European Flu
Research for Online Investors

by John Dalt

8/04/11

The U.S. market has caught the European Flu.  This morning, Britain’s FTSE 100 index closed down 3.43% at 5393.14, its lowest level since last September 10.  France’s CAC 40 closed down 3.9%  European markets dropped after European Commission president Jose Manuel Barroso said the eurozone credit crisis is threatening to engulf Spain and Italy.

Italy’s economy is twice as big as Greece, Portugal and Ireland combined.  Barroso requested that the European Financial Stability Fund (EFSF) and the European Stability Mechanism (ESM) both be increased in size.  Present funding for the EFSF is $600 billion dollars and the ESM is at $700 billion.

The Guardian reports that the European Central Bank (ECB) intervened in markets and was buying up bonds issued by weak countries.  This happened when Italian and Spanish 10-year yields rose above 6%.  Traders were upset that the ECB was not aggressive enough.  Their timidity in purchasing bonds actually raised concerns about liquidity for some banks.

There is a new term in Europe.  Customers are staging “walks on banks” as opposed to a run on the bank.  They are slowly taking funds out European banks because of concern about safety.  The Bank of New York Mellen announced today they would begin charging depositors on cash deposits.  The Bank is the world’s largest custodian bank.  It seems they were receiving too much money from overseas.

The Japanese Yen has been on a march higher since April 6th.  The Bank of Japan intervened this morning to lower the currency’s value.  The strong Yen hurts exports and would hinder the country’s recovery from the earthquake and tsunami.

Yesterday we had a chart of the S&P 500 showing support at 1249 from March 16th. Well, we punched through that support line. The market recovered by close, but the “technical damage” was done.

We have gone back to the drawing board in our technical analysis cave.  Here are our results based on the market today.  The chart below is for the last 18 months.

We have drawn two lines on the chart.  The green (top line) is at 1208, this is the 23.6% Fibonacci retracement of the rally from 3/9/09 through 5/02/11.  As we go to press this line has not been violated.  The next support line is at 1173.  This support line connects four different support/resistance zones on the chart as the rally progressed in the last 18 months.

Gold and silver rallied hard this morning, but just went into selloff.  We wondered when this would happen.  When a market makes a dramatic turn downward, traders must raise cash if they are working on margin.  There are also rumors that COMEX is considering raising margin requirements on gold after close tonight.

You can never buy at the exact bottom, nor sell at the exact top.  If you are an investor you are being presented with an opportunity to buy your favorite stocks at a substantial discount to their price just a few weeks ago.  Could they go lower?  Yes, maybe a couple of percent.  Could they go higher from here?  Yes and not see these levels again for the foreseeable future.

The Non-Farm payroll reports tomorrow morning have been so discounted, the market should only be surprised to the upside.

Let your checkbook dictate your actions!

The mailbag:
OK John come on! I liked subscriber P.S.'s comment (You maybe have more liberal subscribers than you know) anyway you say one can't be "independent" gotta be for less government or Big Government.'' You can't mean all Dems are Big Government people,, and GOP's  are small Government,,PLLEEEEEEEESSEE tell me ain't so  John You know better than that..... and There you go again.  You told me the dems were responsible with Geo W for the Iraq  insanity.  But you want to give Georgie all the credit for a 2001 -2007 Revival, with a Dem Majority in House and Senate...NOT FAIR..Then Blame Nancy baby and Pres O.. for the current crisis  a couple months after they got IN!!!! You eatin them Kansas cow pie Mushrooms?---subscriber J.P.

John’s reply:  I do mean that.  You can't want government to fix "your" problem but be upset they don't fix all problems.  I would prefer they step back and let Americans pursue Freedom and Capitalism.  The ObamaCare votes proved there are NO conservative democrats.  The TARP bill and Debt Ceiling bill (along with many others) proved there are few conservative republicans.

I said the dems voted for the Iraq and Afghanistan wars.  But they turned and ran when the going got tough.  Reid and Pelosi both said the war in iraq was lost and we should "redeploy troops" out of Iraq.  I did make a mistake, Nancy Pelosi did not vote for the Iraq war.  I apologize for this misstatement.  Dem majority started in 2007.  But I do agree with you that congress should get blame and credit for policy...not just the president.

The credit crisis started under Bush...given.  But, Obama has mismanaged the economy.  Piling on more regulations, EPA, Obamacare, NTSB, Oil drilling....how many more examples do we need?  He is pursuing policies to destroy the U.S. so he can rebuild it as a entitlement dependent socialist state, and doing a very good job along with his enablers.

Oh...I do enjoy all of our subscribers.  No matter their political views.  My job is to help you make money in the stock market.  If you have funds to invest, you probably did it by hard work and prudent living.  These are qualities we endorse and defend.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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