Monday, June 25, 2012

This Weeks EU Summit Trade

It’s Monday and I usually am posting a buy or sell stock pick but this week I don’t have what I consider a low-risk high-reward pick on the buy or sell side. In general I suggest shorting stocks commodities and buying the US Dollar this week. Instead of an individual stock pick this week, I’ve got some information below on Idea Theme Investing for you to think about and act on if you wish. Investing in new ideas as well as old that you can profit from moving into the new global future. In the meantime the EU Summit is coming up at the end of the week, and the markets look to be currently focused on that meeting for market direction.

I do see equities selling off more but I wouldn’t be surprised if stocks head higher testing major resistance again. I’m betting the Fed is going to come into the market at some time and try to liquefy it again to support asset prices whether it’s a good idea or not. It’s a bad idea in my opinion but Bernanke what he thinks is right no matter what I or others think.

Investors and traders this week have to deal with the idea of the global economy slowing down more after last week’s disappointing economic reports from the USA, China and Europe. The reports showed that the manufacturing outputs of these global regions are in decline. With this new data showing the GDP is slowing the US Dollar and US Treasuries are heading higher. US bonds and treasuries could be the next asset bubble so beware here also.

The European debt crisis looks to be currently the main factor but not the only one behind this global GDP slowdown. This week the market is looking to the EU summit in the hope of new policies and actions that will solve the crisis and get growth growing again. The European Central Bank has been advised by many to take leadership with the crisis. The market will still have to wait and see on this.

The markets are looking for clearer signs from the EU summit in whether to risk-on or risk-off on trading stock and commodities assets. The uncertainty of the bank debt in Spain is a current leading factor with Spain’s finance minister asking for a credit line of about 100 billion Euros from the EU and IMF.

More economic problems for the markets is the debt between European members and their banking sectors. Hopefully EU politicians will create policies to lessen or eliminate altogether this stress caused by this debt link. The idea here is to help get Spain’s 10 year bond yields below 7% to give them a chance to pay back the debt in the future. In the meantime the markets will be rightly concerned this week if the EU summit does not provide solutions to these debt problems and any contagion spreads around the world slowing down GDP even more.

The big recent statement from the Italian prime minster was that this week is the time to save the Eurozone. Most market pros agree that in order for this to happen vital policies must be agreed and acted upon immediately. One example of vital market saving policy is dealing with the austerity being forced upon Spain and Greece currently and their ability to pay their debt and the time they need to pay it off. Also the European Central Bank needs to be allowed to print more euro-dollars which they are not allowed to do currently. These debt problem issues along with many others will be talked about at this weeks EU summit and this time hopefully they take pro-action to make the new ideas to stop the crisis from deepening.

With the new Greek Prime Minister Antonis Samaras reportedly going to miss the summit because of recent eye surgery the hope of major action is fading in my opinion but we shall wait and see. The results from this EU summit can easily show the direction of the markets for awhile. If the EU talk becomes real it could provide support to the Euro and see the EURUSD price head back to the 1.3000 area, and if it is only talk with no action the EURUSD could head much lower. For us, we are betting the EU summit does not provide any real actionable solutions in time for the Euro to head lower. In case we are wrong, we’ll stop-loss and reverse, but we see what comes out of this weeks EU Summit first. Long story short this week we are equities commodities short for the most part and US Dollar long.

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