On Friday, despite the market chaos, it was very notable that the euro was notably higher for the first time in quite awhile. Admittedly, the retracement was but a mere fraction of the ground it has lost against a basket of the world's currencies over the last several months, but it was still a very dynamic feature amid a weak equities environment. The reason for the rally was attributed to persistent rumors that the EU nations and IMF would act in a concerted manner over the weekend to halt the crisis. Fair enough. But markets certainly did not expect the result that did come out. Last night, European policy makers produced a loan package worth almost $1trillion (not billion- trillion) as well as an array of proposed bond purchases in an aim to halt the euros slide. The 16 euro nations agreed to offer financial assistance of that amount to countries in severe financial straits (think Greece and potentially Spain and Portugal). The clear message is that the euro zone is going to defend its beloved currency through sheer financial will. Over the longer-run, I am not sure what it does as far as sending messages that getting oneself in trouble is inconsequential. I also am not sure if providing good paper after bad is going to necessarily work. In the intermediate-term, there is major upheaval right now in German politics and if they have to restructure the Bundesrat, this deal may need to be restructured. However, what it does do in the immediate-term is buy time. My guess is "a lot" of time. This is why the markets are so sharply ahead this morning. The crisis in the immediate-term is seemingly over because no matter what, Europe is showing it's going to come together to bail out the weak links. You are going to hear a lot of bearish talk these next few days. A lot of it may come to fruition. Ergo if the markets were inherently weak last week mainly over the euro, why shouldn't they rally now that the crisis is over in the immediate-term? Thus as you day trade today, certainly keep an eye on the euro because that is going to tell a lot of the story. But if it is stable, expect much less volatility today much less the next few days as compared to last week and don't get trapped in short squeezes. What was done over the weekend was unprecedented, unexpected, and far above what anybody would ever have thought possible. Let the euro tell the tale as we kick off one of the most important weeks in the history of modern finance.
Markets, needless to say, were sharply higher overnight with equities rallying 1.5-2.5% throughout Asia and 4% to 5% in Europe (with France up 8%). Oil is up almost 4%, gold down almost 2%, and the euro up about 2 ½ cents against the dollar. Futures are up gigantic- about 3.5% as of this writing. Today seems to be one of those days where it’s great to be an investor but much harder to be a trader. Many people will use the initial strength as a selling opportunity…but just as many people (if not more) who are short will be scared and will gradually cover (forced or otherwise). Thus, assuming the euro holds the 1.295-1.305 general area, look for relatively range-bound trading following the strong open. Trade relative weakness in particular (as there will be precious little of it) otherwise simply trade the ranges of the big cap stocks.
Reiterating-
If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified.
If something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified-
Good- The following stocks have good news and/or a strong technical pattern
GS, AIG, CLF- all traded relatively strong Friday in closing higher on the day
CAGC- decent earnings
Bad-The following stocks have bad news and/or a weak technical pattern
ITMN- closed near a low once again after their horrible drug data results on Wednesday
GXDX- closed near a low after posting poor earnings
DRWI- closed near a low after posting poor earnings
LEAP- closed near a low after posting poor earnings
DTG- closed near a low
MRX- closed near a low
ACM- closed near a low
R- closed near a low
MHK- closed near a low
PLD- closed near a low
VRX- closed near a low
AWI- closed near a low
TEX- closed near a low
BID- closed near a low
AMLN- closed near a low
HSNI- closed near a low
LAWS- closed near a low
SGMS- closed near a low
CHNG- poor earnings
Earnings:
MON MAY 10 BEFORE
BPZ BR DF
DISH DYN ENER
LPX NRG SOL
TSN WPI
MON MAY 10 AFTER
AGO FLR LDK
LM MBI MDR
MDVN MR PCLN
SLXP VISN
Good luck today.
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
Joseph R. McCandless- Managing Partner
D. Timothy Seaquist- Managing Partner
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