In the last several weeks, something notable occurred. It was not the first time that it happened, but it’s certainly been awhile. Namely, the dollar- bar none- has been the weakest major tradable currency. Moves that happen in two days could take upwards of six months to occur in past eras. Think about that- what used to take half a year was done in two days! For those away from the office or those not staring at the currency machinations, the dollar fell more than three cents against the euro while dropping almost two full yen against the benchmark Japanese currency at times in any given day in the last couple of months. This in turn set off selling in gold. The extremely brief version of what may have caused this is two-fold. First, as the new quarter is totally underway, there were rumors that several fund managers covered short euro positions and sold gold to book some nice profits generated in the first six months of the year. There is some credence to this hypothesis, but the fact that there was no retracement move sets off a more sinister reason. Namely, particularly in light of the decline below 3% on the 10-year bond I wrote about a couple of weeks ago, there is significant worry that the U.S. economy is much weaker than thought, say, 1 ½ weeks ago. There are of course benefits, i.e. a weaker U.S. dollar makes the price of American goods cheaper to overseas buyers. But the general overview is that particularly in light of the euro’s problems, the U.S. may well need to at least declare some austerity measures of its own as currencies like the pound have performed extraordinarily well since the advent of Britain merely talking about putting its own austerity program into place. For day traders, the correlation between the euro strengthening along with the stock market is broken. More importantly, the performance of the U.S. currency for the next few days to weeks will be a litmus test on the economy and will likely affect the stock market. This will not be a tick-by-tick correlation as was often the case in things like oil versus the S&P 500 a couple of years ago. But any major move will impact the stock market. This is truly an interdependent world- and currency exchange will play a major role in portending the direction of the stock market for the immediate-term with the fate of the equity market likely tied to that of the U.S. dollar. After reading all of this, let me note the most immediate-term relevant item: the weak dollar has been awesome for the markets for the past several weeks. Because so many things are priced in dollars, items such as oil have skyrocketed in price with oil above 80 again. Also, it makes euro assets (no matter what shape the economy is in there) more expensive relative to American assets. Thus, despite earnings being poor from the likes of stalwarts such as PG, the market held well yesterday for a couple of reasons, but it does not hurt that American stocks are cheap relative to other assets. Mind you, it’s a precarious line. If the decline gets out of hand, worries will occur about the economic recovery in the U.S. and the gains could be reversed thus be aware of the ever-changing times in the currency markets at any given instance.
Markets in Asia were mixed overnight with Hong Kong up 0.4% but Tokyo down 2.1% on worries that the strong yen is negative for the Japanese economy. Stocks are mixed in Europe as well with the DAX and CAC up slightly but the FTSE is down slightly. The dollar is a tinge weaker against the yen but a tinge stronger against the euro. Bonds are flat with oil little change as well although gold is notably ahead by about 1%. Futures are up nicely on ADP data that did not come as badly as some had feared. Look for a choppy low range day overall today with a focus on drillers, earnings plays, and relative weakness plays particularly early on with the likes of AAPL and RIMM not participating in the early rally in futures.
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
APC- decent earnings
ERTS- decent earnings
PCLN- great earnings; EXPE may move in sympathy
STEC- decent earnings
CBS- decent earnings
DNDN- good earnings
INT- decent earnings
ARNA- decent earnings
BKS- put themselves up for sale; BGP, AMZN may move in sympathy
XL- decent earnings
SMCI- decent earnings
IPGP- closed near a high after posting good earnings
BDR- closed near a high after posting good earnings
MDCO- won a summary judgment which had been rumored yesterday
HLF- closed near a high after posting good earnings
VRSN- closed near a high after posting good earnings
WYNN- closed near a high
RDCM- closed near a high after posting good earnings
TRS- closed near a high after posting good earnings
OSG- closed near a high after posting good earnings
DEPO- received confirmation from PFE that no infringement suit is to be filed on DM-1796 new drug application
CAM- decent earnings
PHM- decent earnings
SHPGY- decent earnings
GRMN- decent earnings
TRW- good earnings
Bad-The following stocks have bad news and/or a weak technical pattern
WFMI- bad earnings
WMS- poor earnings
LEAP- poor earnings
PBI- poor earnings
TIE- poor earnings
LAZ- share offering by some selling shareholders
JCP- closed near a low after negative comments from JP Morgan
RIMM- closed near a low after showcasing its newest product
SOLF- reversed in closing near a low in an island reversal after posting earnings
DOW- closed near a low after posting bad earnings
BHI- closed near a low after posting bad earnings
PG- closed near a low after posting bad earnings
VMC- closed near a low after posting bad earnings
USTR- closed near a low after posting bad earnings
GLDD- closed near a low after posting bad earnings
RDN- closed near a low after posting bad earnings
XEC- poor earnings
Earnings:
WED AUG 4 BEFORE
AGU ANR AOL
CAM CTL CVS
DVN GRMN ICE
OC PHM PRX
Q RL SHPGY
TRW TWX XEC
WED AUG 4 AFTER
ADCT ALL ATW
CAR CECO CNW
EXM GCA HIG
IPI MUR ONXX
PSYS RIG SD
SINA
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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