Ralph Shell @ 1:53 PM, Monday September 20 2010
With only eight business days remaining in the month of September, the bears are running out of time to take control of the equities markets. Overnight, while most of the Asian markets languished, the Nikkei scored a 1.23% gain. European markets, were modestly higher until the North American markets showed their strength, then moved smartly higher registering gains of over 1.5%. In the US, the Dow has moved above the 10,700 level for a gain approaching 1%.
US markets have have to assimilate notes from the FOMC meeting and various housing reports this week. Today, the National Association of Home Builders Index came in at 13, unchanged from the previous month. With 50 a neutral number, there was no optimism here. Tomorrow US building permits and housing starts will be announced. With US home seizures and bank foreclosures rising to records, and banks offering these home in competition with new homes, new home builders may be relying upon divine intervention to assist with their sales.
The FOMC report probably will have little impact upon the equities market. It is generally anticipated the Fed will conclude that the economy is recovering slowly, and they will wait for further reports to alter current policy. Should the Fed hint they are going to resume quantitative easing this would imply negativity toward equities, and be bearish on the USD. On Friday US new home sales will be reported and the m/m durable goods numbers are announced. Despite an array of potentially bearish reports the market has forged ahead. Is it possible that today's market action and momentum had downplayed potentially poor economic reports?
With the exception of the pound the USD is a loser across the board today. As we pointed out in the last COT report the USD has become a heavily favored short by the spec, with the total spec short USD positions 172,388 contracts. Our contrarian instincts make us look for a long USD trade.
The euro has gained today against the USD, but the performance has been feeble. The sovereign debt woes have been a euro problem ever since the Greek problems emerged months ago. This week two of the PIIGS are raising money. Ireland, tomorrow, is trying to peddle up to €1.5B of 3 and 8 year paper. Latest market was about 5.% for the 3 year and 6.25% for the 8 year paper. On Wednesday Portugal is auctioning up to €1.0B of paper.
There seems to be a lot of happy talk from the EuroZone, the debt crises is abating and the euro will survive. Could Deutsche Bank who is trying to raise €10.2B this week in new equity, be behind the talk? If euro problems had truly abated, would the euro not be trading better versus the USD?
Technically the MACD has given us two crossovers in the last six day, but trade in the pair lacks to vigor to assault the 1.32 resistance. If this pair makes a belated charge at the 1.32 handle we are going to try the short side at around that level. Sure, there is a chance of poor US numbers later in the week, but the equities market may be telling us there is also some good news coming.
Author: Ralph Shell - ForexRazor Analyst - Graduated from a small Ohio liberal arts college. Graduate studies in economics and history at Duke University. Ten years experience trading cash commodities in domestic and export markets. Former commodity analyst with Merrill Lynch in Chicago. Member of and floor trader at the Chicago Board of Trade for 18 years.