On Sunday night, there was an announcement out of China which helped maintain a worldwide rally in equities yet the uptick failed state-side yesterday. So, what exactly happened? Basically, China flashed a signal that is ready to put an end to the yuan’s fixed rate to the dollar. The thought process behind China announcing a couple of days ago that it was going to drop the 6.83 yuan target to the dollar is that there is no need to shield exporters anymore with an increasing reliance upon domestic demand as the rest of the world suffers from a debt crunch. The central bank noted that there was no basis for a dramatic move in the currency, but it will be allowed more flexibility. A stronger yuan would raise the purchasing power of the domestic populace which have already caused imports to jump to record levels in China. Furthermore, there is a thought process that increased yuan flexibility may put a damper on inflation as trade tensions should ease a bit with more focus on the domestic demand of internal products. However, with a deeper look, the consumption segment of GDP has fallen sharply in the last 10 years with labor shortages in many provinces. However, if one reads the statement, one will note that the relatively statist Chinese government intimates that the approach is extremely gradual and not that dramatic. In fact, the words “yuan appreciation” actually never appeared in any press release issued by the Chinese government on Sunday night! Thus, as investors took another look at it, they realized this isn’t the panacea many were looking for with stocks selling off yesterday. With an upcoming G-20 meeting in Toronto scheduled to be held over the weekend, one should keep one’s eyes open for any news regarding this whole situation- although it’d certainly seem that China tried to beat the world in making news on its own before being forced to make the news.
Markets overnight were down throughout the world as optimism about China’s announcement fizzled. In Asia, the markets were down 0.7% on average while markets in Europe are trading off about 1% on average. Gold is down slightly after a 2% decline yesterday with oil down 1%. The dollar is slightly weaker against the yen but slightly stronger against the euro. Futures are quiet as the domestic stock market had its reversal yesterday. For today, look for a lot of crosscurrents. Worries over BP and a ‘sell the news’ mentality over the yuan along with a newly re-weakening euro are in combat with forces such as end-of-the-quarter window dressing which are sparking stocks like AAPL this morning. Look for a choppy directionless overall environment with the focus on individual stocks/sectors such as BP and the drillers, the relative strength plays like AAPL, and a myriad of microcaps with news out this morning.
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
CADX- signed option agreement to acquire Incline Therapeutics
NTES- closed near a high
Bad-The following stocks have bad news and/or a weak technical pattern
SONC- poor earnings
AMZN- closed near a low after announcing it was slashing the pricing of the Kindle
BP- closed near a low
CYPB- closed near a low
RAH- closed near a low after announcing earnings guidance and AIPC acquisition
AFFY- closed near a low after very disappointing drug trial data
PCX- shuttering a mine in West Virginia that it closed last week due to a roof collapse
ZIOP- closed near a low after the FDA rejected the company’s phase III study plan
GPN- closed near a low after CIBC announced it will end its agreement with the company in March
LLL- warned on 2010 earnings outlook after disclosing a SOFSA contract was not rewarded to the company
WAG- poor earnings
Earnings:
TUES JUN 22 BEFORE
CCL CMC JEF
WAG
TUES JUN 22 AFTER
ADBE JBL RHT
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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