Short Term Trading forex trading links forex trading books market statistics trader values euro and us dollar Shocks Crashing Will stocks plunge again?

Thursday, 17 November 2011

Will stocks plunge again?

(Pic by NASA Goddard Photo and Video)
Despite a brighter economic picture in the U.S., financial markets are still at risk of collapsing under the European sovereign debt crisis. Stocks are at crucial support lines, while the U.S. dollar could appreciate further against the European currency.

Buy the America’s momentum or sell Europe’s incertitude? Traders remain caution. Good timing is important to ride the wave. Long-term cyclical studies anticipate further losses for the stock indexes, while seasonal components support a rally in November and in December.  In effect, the U.S. economy has grown 2.5% in the third quarter of 2011. Consumer spending and business investment stay healthy, while exports are positive, due to a weaker dollar. Foreclosure numbers fell to the lowest levels since 2008.  Finally, inflation is softening, along with the decline of gasoline prices. However, good news about the U.S. economy is undermined by the incertitude of the European sovereign’s debt. In Italy, Mario Monti has gained the majority of the parliament. A series of painful and unpopular austerity measures have to be approved. Monti’s large consensus could quickly shrink, along with the electorate approval, while Berlusconi is waiting for the right moment to get back on track again.

Sell Europe. For how long?

In reality, after Greece and Italy, another country will soon be under tight scrutiny. On Sunday, the Popular party of Mr. Rajoy has won the Spanish political elections. Like elsewhere in Europe, austerity and reforms are the keywords. The financial world is watching. For the first time in fourteen years, Spanish bond yields approached 7% last week. Borrowing costs will be under pressure, if Madrid fails to reassure the financial community. The E.C.B could be forced to step-up its sovereign bond purchases. There is no other choice, at the moment. Nonetheless, the situation is not sustainable over the longer- term. E.C.B. essence is at risk. As a result, European governments will be asked to approve the new EFSF guarantees for the second consecutive time.

Europe should remain on the sell side for now. It will be difficult to convince the markets of the contrary. Long-term cycles have not completed their trajectories yet. The economic growth is fading away and the contraction is spreading into solid countries such as Germany, Holland and France. So, what is next? The euro could fall to 1.32/1.28 and only a swing above 1.4460 would lift the price to 1.48/1.52. Stock indexes are approaching important support lines as well. A move below the 50 days MA at 1186 could take the S&P 500 to 1180 and possibly to 1140. A breakout over 1287 might instead support the price to 1297 and eventually to 1350. December is one of the best months for stock indexes and for the euro currency.

Angelo Airaghi,
The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed, neither the information presented nor any opinion expressed constitute a solicitation of the purchase or sale of any forex, futures or commodity product. Those individuals acting on this information are responsible for their own actions. Forex, futures and commodity trading may not be suitable for all recipients of this report. The risk of loss in trading forex, futures and options can be substantial. Each investor must consider whether this is a suitable investment. All recommendations are subject to change at any time. Past performance is not a guarantee of future results. Please Note: All performance figures and illustrations were obtained using historical back testing on a computer and are not the results of an actual account. No guarantee is inferred that future performance will be like the results shown. Futures, forex and options trading involve risk. There is a risk of loss in futures, forex and options trading.


Stanley said...

Thanks for sharing your insights. It's nice to read your posts about stock trading and forex.

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ProfitsOn said...

Thank you.

What’s your forecast for stocks and the U.S. dollar?

Courtney Spelling said...

I have to agree with your prediction. What about the US and Asian market? I think Asian market are really growing rapidly specifically China and Japan.

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ProfitsOn said...

The S&P 500 index has performed quite well so far.

The market is finding good resistance lines at 1360/80. However, recovery is still fragile and the U.S. can only withstand a mild European recession.

Unfortunately, Greece could default within the first 6 months of this year. Euro/usd could correct to 1.28, 1.2650 and eventually 1.2420. The U.S. markets might follow.

Since 1900, the DJI topped 3 times (1929/1965/2000). The following periods of consolidation (bear?) continued for 13/17 years top to bottom (1906/1921-1929/1942-1965/1982).

Of course, past performance is not a guarantee of future results.

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