Monday, May 10, 2010

S&P 500, US Dollar, Euro Update



The EU, ECB, IMF announcement of massive intervention, upwards of $1 trillion, to rescue and stabilize Greece, weaker EU countries, the EU financial system, and the Euro currency resulted in a positive response worldwide, but cautious, in general.  Equities rallied worldwide, but the Euro did not spike upwards in strength as might have been predicted.  However, this is only Day 1 of the post-EU Crisis, presumably.  I am overall optimistic about the EU, USA, and Global economies.  The EU obviously got themselves in quite a mess, which will take several years to straighten out, but I believe they have it's probable they will succeed.

The EU liquidity crisis has now been resolved but the solvency crisis will only be resolved with time through austerity measures which take political will. So, time will be the test for the EU solvency crisis.  I remain optimistic because the EU members in question have no other choice now but to cut fiscal budgets.

S&P 500

The S&P 500, SPX, closed at 1159.73 today.  This price has regained and held the key 1150 benchmark price on today's relief rally & short squeeze resulting from the nearly $1 trillion EU, ECB, IMF rescue of Greece, weaker EU countries, the EU financial system, and the Euro currency.

The 1150 benchmark price was previous key support, which was easily broken through on Flash Crash Thursday, May 6. This price was also resistance in mid March and even earlier in mid January. If the SPX can hold this regaining of 1150, this would be bullish.

Below is the SPX daily chart for 2010.  The yellow horizontal line is the benchmark 1150 price. The intermediate term and long term signals remain bullish for the SPX.

Notable is the uptrend line, a measure of the rate of price ascent, from the March 9, 2009 closing low of 676.53 up through the February 8, 2010 closing low of 1056.74.  SPX broke down through this uptrend line on Flash Crash Thursday, May 6.  Today, the SPX pinned upwards through this trendline but closed right at the trendline. (I double checked my trendline as I could not believe this at first, lol).

The SPX tested the 200 day simple moving average on Thursday and Friday, but has now bounced above and closed above the 100 day sma today.  Next would be for SPX to regain the 50d sma, which is 1171.63.

SPX needs to stay above 1150 to remain in bullish mode and the next test of resistance will be the 1200 area, as the SPX bulls attempt to regain all the lost ground since the 2010 YTD closing high on Friday, April 23 of 1217.28.  I commented more specifically about some of the USA equities markets variables in a post on Sunday.

Overall, being bullish, I was satisfied with today's relief rally, but not as encouraged as I hoped I would be as the trading day progressed.  I was hoping the Euro would rally more significantly, which I review below.

US Dollar

The US Dollar, pulled back a mere -0.39 or -0.46% today on the EU bailout announcement and related USA and worldwide equities relief rally.  This shows the ongoing strength of the USD and continuing demand for USD.  Perhaps this also indicates that the shift to risk assets is muted at present and the USD is still acting as a safe haven.

Below is the USD daily chart for 2010.  The yellow horizontal line is the 84.20 Monday close.  USD remains in full bull market mode.

The USD remains above a very long-term, well known downtrend line, the lavender line.  This trendline is from the January 2002 close of 120.22 down through the March 9, 2009 close of 89.17. USD actually broke through this downtrend line to the upside last week and remains above

Euro/US Dollar

A bothersome sign is that the EUR/USD has not regained and held euro 1.30. This price was pinned to the upside overnight on Sunday, but the Euro then fell back below this benchmark price. I question whether a USA equities is sustainable, and specifically that the SPX can continue upwards above 1150 and retake 1200, unless 1.30 is first regained by the Euro and an upside breakout results. An upside breakout would also indicate confidence in the Euro, and therefore in the massive European fiscal, financial, and monetary intervention.

Below is the Euro/US Dollar daily chart for 2010.  The benchmark 1.30 price is the yellow horizontal line.

Obviously the Euro, after Day 1 of the EU announcement of massive intervention, is still significantly down for the year.  The currency market response was one of caution, certainly not enthusiasm, subsequent to the EU announcement.  I am interpreting this as a "wait and see" attitude in forex.


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