by James Hyerczyk
Global equity markets are trading lower following the surprise resignation of German President Horst Kohler. Although the markets are trading lower, so far the reaction has been normal with no sign of a panic sell-off at this time. Traders seem to be taking some time to digest the news while studying its potential impact on the markets today.
Early this morning the June E-mini S&P 500 is testing the 50% level of the 1036.75 to 1106.75 range at 1071.75. A trade through this level sets up a test of the .618 level at 1063.50. A failure to hold the retracement zone will indicate that a test of the recent bottom at 1036.75 is likely.
The short-term range in the June E-mini NASDAQ is 1754.25 to 1874.25. This range creates a downside target today at 1814.25 to 1800.00. The June E-mini Dow is testing its retracement level at 10017 to 9956.
Uncertainty is creating fear this morning and investors are adjusting to this condition by paring long positions in the equity markets. A lot of today's downside action in the stock indices will depend upon the price action in the Euro. At this time the Euro is testing last month's low at 1.2140 indicating that more downside pressure is likely. A move through this bottom will drag U.S. stock indices lower.
Stock investors are fighting a challenge between U.S. economic news and global events. This week the U.S. is set to announce its recent jobs data report. Friday's release of U.S. Non-Farm Payrolls may have to take a backseat to the developments in the Euro Zone overnight along with military turmoil involving Israel and the start of a conflict between North and South Korea.
September Treasury Bonds are up slightly overnight in reaction to the weakness in U.S. equities. Once again investors are driving down yields while seeking safety in U.S. Treasury instruments. A panic in the stock indices is likely to drive the September T-Bonds into a retracement zone at 124'03 to 124'18.
August Gold is trading higher after overcoming a retracement zone at $1209.70 to $1219.50. With the main trend up, this zone is now expected to become support. Traders are currently waiting to see how the impact of the German President's resignation affects the Euro. Another hard sell-off in the Euro will likely lead to more talk of the breakup of the single-currency which will help increase upside pressure on gold. Traders have had a tendency to buy gold as a hedge against the risk of holding paper assets.
The falling Euro and equity markets are helping to weaken September Crude Oil. Traders are taking risk off the table this morning which is helping to put a halt to the start of the retracement rally which began last week. Based on the range of 92.18 to 69.62, traders had been looking for a retracement to 80.88. The new short-term range of 69.62 to 77.66 indicates that a minimum break to 73.64 to 72.69 is likely.
The event in Germany over the holiday week-end is triggering a knee-jerk reaction in the financial markets this morning. So far the action indicates that traders are taking a "wait and see" attitude toward the resignation of German President Kohler. The market leading the weakness overnight is the Euro. This is what traders will be watching for direction in the equity markets. So far the Euro has been holding at last week's low, however, heavy hedge fund selling through this level is likely to trigger an even harder break in the equities markets than we saw last night.
