By James Hyerczyk
Stock investors will have on their radar this week key U.S. economic reports, an alleged Goldman Sachs criminal investigation and continued Euro Zone worries.
U.S. investors will be keying in on several economic reports this week, starting with Monday's Personal Income and Outlays, ISM Manufacturing, and Construction Spending and ending with Friday's Non-Farm Payrolls.
Traders are looking for Personal Income to grow about 0.4% in March after a flat February. The slight rise in weekly payrolls should help with the improvement. At 9 am CDT, the ISM Manufacturing Report is expected to come out at 61.0. This is up from 59.6. The consensus is 57.0 to 62.5. Finally, Construction Spending is called -0.3%. The downtrend in public and nonresidential components is the cause behind last month's decline.
Looking ahead to Friday's U.S. Non-Farm Payrolls Report, traders are expecting an increase of about 200,000 jobs. The consensus is wide at 110,000 to 500,000 but this range is expected to tighten as the week wears on. Traders are also looking for the Unemployment rate to drop to 9.6%.
Other factors affecting the equity markets this week is the talk of a possible criminal investigation of Goldman Sachs, stemming from the recent civil suit filed against the firm by the Securities and Exchange Commission and the lingering fiscal issues concerning Greece and several other Euro Zone countries.
On Friday, stocks fell sharply lower after U.S. economic reports disappointed investors and rumors circulated that the Feds were going to look for criminal activity at Goldman Sachs.
Friday's break was initiated by a weaker than expected U.S. GDP report. Although the report showed that the economy expanded by 3.2%, economists were looking for an expansion of 3.3%.
Later, in the morning, a weaker than expected consumer sentiment report helped to accelerate the break. Some traders feel that although the EU and Greece are expected to have a bailout deal worked out by the end of the week-end, there is just too much risk in holding risky assets like stocks over the week-end. Additional pressure is coming on chatter regarding a possible criminal investigation of Goldman Sachs.
The Goldman news triggered a sell-off in the financial sector. Traders fear that a Federal investigation of the firm could tie up the company's assets and hurt their market making business. In addition, investors feel that the revelation of problems at the firm are likely to mean more financial market regulations that could put restrictions on bank proprietary trading.
The main trend in the June E-mini S&P 500 is down. Friday's failure to hold the 50% level at 1196.75 was an indication of weakness. It is possible that a secondary higher top has been formed. The close under 1212.25 helped form a weekly closing price reversal top which could set up the start of a 2 to 3 week break. The weekly chart indicates that 1134.00 is the next downside target.
Although equity markets are up this morning, traders feel that risk is still a concern and likely to limit gains. Some traders feel the technical reversal top formation will also help limit gains and eventually encourage more selling pressure.
Weaker equity markets helped drive June Treasury Bonds higher in a flight to safety rally. This week's better than expected Treasury auction also contributed to the strength. The weekly chart indicates that a clean upside breakout is taking place. The next upside objective is 119'16. Treasury Notes and Bonds could both accelerate to the upside if problems continue to escalate in Europe and investors continue to dump stocks. Interest rates are usually a leading indicator. This week's drop in yields indicates that there may be some serious problems on the horizon.
Overnight, firm equity markets are triggering a profit-taking break in the Treasuries. The key to higher markets will be if traders support the market on the dips. Under normal conditions, the excessive supply should pressure T-Bonds, but investors are still a little nervous about risk in the equity markets which could provide a reason to buy if more bad news comes out of the Euro Zone.
On Friday, the weaker Dollar triggered a breakout to the upside in June Gold. Lower demand for equities also helped to boost gold along with lingering fear that Euro Zone problems are going to continue to put pressure on the Euro. Some gold traders still feel that Euro will be broken up if fiscal problems escalate in Spain, Portugal and Ireland. The strong rise in gold coupled with the sell-off in financial stocks is a sign of deepening concerns about the global financial system. Late breaking news that three banks in Puerto Rico went under is likely to influence the trade early this week.
Technically, the weekly breakout to the upside along with increased momentum could mean a test of the contract high at $1230.00 is possible next week. This morning, gold is trading a little better, but buyers seemed poised to take it higher should anymore problems appear in the Euro Zone.
Late last week, the weaker Dollar and stronger Euro helped to buoy June Crude Oil. This market bottomed earlier in the week at 81.29 just as it was becoming apparent to investors that a bailout deal between Greece and the EU may be reached by this week-end. Bullish traders feel that a stable Euro will lead to increased demand for energy products. The oil spill in the Gulf of Mexico could become a bullish factor if it leads to tighter regulation or even a shut-down of some wells. This would disrupt supply which would mean more reliance on OPEC oil.
