(The Weekly Digest reproduces the morning capsules made available every morning before the market open in the Real Time Feeds to the paying subscribers.)
CENTRAL BANKS READY TO COUNTER FALLOUT FROM GREEK ELECTION
June 15, 2012
Mario Draghi says ECB is ready to flush banks with liquidity to counter any adverse effects from Greek election.
The Bank of England unleashes an aggressive program to shield U.K. against fallout from Greece.
The Bank of Japan holds a policy meeting but fails to ease causing volatility in forex.
Now our sources are indicating that the pro-bailout party the New Democracy is pulling ahead in Greece. If this becomes the reality on Sunday, stock markets may explode upwards; Treasury bonds will go down; euro will go up and yen will go down.
Gold futures are at $1632, silver futures are at $28.76, and oil futures are $84.10.
S&P 500 resistance levels are 1339, 1348, and 1352; support levels are 1330, 1324, and 1312.
DJIA futures are up 18 points.
QUADRUPLE WITCHING AND GREEK ELECTIONS TO ADD TO VOLATILITY
June 14, 2012
Friday is quadruple witching. This occurs only four times a year. It is named quadruple witching because stock options, single stock futures, stock index options, and stock index futures expire. Quadruple witching produces activity that is divorced from fundamentals. Expect to see a lot of rumors, ridiculous upgrades/downgrades and fabricated news instigated by big options traders to maximize their profits in options.
Greek elections take place on Sunday.
Moody’s downgraded Spain sovereign debt as expected. We have previously written that the money to be injected in Spanish banks will add to Spain sovereign debt. Based on the bank bail out package, the downgrade of Spain was a foregone conclusion. In other words, it is news only for those who are not in the know.
The U.S. inflation and employment data is in line with expectations.
Gold futures are at $1626, silver futures are at $28.90, and oil futures are $82.71.
S&P 500 resistance levels are 1324, 1339, and `348 ; support levels are 1312, 1300 , and 1296 .
DJIA futures are up 10 points.
DOOMSDAY SCENARIO
June 13, 2012
The hypothetical doomsday scenario described below is possible but not probable. The purpose of this post is not to cause panic, but help subscribers be prepared to act on a dime if the most unlikely scenario begins to unfold.
In a hypothetical doomsday scenario the leftist party will win solid majority in Greek parlement in elections scheduled for June 17. Greece will bluff the scenario of disorderly exit from eurozone, but Germany will not blink. There will be a disorderly Lehman type event. Contagion will spread right away to Spain and Italy, the firewall will not hold. The world will enter into a depression bigger than the depression of the 1930’s.
DJIA will drop to 1000, Treasury bonds will go to the moon and there will not be enough soup to feed the people standing in soup lines.
It is difficult to predict how gold will react. The reason behind predicting gold is that gold is now being controlled by the momo crowd. Momo crowd is quite different from gold bugs. Momo crowd controlling gold has never occurred in the recent history, so there is no historical precedence.
JP Morgan is the premier and perhaps the strongest bank in the world. In March, deputy general counsel of the bank presented a hypothetical scenario in which the bank would lose $50 billion, the bank would fail, and shareholder equity would go to zero. It took JP Morgan a year to develop the scenario limited only to the bank.
Gold futures are at $1620, silver futures are at $28.93, and oil futures are $82.57.
S&P 500 resistance levels are 1324, 1330, and 1339; support levels are 1312, 1300, and 1296.
DJIA futures are down 56 points.
OUT OF THE FRYING PAN INTO THE FIRE
June 12, 2012
Spanish debt bailout was supposed to make the markets spike up. On Sunday evening when DJIA futures were up about 150 points, some opinions were that on Monday the market could go up 500 points. Yesterday the rally faded quickly.
Spanish bank bailout is structured as a loan to the government of Spain. This increases debt to GDP ratio of Spain and the concern is that because of the bank bailout the government of Spain itself will need a bailout.
In our analysis, the fears are overblown. As more details of the bailout package become available, and European leaders move to assuage fears, markets may move up at least temporarily.
The big sword hanging over the market is the upcoming Greek election.
There is a significant development regarding oil. At the OPEC meeting, Saudis are likely to advocate increasing oil production to aid world economy. Such a move will be vigorously opposed by the likes of Venezuela and Iran.
Gold futures are at $1602, silver futures are at $28.59, and oil futures are $82.52.
S&P 500 resistance levels are 1324, 1330, and 1339; support levels are 1300, 1296, and 1287.
DJIA futures are up 52 points.
SPAIN BAILOUT RALLY FADES
June 11
On the news of Spanish bank bailout, Asian stocks rose. Last night, DJIA futures in the United States were up about 150 points.
Initially the yield on 10 year sovereign Spanish bonds dipped below 6%, but as of this writing has climbed to 6.4%.
Gains in European stock markets are also fading.
Reality is finally beginning to set in. First, Spanish bank bailout will add to Spain’s sovereign debt. Second, Greek election is still ahead on June 17th.
Last night gold ran up about $8 but is now fading.
Gold futures are at $1596, silver futures are at $28.70, and oil futures are $85.05.
S&P 500 resistance levels are 1339, 1348, and 1352; support levels are 1330, 1324, and 1312.
DJIA futures are up 64 points.
