Is a Bearish Correction Coming to Wall Street?


Master Trader
Jun 7, 2009
By Mercaforex

During Wednesday’s trading session, the U.S. dollar advanced against the Euro and Sterling. Yesterday, the U.S. stock market closed with small gains. In this sense, the U.S. Dow Jones Index advanced 0.04% marking a new year high and its seventh trading session that saw an improvement. The Dow Jones gained 4.23 points and finished the day at 9.543,52 units. The U.S. S&P 500 advanced 0.01%, after gaining 0.12 points and closed at 1.028,12 units, while the NASDAQ, which represents the main American companies in the field of technology and internet, advanced a few points to close at 2.024,43 units. These figures showed really small gains from the main U.S. stock market indexes and this give us an idea of the volatile and unclear direction that is taking the U.S. stock market. Yesterday, U.S Department of Trade, announced that New Home Sales increased 9.6% in July, reaching 433K, with a previous reading of 395K. This high improvement in the Housing Market, made a bullish U.S. stock trading session, when in the beginning we saw bearish signs, however, risk appetite did not take a strong impulse. On the other hand, the Durable Goods Orders showed an increase of 4.9% for July, with a previous reading of -1.3%, but if we exclude volatile items, the Core Durable Goods number shows a reading of 0.8%, lower than its previous figure of 2.5%. Analysts maintain that Wall Street will not succeed to continue its bullish trend and an imminent bearish correction may take place. This way, the U.S. dollar will advance against the majors. It will be important to follow U.S. economic indicators that are going to be published today and tomorrow because they are going to influence in the U.S. dollar evolution.
As for today, we are waiting the Preliminary GDP numbers, which determine the total worth of all goods and services produced by the economy and is forecasted at a number of -1.4%, with previous reading at -1.0%. The Weekly Unemployment Claims are also expected, which determines the amount of individuals who filed for unemployment insurance for the first time during the past week and is forecasted at 562K, while the previous reading was at 576K. Today, we have a really full economic calendar and traders are advised to adjust their trading positions now, before volatility take place in the market. If we observe deterioration in the economic health of the U.S., the U.S. dollar may take all the advantages. Also today, the Natural Gas Storage will be published and other economic indicators with less impact in the market. Yesterday Crude Oil Value retreated and arrived to the 72 USD level, continuing its bearish trend, after the American Crude Oil Inventories showed an increased in the Crude Oil Inventories, Also the U.S. dollar advanced against the majors, so the Crude Oil lost ground. Crude Oil Value finished yesterday at 71.25 USD, leaving the psychological barrier of 75 USD.

During Wednesday’s trading session, the Euro lost ground against the U.S. dollar, and reverted its uptrend after the previous trading session. These fluctuations that we observed on the Euro were definitely related to the Asia and U.S. stock markets developments, and also because of the bearish trend that we saw in the main European Stock markets. In this sense, the British FTSE 100 lost 0.53%; the German DAX retreated 0.63%, and the French CAC-40 lost 0.33%. Yesterday, from Germany we saw the Import Prices and this indicator showed a number of -0.9% when previous reading was 0.4%. Also the German Ifo Business Climate was released, which determines the mood of firms in manufacturing, construction, wholesale and retail and their expectations for the next six months, and showed a reading of 90.5 above the forecasted number of 89.1 and above last previous figure of 87.4. Germany is still giving out great numbers, and the European Stock Market and the Euro should react bullish. Nevertheless, we saw the opposite effect and the risk appetite in Europe could not improve highly. This way the main Bourses around Europe lost ground and the Euro lost ground to the other major currencies. Economic indicators are showing an improvement, but investors are asking themselves if the stock market could be able to maintain a bullish uptrend to the long term. Some doubts are emerging about the real economic recovery. As for today, the German Consumer Climate will be published and is forecasted at a number of 3.8, with previous readings at 3.5. Also the German Consumer Price Index (CPI) is expected today. The M3 Money Supply, which determines the worth of all currency and liquid cash assets held by the public will be released and is forecasted at 3.3%. The commonly held economic theory is that elevated currency levels spur growth and have an inflationary effect, leading to higher interest rates. This way the Euro may take some support. The market really needs a high and strong impulse, if not the bearish trend will take place and the Euro will lost ground. It would be wise to follow American and British indicators as well, because they are going to have a high impact in the marketplace.

The Sterling lost ground again during yesterday’s trading session against the Euro and the U.S. dollar, as Wall Street was bullish and the British stock market went bearish. Yesterday, no economical events were released from the UK. For today, the Nationwide HPI will be published, which determines the monthly change in the average price for a house in the UK and is forecasted a number of 0.6%, with a previous reading at 1.4%. Also the Business Investment, which determines the total level of capital spending by all companies is forecasted at -3.6%, when previous reading was at -7,6 %. In this sense, if this trend continues long term, the Sterling will go bullish. Another key figure will be the CBI Realized Sales numbers, which determines the health of the retail sector and is forecasted at -12, when previous reading was -15. The British economy has a difficult road to go through and some concerns we lately observed by analyst and MPC members. Yesterday, the British government announced that may inject money to the General Motors Vauxhall subsidiary. In UK and Spain, the main GM factories are located with a main labor force in Europe. It seems that the bearish trend for the Sterling will continue today, at least to the short term, and investor should carefully follow the British Pound evolution.