Home > Uncategorized > 2011/10/18: QuickPost: Update for Weekly Calendar on Thursday Troika Report

2011/10/18: QuickPost: Update for Weekly Calendar on Thursday Troika Report

While it was not listed in any of our normal events resources, Thursday’s very important report on Greek fiscal sustainability by the analysts from the Troika (IMF/EC/ECB) has now been added to the Weekly Report and Event Calendar (link in the right-hand column.) That event has some fairly significant indications for the overall market psychology, especially as it relates to the further evolution of the timetable for any Euro-zone Sovereign Debt Crisis solutions.

While it may have only been just so much intractable Teutonic aversion to the financial demands from the rest of Europe, Chancellor Merkel was very right to inject a dose of reality into the conversation yesterday. While last weekend the G20 clamored for a solution by this Sunday’s wrap up of the EU Summit, her spokesman indicating that that was little more than a ‘dream’ is reasonable in light of Thursday’s scheduled report.

That is because the current assessment of Greek indebtedness is going to be the basis for reopening the negotiation over how much of a loss private holders of its sovereign debt might need to take. Which is to say, how much more of a loss they might have to absorb as part of an overall liquidity injection for the Greek government.

And as that is likely to be a significantly contentious negotiation, we agree that to believe it will be wrapped up by three days after the Greek fiscal sustainability report is indeed a ‘dream.’ How much longer the markets will be willing to wait for that negotiation to be completed and how they will respond to what we might hear along the way is anybody’s guess. However, on a sheer instinctive supposition, we suspect the markets will allow approximately another week or so for the European negotiations to evolve. And that will raise the question of whether upbeat early corporate earnings announcement season equity markets activity (in spite of some less than inspiring reports) can continue much beyond that?

OR, will other factors that are looming in the wings also mean there is a question (preview of the title of our next full blog post): Will Candy Coated Equities be Spooked by the Halloween Goblins? Beyond the Euro-zone Sovereign Debt Crisis there are quite a few other factors brewing in both the US and elsewhere that are going to become more critical late this month. We will have that perspective out to you sometime soon.

General Market Observations

As it turns out today, these general observations should probably suffice until we get closer to the more critical trend psychology in the wake of that Troika report on Thursday. That said, it will be interesting to see if the equities have discounted the likely toxic impact of that specific information, or if there is some further significant weakness after the already sizable negative reaction to what Chancellor Merkel had to say yesterday. Of course, that is also because the equities’ decision is so critical to all of the other asset classes now that the classical intermarket relationships have been back in place for some time.

In the first instance, the December S&P future swing back up above the upper 1,100 area has seen it test the 1,230 area once again, yet quickly ratchet back below 1,215 on Monday’s opening (i.e. after Ms. Merkel’s remarks.) However, real confirmation of it turning bad once again from the top end of the range will only occur as far down as a failure below the low end of the 1,192-82 support. That is important not just on recent congestion, yet also due to moving average indications as well as it being the pullback low last Tuesday (i.e. while the market continued to churn its way higher after last Monday’s sharp gap higher opening.) Of course, even if it should fail that near term support back into the overall broad range, the more important congestion, recent UP Break and gap are down in the classical 1,155-45 area. Any selloff into that area will be the real battle for control of the trend.

With those classical intermarket influences reinstated, that will also likely determine whether govvies and the US dollar continue on their current recovery from key supports. No surprise that the more volatile long dated government bonds are up to key resistances, such as December Bund future back into the 135.50-.80 area. That is very important as the working Tolerance of the 135.00 area combined Head & Shoulders Top and major daily up channel DOWN Break; any further surge much above that area will turn 135.00 back into support for a likely push to a new high (i.e. above the 139.19 all-time high.) Of course, the same goes for the December Gilt future back up into its key 128.50-80 resistance, as much further progress in either of those two leading govvies futures only makes sense if indeed the equities are going to experience quite a bit of further weakness as well. We shall see.

The US Dollar Index is also back up to a recent significant .7760 daily up trend channel DOWN Break, with the euro back down to key EUR/USD upper-mid 1.3600 support. Other foreign exchange indications are at similarly fraught near-term levels. All the more reason to suspect the further decisions by all of the other asset classes will rest with the equities considerations out of late this week into next.

Thanks for your interest.

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