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Equity Markets Plunge as Traders Dump Risky Stocks

James Hyerczyk from ForexHound.com at 12/17/09


U.S. stock markets have accelerated to the downside after failing to hold key retracement zones. This is the first indication that investors are throwing in the towel on holding risky stocks. U.S. Bank shares are leading the way lower on growing concerns that Euro Zone financial institutions face exposure to toxic debt in Greece. Other traders are dumping financial stocks as a precaution against the possibility the Euro Zone debt issues will blow up into a full blown crisis.

March Treasury Bonds are surging to the upside due to increased demand for a safe haven investment. Yesterday’s Fed statement signaled that rates were going to move higher, but investors have for the most part ignored this news today. The overnight downgrade of Greece debt and the sell-off in equity markets has sent traders to the safety of the Treasuries. Continue to look for the upside surge to continue if the stock markets weaken considerably into the close.

The stronger Dollar pressured February Gold through a major 50% level at $1107.40 where it stopped at $1101.60. The next downside target is an uptrending Gann angle at $1098.00. Regaining the 50% level could lead to late session short-covering.

March Crude Oil reversed early strength and is now trading lower for the day. The failure to hold a key 50% level at 75.53 triggered some of the selling today. Most of the break can be attributed to weaker stocks and a stronger Dollar. Don’t expect any strong rallies to hold until the supply/demand situation turns bullish. A failure to hold 73.63 could trigger a test of this week’s low at 74.53.

The U.S. Dollar reached a three-month high this morning following a strong surge fueled by the S&P Corp.’s downgrade of Greece’s credit rating. This strong rally started last night but has continued to gain strength on the possibility that more downgrades of Euro Zone sovereign debt are to follow. Investors now fear that the spread of bad debt throughout the region could trigger serious problems banking issues, curtailing the current economic recovery.

The March Euro took out a major 9-month trend line overnight and accelerated to the downside. Both fundamental and technical factors are contributing to this morning’s weakness. Excessive speculation tied to debt problems in the Euro Zone could trigger a late session rally if short-term conditions become oversold.

In addition to the weakness in the European currencies, the March British Pound is under pressure because of a disappointing retail sales report. This news overwhelmed Wednesday’s better than expected jobless claims data. Technically, the British Pound failed to hold retracement zone support and is now trading on the weak side of a 3-month 50% price at 1.6292. The chart indicates this market is vulnerable to a further decline to 1.5941.

Falling gold prices and the weakening stock market are pressuring the Canadian Dollar at the mid-session. Technically, the March Canadian Dollar broke out to the downside on a move through .9363. The next downside target is a swing bottom at .9094 on the weekly chart.

Demand for higher yields, an improving economy and the reversal of the carry trade is helping to trigger a sharp break in the March Japanese Yen. This morning this currency tested an uptrending Gann angle at 1.1078. Currently, the low for the month at 1.1024 is still holding as support.

Demand for the U.S. Dollar and debt problems in the Euro Zone are helping to pressure the March Swiss Franc. Traders are factoring in the possibility that Swiss banks face exposure to debt issues in Greece, Portugal and Spain. The longer-term chart indicates a possible acceleration to the downside to .9244. Short-term support is at .9522, the September 28th bottom.

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