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Hedge funds, central banks, and other big investors are
staying away from the Euro, describing the currency as "radioactive," reports
The Wall Street Journal. So the real question is whether that's the signal
that the Euro is about to rally?
According to the report, big money is becoming increasingly "skeptical" on the
Euro. No kidding? If it wasn't big money selling the Euro, then who could it
have been? Still, this is worth exploring from a contrarian standpoint. After
all, these are the same banks that bought CDOs on subprime mortgages based on "no
look" AAA ratings from Moody's and S & P. So what they say is important to
those of us who still have some common sense.
The Journal notes the following: "So far during the euro's months-long descent,
attention has been focused on hedge-fund selling of European assets but central
banks and large managers have a much-larger influence on foreign-exchange markets.
Even if they don't dump euro assets, a mere pause in their buying could weigh
heavily on the currency." Oh boy, central banks aren't buying Euros. Could they
also be selling gold? No way to tell right now, but it's a thought.
Still, South Korea, Iran, and Russia have shifted their central bank reserves
away from the Euro. There are no reports that they are buying dollars. But someone
clearly has been for months. So irony aside, Russia and Iran buying dollars is
something to think about, since those two countries are not exactly the most
U.S. friendly nations. Ah, how money changes everything.
Clearly, though, somebody doesn't like the Euro. According to The Journal, it's
lost of people as "Mutual-fund data show that in recent weeks, European and U.S.
investors have shifted out of euro-zone equity funds. Asia's largest bond fund,
Kokusai Asset Management's Global Sovereign Fund with $40 billion under management,
lowered its euro allocation from 34.4% in March to 29.6% on May 10, according
to a company manager. And portfolio managers with huge money pools, such as Allianz
SE's Pacific Investment Management Co., or Pimco, and Baring Asset Management,
expressed caution on the euro in interviews with The Wall Street Journal."
Meanwhile, others are buying, especially China where "An adviser to China's central
bank, the biggest player in currency markets with more than $2 trillion in reserves,
said this week it planned to keep diversifying its vast dollar holdings, which
has in the past involved buying euros."
Chart Courtesy of StockCharts.com
Which brings us to our central theme. The Euro (see FXE chart) has fallen hard
for the last several weeks. But 1.23 to the dollar seems is becoming a floor.
And the longer this price level holds, the more likely that some kind of short
to intermediate term trading bottom is likely.
The situation seems to be one where if 1.23 fails, though, we could see an all
out stampede. One bad day or two could lead to a collapse of the Euro. According
to The Journal: '"The program of diversifying out of dollars has come to a screeching
halt," said Collin Crownover, managing director and global head of currency management
for State Street Global Advisors. "If the downward progression of the euro continues,
then you see outright selling of euro-zone assets, and it snowballs and gets
worse."'
In fact 'Money flowed out of Europe at an annualized pace of $50 billion in the
first two months of 2010, according to Jens Nordvig, managing director of currency
research at Nomura Securities International. That pace has likely increased in
recent months, contributing to the euro's recent decline. That outflow is likely
due almost entirely to large investors, partly because hedge funds likely have
reached the upper limit of their ability or desire to place bets against the
euro, suggests Mr. Nordvig."
Here's the chilling note: ""Somebody new is selling now," said Nordvig.
Conclusion
The Euro may be close to its make or break point. 1.23 to the dollar seems to
be the line in the sand. And for the last two days, it seems to be holding up.
But it's clear that there is significant selling pressure out there waiting to
come in, if circumstances call for it.
As we've been noting over the last few days. No one really knows how much of
the Euro's recent decline is due to off the book credit default swap bets. Maybe
Angela Merkel knows, which is why she took steps to curb the use of them in the
last few days.
We'll be on Twitter
some time today before the market closes with some updated comments.
Know when to sell and how to make money when the market falls. Get
a detailed trading plan in your pocket. Read Dr. Duarte's All
NEW Books "Market Timing For Dummies." and "Trading Futures For Dummies." The Trading Manuals for
All Seasons. Also Available As Kindle Books. |
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Apple Inc. (Nasdaq:
AAPL) owns the smart phone space. But its shares are steadily
losing momentum.
Chart Courtesy of StockCharts.com
Apple broke below support at 250 and in pre-market trading
was struggling to stay above its 50-day moving average,
below which there is little support until the 240 area
or so area.
All the negative things that technical analysts look for are evident. Volume
on down days is rising, meaning that there is distribution, or more selling than
buying as the dominant action in the stock. And the overall pattern is that of
lower highs and lower lows, the definition of a down trend.
Why is Apple important? For one thing, it's widely owned. For another it's very
liquid. That means that if someone gets a margin call, Apple is easy to sell,
a fact that could put more pressure on the shares.
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