In a day of short covering on some very crowded short positions, the most crowded of all shorts failed to launch yesterday. Despite yesterday’s 405 point Dow rally good for 3.9%, a 49 point S&P 500 rally good for 4.4% and a 109 point NASDAQ rally good for 4.8%, the euro currency finished down against a basket of the world’s currencies. It actually makes some sense when one thinks about it. If you love apples and have three of them at home, they are pretty valuable commodities to you. If you have 175 apples left (some beginning to turn) after you’ve just eaten three apples, having all those apples probably doesn’t matter as much because all you really need is a few more anyway. Well, there is a certain quantity of supply of euros in the world. All of a sudden, that supply just went up by a tremendous amount. If the rest of the world’s supply of currencies is steady, well, doesn’t that make each euro worth less via dilution? Yet, the markets rallied. Why? This one is simple and harks back to yesterday’s blog. The belief is that despite the creation of this paper out of thin air (and despite the IMF guaranteeing they will help contribute), these electronic numbers wipe out the immediate issue. Nations like Greece can tap the monies (again, as long as the agreement among the EU countries maintains itself) which creates a bastion of calm. Now, austerity measures will still take effect, but there is a safeguard in effect. What will be interesting for day traders in the coming days is to see if the correlation between the euro and the equity markets remains valid. There has been a near direct correlation in the last few weeks; that changed yesterday with the euro going down on increased supply yet the problem solved in the immediate-run. What we need to watch for in coming days is if the euro truly goes into freefall and if so, would that totally undermine the system on the other side of the pond? Conversely, if the euro stabilizes (or falls gradually in a controlled manner) would the bull market of 2010 assert itself? These are not questions I am qualified to answer. But I know this as an intra-day active trader- it is extraordinarily important in the next 48-96 hours to watch for the relative performance of the euro vs S&P 500 because of the two become decoupled and/or have no correlation, it’ll be time to move on (for now) to the next point of focus for the markets. And if the two are still truly correlated with yesterday a mere aberration and the euro slides dramatically from present levels, watch out.
Markets overnight were down with prices falling a bit over 1% on average in Asia with declines a bit sharper in Europe as the bourses are down just over 2% on average. Oil is down 1.5% with gold approaching new highs, up just under 1%. The trigger seems to be that oft-discussed euro which is down about 1% against the dollar- to the level where it was trading before the rescue package was announced. Consequently, futures are sharply lower with the S&P 500 futures down about 1% as of this writing. Barring a drop towards 1.25 in the euro, look for a bit of a quieter day albeit a very choppy one with a downside bias with the euro quite weak. Focus on relative strength plays as well as quick moves in the big caps for your trading focus.
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
LDK- decent earnings
LM- decent earnings
SLXP- good earnings
HQS- good earnings
TRGL- good earnings
ADY- good earnings
AAPL- closed near a high
AIG- closed near a high and announced Fairholme Capital increased its stake
WLT- closed near a high
CLF- closed near a high
BUCY- closed near a high
MEE- closed near a high
GOOG- closed near a high
BIDU- closed near a high
ESRX- closed near a high
CTXS- closed near a high
NTAP- closed near a high
CTSH- closed near a high
CREE- closed near a high
SNDK- closed near a high
BRK/B- closed near a high
DHR- closed near a high
AGN- closed near a high
CXO- closed near a high
VNO- closed near a high
NFX- closed near a high
ANF- closed near a high
NKE- closed near a high
BTU- closed near a high
SWK- closed near a high
PXD- closed near a high
ATI- closed near a high
ZLC- closed a deal to obtain new financing
CRUS, AMT- on “Mad Money” last night
JASO- decent earnings
Bad-The following stocks have bad news and/or a weak technical pattern
PCLN- poor future earnings guidance
MBI- poor earnings
FLR- poor earnings
NUAN- poor earnings
JAZZ- share offering
V- closed near an intra-day low in an island reversal
DF- closed near a low after posting terrible earnings
ITMN- closed near a low
DNDN- closed near a low
KSP- closed near a low
BEE- 40 million share offering
Earnings:
TUES MAY 11 BEFORE
ALD BPZ HEAT
JASO MFB SEED
TUES MAY 11 AFTER
AONE CTRP DIS
ERTS HMIN SPWRA
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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