European GDP Tanks, Gold Rises Again
The market soared higher for a third straight session on Monday. Volume was once again above average as stocks, led by financials and energy, blasted higher by nearly 2%. Big banks like BAC (up 7%), WFC (up 4%) and C (up 4%) led their index higher. And mega oil and gas companies like XOM, CVX and CHK closed 3% higher to lead the energy industry.
More important than the 2% climb from the indices was that SPX made its second attempt to take out 1197 resistance. In fact, in the final few minutes, the SPX blasted-off to session highs and closed above 1200. But the index will need to post consecutive closes above 1197 for the bulls to claim victory and consider it a support zone. And it doesn't appear as though that will be an easy feat.
Last night most Asian indices opened high and closed near the session low. Also, Europe is getting filleted this morning with their major indices down 2-3%.
The noteworthy declines in Europe this morning followed economic reports that the EuroZone's financial king, Germany, faltered. Germany reported second quarter GDP this morning and results missed badly. Consensus view for Germany's GDP was 0.5%, which was slightly lower than the 1.3% (revised lower) in the first quarter. But Germany, the exporting juggernaut, was only able to announce 0.1% GDP for the quarter, as its import heavy neighbors pared down purchases.
The fall in Germany's output was reflected in the GDP of the EuroZone, which also reported Q2 GDP this morning. The Eurozone reported 0.2% expansion in the quarter, a dip below the 0.3% estimate and the 0.8% growth in Q1.
The tepid results from Europe aren't much of a surprise. But the revision in Germany certainly caught investors off guard. Aside from Asian countries, Germany has been the most stable economy around over the past three years. Surely, its ties to the euro helped its export numbers, but Germany was also able to keep a very low unemployment rate.
The negative news from Europe, especially Germany, will bring back fears of recession in the U.S. So as quickly as SPX was able to challenge 1197 yesterday, expect that the index will turn lower today.
The bulls need to protect 1175. I think any failure to protect 1175 today is a strong signal the SPX, and likely most of the other U.S. indices, will push lower and to the August lows. Or in the case of SPX at least to 1115.
In addition to the indices I will also be watching oil and gold carefully. Oil has surged over the past week, but it's up against strong resistance around $91. On the other hand gold has also surged, but it's near all time highs. I added a gold miner to the portfolio last week, and I unveiled a new gold miner special report at the same time. The report featured three gold and two silver miners poised to gain 30% in the next month. Click here to learn how to get a copy of this special report.
I have increased the stops to our three long positions in the TradeMaster portfolio. Additionally I will consider adding to our bearish exposure today depending on how the market reacts a few hours after the open. But we already added DXD last week.
Although the market has been extremely volatile lately, I am happy to say that investors appear to be responding to economic data again. I know it sounds crazy, but for the past three years, nearly all data, bad or good, got a favorable reaction from stock traders. But yesterday Japan's excellent GDP results boosted the market, and the GDP results from Germany will likely push the indices lower today.
In addition to GDP, there are a number of CPI, or inflation data, results that will hit the market early this week. The U.K. already announced in line inflation numbers today. Then on Wednesday and Thursday the U.S will announce PPI and CPI. Germany and Canada are also set to announce inflation statistics for July on Friday. Low inflation from some of these global economic powers could pave the way for additional monetary easing or a similar inflationary policy to improve the withering global economy.
Click here to read more articles from the TradeMaster Market Forecast blog.
