about whether U.S. stocks could actually fall for two days running. Some traders evidently decided not to bet on it, and so short-covering drove the best rally of the day in the final half-hour.  After all, who would have had the guts to take a short position overnight in a market that has been on a wilding spree for 14 months?  Some short-covering is bound to occur at the tail end of any day on which the Dow has fallen more than 200 points, as it did yesterday. But the fact there wasn’t more of it, and that the lows penetrated some key supports identified in yesterday’s commentary, suggests there is more selling to come.  Bear in mind that Tuesday is a dangerous time of the week for an all-day selloff to occur, since it leaves three days for the selling to mutate into panic. The ostensible reason for yesterday’s decline, which saw the Dow down nearly 300 points at its lows, was news of fresh trouble in euroland. But decide for yourself whether this is really news:  “Global markets tumbled as investors questioned the viability of plans to bail out Greece and fretted about knock-on effects in other nations.” That’s how the Wall Street Journal saw it, but the story is getting to be so “dog-bites-man” that its impact on the markets is probably overrated at this point. Make no mistake, an historical day of reckoning awaits euroland and its politically fraught currency when Greece’s fatal debt disease is suddenly discovered to infect all of Europe. But for the moment, we can only stifle a yawn when we read on one day about how

Two patterns embedded within the Euro's recent decline point to essentially the same "D" target, which looks buyable.  The Euro spent the second half of April declining to new lows for 2010, cancelling another rally attempt and renewing its multi-month downtrend.  Within this recent decline are two valid and active patterns, one of which is especially appealing, whose "D" targets differ by only one pip.  The better pattern aims for 1.2935.  Traders should risk $125 per contract in the June futures by buying at 1.2938 with a stop at 1.2928. (Posted by Doug McLagan)  _______ UPDATE (10:25 p.m. EDT):  The Euro futures missed our recommended entry price by one pip this evening and have spent more than an hour tracing out a familiar bottoming pattern: a quick pop up, a re-test of the low which bottoms slightly higher, and as we write, an acceleration upward.  We will invoke the "no sloppy seconds" rule at this point and cancel the recommendation, as the odds in our favor are now much diminished.  We do want to point out that for both of the patterns in question, the low was more than 99% of the way from "C" to "D".

We’ve featured both bullish and bearish headlines here in recent weeks, so it’s time to clarify the outlook lest readers become confused. In brief, we are looking for an approximately 1400-point rally in the Dow Industrials this summer, but we’re prepared to turn bearish if a change in stock market’s technical condition warrants it (see chart below).  So far, we’re giving the bulls the benefit of the doubt based on a purely mechanical reading of the charts. But we also believe that Europe’s financial crisis is starting to spin out of control, much as America’s banking crisis did when Lehman Brothers went under. In Europe there is fear now, and even rioting in Greece, because no bailout measure tried so far has put deep anxieties to rest. Panic seems unavoidable at some point, and it could come in a day, a week, or a month, but probably sooner rather than later. Regarding our bullish call on the stock market, let us say up front that it goes sharply against our instincts and every shred of logic that we possess. Permabears do not come easily to the notion that stocks could rally so powerfully amidst a patently fraudulent economic recovery – a recovery that has touched almost no one we know and which, even at a very low level, cannot conceivably be sustained. Even so, putting our opinions and instincts aside, we’ve learned to simply trust the charts whenever there are doubts. Goldman Resists Tide This we have done, at least for the moment. As the week began, our technical runes told us it might not be a bad time to venture out on the limb with an especially bullish prediction. Thus, the headline “So Bullish on Stocks That We Feel Guilty”.  The commentary went on to explain why we were

Greece’s financial problems took a dramatic turn for the worse yesterday, causing stocks and bonds around the world to plummet on news that Greek bonds had been downgraded to junk by Standard & Poor’s. The rating agency’s decision was particularly unsettling for investors because just last week a $60 billion emergency credit line was extended to Greece by the IMF, Germany and other European nations. But what may have spooked the markets even more was S&P’s downgrade of Portuguese debt to A- from A+.  This suggests not only that euro-contagion is spreading, but also that any large sums of money pledged to ameliorate Greece’s crisis are no longer capable of calming the markets. Unfortunately, perceptions are everything at the moment, and it seems most doubtful that more talk, more promises and yet more loan guarantees will arrest the spread of fear.  Will the uneasiness eventually come to engulf several other nations thought to be on the financial ropes, notably Spain, Italy and Ireland? This seems a foregone conclusion, since there is no remedy possible that would address, let alone fix, their respective financial problems at a fundamental level. Indeed, for the central banks, the fatal paradox is that if any nation were to get truly serious about tackling its debt problems, the result would be an economically fatal debt deflation. Under the circumstances, it’s no wonder that our political leaders have bought into the lie that untold new sums of fiscal borrowing can reverse a debt deflation. In point of fact, untold sums of new borrowing have yet to cause even a blip in the home prices that were the explicit target of Fed stimulus. Weimar Memories No such remedies are likely to be attempted in Europe, since they would be subject to a German veto. To say that the

An intraday pattern in the June Euro futures gives us a "D" target that looks buyable.  The Euro has been dithering all week after popping up from a double-bottom on the daily chart, which came in just above the midpoint of a large weekly pattern.  If we like the odds that the Euro has made an important low, we should look for opportunities to get long such as this "D" target at 1.3457.  Traders can risk as much as $138 per contract with a buy at 1.3460 and a stop at 1.3449, but the small size of the pattern would justify a tighter range than that.  (Posted by Doug McLagan) _______ UPDATE (April 19, 02:20 a.m. EST):  The Euro futures dropped to our entry point, hesitated for half an hour, and then stopped us out by two pips.  The subsequent bounce has been anemic.

A mostly bearish Euro chart would turn highly bullish with a rally above 1.3593.  On March 25, the Euro bounced from just above the midpoint of a strong weekly pattern which had been touted the night before.  That remains the low of the downtrend which began at the major high above 1.51 last November.  Since then, a daily pattern emerged whose midpoint was breached yesterday.  If its sibling "D" target of 1.3040 is reached, the "D" target of the weekly pattern at 1.2683 will be in play as well.  But if the Euro rallies above 1.3593, the daily pattern will be cancelled and the chart will feature a double-bottom and a midpoint reversal based on the larger weekly pattern.  This would be a bullish picture overall.  Bears can look for pivots to short, but we think this might be a propitious moment to get long the Euro, using Hidden Pivot methodology including camouflage should it be available.  (Posted by Doug McLagan)  _______ UPDATE (April 12, 01:10 a.m. EST):  The Euro has rallied well above 1.3593 on Sunday night's Greece bailout news, cancelling the daily pattern with "A" at 1.3819 and "D" at 1.3040, and turning the general picture bullish.  Traders who got long on Friday are doing well.

A fresh pattern on the daily chart of the Euro futures gives us a midpoint pivot which looks buyable.  The impulse wave in question aborted a gradual turn toward the upside, but there is still the sense that the Euro has been moving more sideways than down for almost two months.  A bounce off of this midpoint pivot, at 1.3317, would accord with that view.  Traders can bid at 1.3320 with a stop at 1.3309, risking about $138 per contract.  If the stop is hit, the "D" target of 1.3040 will be in play.  (Posted by Doug McLagan)  ______ UPDATE (08:19 p.m. EST, April 7): The bounce from 1.3326 during the Wednesday session came close enough to the pivot to raise doubts in our minds about maintaining the trade recommendation.  At this point it is probably best to watch the action if 1.3326 is breached, and look for Hidden Pivot-based indications as to whether a long entry should be attempted.