Market Cliff Avoided Again | New ECB Proposals

by MomentumRider.com on July 29, 2012

Market Cliff Avoided Again | New ECB Proposals

The markets rebounded sharply in the last 2 days as European leaders try desperately to avoid another repeat of last summer’s market sell-off before it is too late. We reminded everyone of the steep market drop in August of last year (> 15%) and obviously the European leaders were keenly aware of the same. In what were probably panic meetings in the last few days of last week, they were trying to release pro-debt bailout, Euro currency, and Euro stock market saving news.

European Central Bank President Mario Draghi is in talks with Germany’s Bundesbank on new measures to ease the euro zone’s continuing debt crisis. Bloomberg reported that Draghi is set to talk with Bundesbank President Jens Weidmann about lowering interest rates and increased bond buying, among other measures.

The European leaders, the Fed, and the ECB looked over a potentially fast approaching stock market and Euro currency cliff and they are trying to come up with some stop-gap financial recovery proposals. Based on their multiple news releases in the past few days, investors are temporarily buying into the ECB and Euro leaders’ “potential moves” but the specific details and exact timeline are missing as usual. At some point, this continual process of throwing out “multiple possible proposals” without strong action will not work. But for now, it seems to have stopped the panic in the Spanish and Italian bond markets, the Euro currency slide, and the drop in the world markets.

The bulls have pushed the markets back up and away from 200 SMA cliff yet again and the trading range between 1,340 and 1,400 is back in play for more time. The market bounced up off the lower trading channel trendline and it is heading back up to the top of the trading channel. The key price levels for the S&P 500 are 1,400 and 1,425 on the topside and 1,375, 1,350, 1,335 (50 SMA), and then 1,320 (200 SMA) for pullback support.

On Friday of this week, the July employment report is expected to show just 100,000 jobs were added this month in a slow growing U.S. economy. This could trigger market selling similar to the last few jobs reports’ results.
There are also earnings from about a fifth of the S&P 500 and General Motors, AIG, Procter and Gamble, Kraft, Time Warner, Berkshire Hathaway and MasterCard are among the companies reporting. Auto makers also report monthly sales Wednesday, and chain stores report their July sales Thursday.

Let’s see if more details and timelines come out in the coming week from the ECB to keep the bull rally moving towards 1,400. The short term trend has turned back to bullish. Look for more upside potential to the top of the trading range early this week before a pullback from being overbought mid to late week.

We have no change in our portfolio protection and lighter equity recommendation until actual ECB moves have been made and are in place.

No new Power Stock Picks tonight but the Investor Lists from the past several newsletters along with our Commodity Value Stocks blog have continued to outperform the market.

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Good luck in your trading and investing,

CEO Jalexa Trading Consultants, LLC
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