Como se combate o populismo? "Com eleições", responde Fukuyama

[Keyser Soze]

What a spectacular day we saw yesterday! European equities tried higher before the US CPI numbers, eased lower and as the data was released we saw a selling force not seen since 2002 being completely unleashed. DAX lost 3.4% on the day, the Nordic exchanges lost more than 4%, while US markets closed down about 2%. Very big moves, confirming the break of the October bull trend in Europe.

Why did markets sell off so violently? Well, Tuesday gave us weak housing data and lower than expected PPI, leading the market to believe that FED will pause in June. Fixed income rallied and the equity market stabilized while USD was well offered. Yesterday we got a core CPI reading at 0.3%, in line with our estimate but above the market consensus. As Ben Bernanke clearly has said that the single most important data to watch in regards to their next move is the core CPI, we got an immediate and brisk reaction. We said that a high reading could open up for 200 points of downside in DAX. From the CPI release to close DAX lost 180 points, so apologies for being a bit overly pessimistic.

The funny part of the action yesterday is that USD didn’t really strengthen at first versus the EUR. First after the French finance minister was found on the wires saying that they will do everything to not let the EUR’s gains extend. That is a quite remarkable statement. What he and his Japanese counterpart are saying when trying to talk the EUR and the JPY weaker, is that corporate Europe and Japan can’t handle competition when their currencies appreciate. This carries much resemblance to the devaluating days of late 1970s and 1980s. With structural imbalances so great, they have not realized that USD depreciation is the only way to solve if a US recession is to be avoided. Simply put – take the heat now and let the currency moves play out and force Japan and Europe to increase their productivity.

The declines have been very broad and we have seen DAX correct almost 10% from the highs. Where can we expect to find support in the markets? Again, yesterday we mentioned the Fibonacci retracement pattern in DAX, suggesting that if 5830/60 goes, we would be heading for a test of the 5620/40 level of 50% retracement in the big October uptrend. We are almost there! Should we buyers now? Not necessarily, as the US markets yesterday broke about every level of support there was. The levels we said would be important were 1285, 1282, 1275 and 1268. Let me tell you how the market played out. 1285 was gone already before the market opened and 1282 showed some support but caved in completely. As we saw that level go we expected 1275 to be next, but again the level was just completely run over and we saw the market all the way down to 1267. This is where support and buyers were found and the market recovered to 1275, before new sellers came in. The last 15-30 minutes took the market down even further. Remember that US markets are outperforming by far! This actually implies that Fibonacci support in DAX easily could be broken and a move towards the 4-year bull trendline support in the 5450/5500-area can take place.

With this in place we say that we probably should not be buyers just yet for the longer run. Another 150-200 points of correction could take place in Germany. However, today we will most likely see relief of some kind in the market, so small longs on the right levels offers very good risk reward. We believe about every stop in the market is wiped out now, and gapping risk on the downside has definetely decreased. 5625 is the overall most important level on close today, and it is in that area we should be looking for longs. What sectors should we be looking at? Well, stay far out of engineering and technology as they are most sensitive to growth shocks. Flight to defensives is probably a predominant theme in the market. Look for pharmaceuticals to be top leading sector.[/b]

[SuperPikas]

Onde irá aterrar o SP500 ?

[Keyser Soze]

US CPI out higher than expected at 0.3% on core, as we predicted this morning. The reaction was immidiate and brisk, sending DAX 30 points lower in a hurry. US stock market futures sold off sharply as well, and indicate an opening almost 0.8% down. This is of great significance going further as we now break important support levels. As 5800 looks to go, the door to 5630 fibonacci support is wide open. If we see a close below 1285 in SP500 we are on route for 1255. This tells us we could very well be in for an additional 3-4% correction on both sides of the Atlantic ocean. We got the reaction we were looking for on a high CPI number, and today's close will tell us if there will be follow-through. The reaction in the fixed income market is to directly send yields higher, as a FED pause in June gets less and less uncertain. Bernanke said core CPI is what matters, and if he wants to be true to his word he needs to hike again.

The macro picture is the overall dominant theme and won't go away anytime soon, as news flow dries up as we leave the reporting season behind. Right now there is no reason what so ever to go head over heels and try to catch the falling knife. Trading from the long side will be very treacherous, cause as we have seen plenty of times over the past week, stops are aggressively placed and tears up gaps in the market. If you are out of luck you could easily see a 10 point gap to your stop. As we move down swiftly we don't see stops piling up on the upside, suggesting less risk to gapping stops. Keep in mind that every bit of the positive trendlines we have been watching are broken down, at least in Europe. NAS100 could swiftly break below 1600, SP500 below 1280 and Dow Jones could be seen as low as 11200 already tonight. If we see markets close below these important support lines, there will be nothing to hold the market up. You should really watch out for Nikkei now, as we saw a nice bopunce off the 16000-mark this morning. An ugly US close and we see reason to worry that we need to say Sayonara to another level of support. The correction is real.

If you didn't fight the trend on the way up, there is no reason to fight it on the way down....!!

[vieira]

DAX em queda livre. Perdi um bocado de tempo de reacção a fechar o meu longo. Mas já abri um curto.

[Keyser Soze]

WASHINGTON (MarketWatch) - U.S. consumer prices increased a larger-than-expected 0.6% in April, led by higher energy prices, the Labor Department said Wednesday. The core consumer price index - which excludes food and energy prices- increased 0.3%, also slightly higher than expected. Economists were expecting the CPI to rise 0.5% in April after a 0.4% gain in March. The core rate was expected to rise 0.2% in April after rising 0.3% in the previous month. Energy prices rose 3.9%, the highest since January. About half of the increase in the core CPI came from rising shelter costs. The increases in the seasonally adjusted CPI should put pressure on the Federal Reserve to keep raising interest rates instead of pausing to allow the impact of the past 16 rate hikes to work through the economy