© 2012 ROHR International, Inc. All International rights reserved.

Even though it was signaled that a broad range of European countries were on negative credit watch back in December, it appears that either later today or at the top of next week Standard & Poors is going to actually finalize those ratings cuts. However, two points are eminently worth making in light of the current market response. On the fundamental influence side, the sudden turn from upbeat data to weaker-than-expected indications in the US over the past couple of days has been offset by a more upbeat psychology out of Europe, aided and abetted by the various actions and pronouncements of the European Central Bank (much more on that in yesterday’s post.)

As such, the downgrades would significantly reverse all of that positive sentiment which had been built up since Signore Draghi’s successful psychological and financial influences on the markets since his first ECB press conference last year. The second point is the direct manifestation of all this in the markets, and whether this represents a sustainable trend reversal in equities along with the significant influence that will rightfully exert on other asset classes. While the final decision into the weekly Close is yet to be made, have no doubt that the trend decision is as critical as it can get.

While it has resiliently ratcheted up through resistance on the extension of the uptrend in place since its last selloff low into late November, March S&P 500 future gapping above 1,264-70 resistance Tolerance at 1,280.90 Tuesday set up the next extension of critical levels to a higher trend decision threshold. As noted previous, that has a lot to do with the fact it left significant congestion around Monday’s 1,275.60 Close as a buffer below it. A Close back below it will fully reverse the current short term upside momentum.

Of course, that’s the bit which is yet to be seen by the Close today, and is possibly more important than usual into the US Martin Luther King Day holiday weekend. That means no trading on any exchanges (not even the always reluctant New York Stock Exchange) on Monday. All of which will leave the extension of any decision today to the tender mercies of the next round of European influence on Monday with no US trading counterbalance it. And that goes beyond just the sovereign ratings concerns, as it will also depend upon whatever is or is not happening on the once again fraught Greek sovereign debt deal and rescue funding negotiations.

General Market Observations

As far as other markets go, it is all the same as previously noted: the other asset classes were just not reflecting the sort of sustained bullishness equities were attempting to signal with resilient ratcheting higher of the US stock markets in spite of European weakness. Much as last week’s gap higher in March S&P 500 future above 1,264-70 should have meant that govvies came back under pressure and the US dollar lost its haven bid against the euro, neither of those occurred in any meaningful way.

EXTENDED TREND IMPLICATIONS

The other asset classes were just not reflecting the sort of sustained bullishness equities were attempting to signal with resilient ratcheting higher of the US stock markets in spite of European weakness. Much as last week’s gap higher in March S&P 500 future above 1,264-70 should have meant that govvies came back under pressure and the US dollar lost its haven bid against the euro, neither of those occurred in any meaningful way. And have no doubt it was still all about the problems in Europe. As such, it is not a huge surprise that the March Bund future is attempting to escape its late September previous all-time high at 139.77. However, due to weekly oscillator indications as well as the topping line of the long-term channel (from the 110.74 June 2008 low), it would actually need to post a weekly Close nicely above 140.00 to confirm convincing escape to the upside.

While the other govvies are also strong, there is previous lead contract resistance above the March T-note future in the low 132-00 area, and on the contract itself for the March Gilt future in the 117.20-.39 range. The similar focus on Europe has also left the US Dollar Index finally pushing through its key resistance in the .8131-44 area, with next incremental resistance not until the mid- .8250 area. While the euro new low puts it only back down a bit further into its EUR/USD 1.2650-1.2550 support, that is quite critical as the last significant support this side of the 1.2150 and 1.2000 area supports.

Last, but by no means least, the weakness of February Crude Oil future in spite of the very contentious situation with Iran. That said, the failure from the 102.00-103.39 resistance range still leaves plenty of gap and significant congestion support into the 95.00-94.00 range. Also of note is that the February Gold future is not rallying on some sort of crisis ‘haven’ bid due to the situation in Europe. Gold being such a psychological animal means it will pay to watch the technical activity back down into the mid-December 1,615 DOWN Break at the bottom of the 1,615-30 range that was overrun earlier this week. If it holds, then possibly some further strength even in the face of extended equities weakness is possible. If not, then the midweek surge above it this week might just have been a temporary bear squeeze that reverts to more negative tendencies.

We hope you find this useful.

© 2012 ROHR International, Inc. All International rights reserved.

It is no doubt just a bit presumptive to take the communication from one monthly ECB press conference and infer there has been a significant policy shift. There were certainly many interesting aspects to president Draghi’s Q&A session today. However there was one focal point he revisited on several occasions that seemed to point toward the ECB becoming more Fed-like in its approach to the European Sovereign Debt Crisis and economy than anything that might have been attempted by his predecessor. And that is showing up in the markets in the form of the risk-on ‘reflation trade’ seeming to return over the past few days. On several fronts this would seem to be another example of the markets exhibiting technical trend decisions where the reasons only become apparent once the further information driving the psychology is available.

We are referring to his response to repeated questions on an issue where we (among many others) have had concerns: the efficacy of straight austerity as an effective manner in which to address the European Sovereign Debt Crisis. There have been rightful serious doubts about whether a nation as small as Greece that lacks a significant manufacturing base could actually shrink its way out of its Brobdingnagian debt load. Of course, while less so for other major profligate European southern sisters, there was also a question of the economics and political dimension for Portugal, Spain and Italy as well.

Calls for some mechanism to stimulate growth at the same time that the longer-term austerity measures are implemented are both reasonable and necessary. Vox populi in all these countries is already expressing a major degree of austerity fatigue, and further extreme measures might lead to outright rejection, along with the fact they are not likely to achieve the desired fiscal results.

So it was not necessarily a total shock when President Draghi repeatedly expressed the notion that “job creation” is a primary goal alongside the overall austerity push toward fiscal rebalancing. However, it is the first time anyone has heard it from the head of the ECB. And it must be noted that allowing that sort of focus formally moves the ECB much closer to the Fed’s “dual mandate” than anything which anyone might’ve expected prior to today’s press conference.

Under the circumstances that is likely no bad thing. It also demonstrates that Signore Draghi is quickly moving the agenda well beyond anything that would have been remotely considered by Monsieur Trichet. Some will consider this a fulfillment of all the fears of weakened ECB inflation control credentials. However, much has changed since the more rigid and doctrinaire approach of Draghi’s predecessor was allowed to exacerbate the weakening economic tendencies in Europe. The most prominent of these is what’s been tried, and failed: serial austerity measures in Greece have not produced anything approaching the desired fiscal rebalancing. And significant weakening of the economy (which looks to continue into this year) has had the predictable effect of diminishing tax revenues to the point of neutering any of the cost-cutting measures.

And indeed there is another aspect of recent ECB action reviewed during the press conference which works hand in glove with that focus on growth as opposed to pure inflation mitigation. That is the steps the ECB has taken to underwrite the stressed European banks with the extension of three-year loans at attractive rates under the Long Term Refinancing Operation (LTRO.) The significant lowering of collateral standards is enlightened to the degree it is going to prevent a pure liquidity crunch at the over-leveraged European banks. In that regard it is enlightened.

However, along with the major liquidity operations underway by the Federal Reserve, Bank of England and other central banks, the ECB was the last stalwart not engaging in wholesale liquidity expansion. Now that they have joined the “do what is necessary” to prevent another banking crisis club, there is at least temporarily a return of the risk-on ‘reflation trade’.

That is showing up in various ways in the markets (more below.) Yet, we are already seeing at this early juncture where (much as with the Fed’s QE efforts) it is not necessarily a panacea for the equity markets. Strength in precious metals and energy are already seen as an inflation harbinger is to a goodly degree, which is not necessarily constructive for stock markets.

Aside from all that there was much else that was interesting at the ECB press conference today. Most especially the comments on the once again fraught Greek Debt Deal negotiations over Private Sector Involvement (PSI). Pressed repeatedly over the question of whether the ECB would accept any haircut (reduction in the principal value) of its Greek sovereign debt holdings, he finally deferred to ECB Vice President Constancio. The Veep was very concise and pointed in his observation that the PSI being all about the private sector holdings had nothing at all to do with the ECB. And that’s that.

Signore Draghi was also very pointed that the whole PSI episode was “a mistake” that had what he called unintended and unforeseeable consequences. He allowed that it was nothing more than a political response driven by the mentality of the successful northern tier European countries. While he did not say so in so many words, our view (and that of many others) is that only folks with their head in the sand would’ve missed the point that forcing private sector haircuts and eviscerating the euro sovereign debt Credit Default Swap (CDS) market was a huge error.

We first began covering what a mess that was going to make back in our June 30th post On the Menu This Week? Looks Like Both French Toast and Greek Toast! And that whole area has been an ongoing fiasco ever since the PSI was first proposed, to the point that fear of government reprisal meant that no banks were willing to offer CDS on the bonds of the European Financial Stability Facility (EFSF.) And subsequent there were failed auctions, which we believe were in part due to the lack of any ability to take out an effective insurance policy against the failure of those bonds.

The only surety anybody has now that a 60%-70% reduction of principal value and Greek bonds is being fudged as not being a “credit event” (which would trigger those sovereign CDS payments) is that the European governments will ultimately stand behind the value of the bonds. Which is why Signore Draghi has been adamant previous and again today in expressing the view that both EFSF and its soon-to-be incarnated sister European Stability Mechanism (ESM) must be “operational and fully equipped.” And in this case the ‘equipment‘ is money.

And while they all haggle over the fine points during the next phase of the endless recurrence of the Greek Debt Deal negotiations, it seems like something we thought was already upon us some time ago is becoming the reality at present. Barring any further effective ability to kick the can down the road that seems to have run out, the Germans and other successful northern tier economies that have the ability to fund the EFSF and ESM are facing another ‘Jerry Maguire’ moment… “Show me the money.”

General Market Observations

It is certainly possible in the equities might improve further as the session proceeds. However, on current form they are sagging in a manner that is disconcerting in light of what seemed to be confirmation of a much looser approach by the ECB. Perhaps that is on the back of the surprisingly weaker than expected US Retail Sales and Weekly Initial Jobless Claims this morning. Those are especially disconcerting to the bulls who are relying upon the US and other economies to hold the line while Europe sinks into what is likely to be at least a mild recession (if they and all the rest of us are lucky.)

That the US might be weakening is especially disconcerting in light of this morning’s release of OECD Composite Leading Indicators (CLI), which still showed general global weakening in spite of some mitigation for the US and Russia. As such, any sign that the US is in fact reverting back to the sort of weakness that would make it a global softening would be a real problem for an already stressed Europe. Once again, as we pointed out on Tuesday some of our very short-term momentum indications have not returned to the potential UPside ‘runaway’ condition that fizzled after the gap higher Tuesday morning and again today. And it will be interesting to see if the March S&P500 future might actually sag back below the key near term 1,280.90-1,275.60 (Monday’s Close) gap support for the weekly Close this week.

EXTENDED TREND IMPLICATIONS

Along the way it is very interesting that the February Gold future is managing to extend its recovery above its key 1,615-30 resistance. That is pushing it back above its weekly MA-41 and Negating its mid-December DOWN Break. Holding out any retest of the low end of that range will keep it constructive in the near-term, with a likely test of the 1,680 or even the 1,700 area possible. That is also consistent with the March Copper future pushing above its 3.50-3.55 resistance once again, for a test of its significant downward channel resistance and congestion in the 3.67 area. Much above that it could easily be on its way back toward at least the next incremental resistance in the mid-upper 3.80 area.

At least for now the prospect of lower short-term rates along with the prospect that the equities might still weaken is allowing both the primary government bond markets and the US dollar to be very contained within their downside reactions. Kind of perverse insofar as any sort of reflation trade should favor the commodity currencies over the US dollar, and represent a problem for the govvies. However, all of that likely will have more to do with whether the equities do indeed weaken significantly from current levels than any temporary bulge in the precious and industrial metals.

The energy market also remains strong in spite of today’s current weakness in equities. However, February Crude Oil future pushing back up into its 102.00-103.39 area resistance might also still be under the influence of the unsettled Middle East situation. Yet, whatever the drivers might be, stronger precious metals, industrial metals and energy that are obviously not driven by an upbeat mentality in the equities are not good for the latter.

We hope you find this useful.

© 2012 ROHR International, Inc. All International rights reserved.

Short & Sweet. March S&P 500 future gapping above its high-end resistance Tolerance at 1,280.90 this morning is truly impressive. Unless it can find a reason to drop back below it by the end of the week, the next stop is likely 1,310. Yet both govvies and the US dollar remain firm on their near term downside reactions, at least so far. This reflects the skepticism other asset classes had already been exhibiting on overall resolution of European problems, and even the global economy in spite of recent improvements in economic data.

We are more interested at present in remaining circumspect into the Fed Beige Book tomorrow and Thursday’s OECD Composite Leading Indicators and the ECB decision and press conference than immediately attempting any new trend decisive views. As such, please access our also very concise updated views through a courtesy look at today’s Rohr Report TrendView BRIEF UPDATE Curiouser & Curiouser as Equities Surge Yet Other Asset Classes Not Reflecting That institutional edition as the best way to ensure you have what you need.

This summary form of background and specific technical contingencies remains very consistent with all of our views of the past week and previous posts.

Thanks for your interest.

© 2012 ROHR International, Inc. All International rights reserved.

The full calendar is available through the link in the right hand column. This is another important data release week, yet is less crowded and critical than some of the very intense reporting in last week’s first data release week of the month. Yet, central bank influences are a strong compnent once again this week.

In addition to the continued sharp influences from any developments on the European Sovereign Debt Crisis, there are Thursday’s first official rate decision meetings of the year by the Bank of England and the European Central Bank, followed of course by the monthly ECB press conference. The Fed influence from speeches and reports is very prominent again this week after a holiday hiatus. In addition to Wednesday afternoon’s Beige Book release there are bunched groups of speeches Tuesday, Wednesday and Friday, and that’s along with serial government bond auctions from Tuesday right through the end of the week.

The economic data has already begun as last week: mixed to strong, and it seems especially important the German Trade Balance was better than expected. Other key focal points are Tuesday’s Bank of Portugal Economic Bulletin and US NFIB Small Business Optimism, Wednesday’s Australian Westpac Consumer Confidence and German Real GDP Growth, Thursday’s Euro-Zone Industrial Production and US Advance Retail Sales, followed by Friday’s Chinese Real GDP and Retail Sales as well as University of Michigan Confidence.

General Market Observations

As noted in last Friday’s TrendView MARKET ALERT, it still feels like an underwhelming equities response to the much better-than-expected US Employment report. March S&P 500 future already above its 1,270 resistance from the top of last week failed to push through the key resistance Tolerance at the late October lead contract 1,280.90 high post weekly Close. Much above that a push to the 1,310 area is possible. On the other hand, it also could not Close back below important near-term support at the 1,264 previous late year high of the rally. And so the battle there continues along those lines throughout this week.

EXTENDED TREND IMPLICATIONS

And we still believe that will have an impact on the other asset classes, which have so far not really confirmed the idea that equities will continue strong from the very upbeat start of the year last Monday. March T-note future held very well, with only the most limited sort of temporary slippage back below its mid 130-00 support, with more major support waiting in the upper 129-00 area. The same can be said for other long-dated government bond markets.

Similarly in foreign exchange, the US Dollar Index held very well early last week right into its late year .7950 UP Break, which is the complement to euro failing to push above resistance at EUR/USD 1.3050-80, and ultimately knocking out its 1.2860 support that it had held previous in quiet holiday trade.

The energy market was temporarily up through the top end of recent February Crude Oil future 102.00-103.39 resistance at the beginning of last week as well. However, it must be allowed that is somewhat more of a subset of Middle East concerns rather than a purely economic indication.

February Gold future was also up last week, likely on the back of those same Middle Eastern concerns. Yet it barely squeezed up to the top of its very significant resistance from its previous major channel DOWN Break and weekly MA-41 in the 1,615-30 range. Unless it can push above that soon, a retest of at least significant gaps in the mid-1,500 area is likely

Thanks for your interest.

© 2012 ROHR International, Inc. All International rights reserved.

And now we get today’s equity market response to the Strong US Jobs Number. There’s quite a bit that could be affecting that, but mostly it seems a major case of “buy the rumor, sell the fact.” The lack of any March S&P500 future push above the 1,281 area is telling.

So what’s going on here? Quite simply, the markets are acting like the better than expected December economic data may be a brief ray of light prior to the darker influences from Europe and the major new US regulatory and tax burdens weigh on economies in the New Year. It is still our contention that US Taxulationism (which includes a bit of protectionism already apparent in recent challenges with China, along with tax and regulatory burdens) will still be a problem in the US.

And along with the very selective state of mind exhibited by the normally ‘conspicuous’ US consumer in the December retail store results this week, that’s a problem for the rest of the global economy as well. While that might be the case in any event, it will be especially telling when the rest of the world is looking for the US to lead the way up while many of the other economies are struggling. We shall see.

General Market Observations

It is certainly possible in the equities might improve further as the session proceeds. That will require reserving judgment until later in trading session. However the other key near-term factor is that some of our very short-term momentum indications will probably not return to the potential UPside ‘runaway’ condition that fizzled after the gap higher at the top of the week. And it will be interesting to see if the March S&P500 future might actually sag back below the key near term 1,264 support for the weekly Close as well.

EXTENDED TREND IMPLICATIONS

Of course, this also has implications for the other asset classes. While govvies dipped initially off the strong Employment number, they are right back up to their pre-report levels, and the US dollar was not really phased to any great degree. It also seems that the Gold market has not liked the underperformance of the equities on the number, as the February Gold future sagged back toward the top of the key 1,615-30 resistance (which will be very important for the weekly Close.) Of course, Gold might choose to return to a ‘haven’ bid even if the equities weaken. We shall see on that problematic potential. Yet, energy markets have not recovered much from yesterday’s selloff either, as February Crude Oil future weakens further from the 102.00-103.39 area resistance.

We hope you find this useful.