- Technical Analysis & Insight -

August 19, 2009 (FinancialWire) (Investrend Information Syndicate) — According to the FirstAlert(tm) Money Index (http://www.financialwire.net/2009/08/19/firstalerttm-money-index-synopsis-14/), of last session’s Greatest Percentage Losers, stocks taking the greatest monetary losses were led by Barclays PLC (NYSE: BCS) trading on volume of 5,300 shares (losing $5,172.3 million) and Delphi Financial Group Inc. (NYSE: DFG) trading on volume of 1,831,000 shares (losing $105.3 million).

On the other side of the coin, FinancialWire(tm) contributor, Brewer Futures Group, provides us with some related perspective and insight regarding currency and futures markets:

The Bank of England is dominating the news once again following the release of its minutes from the August 6th meeting.  If you recall, at this meeting the BoE voted to expand its quantitative easing program.  At the time this news came as a surprise as the majority of analysts surveyed had not expected an expansion.  Since this news was released, the September British Pound has topped and started a down trend. 

Besides the fundamental story, technical factors have also contributed to the decline including a weekly closing price reversal top and a change in trend to down on the daily swing indicator chart.  The sell-off hasn’t been without a couple of retracements, however, driven by improvements in the French and German economies last week and yesterday’s news that July’s inflation remained flat at 1.8%.

The big story this morning is contained inside the minutes of the Bank of England’s August 6th meeting.  While the original decision calling for an increase in the funds available for the BoE’s asset buyback program provided a shock to the market, today’s news that BoE Governor King was defeated in his attempt to increase the funding to $329 billion could turn out to be an even bigger story. 

The September British Pound sold off quickly following the release of the minutes which showed that King and two other members of the Monetary Policy Committee favored an increase in funding. A majority of the members voted 6 - 3 to fund a smaller amount.

Those members looking for a bigger increase argued that the smaller proposal was an example of “insufficient stimulatory monetary policy.”  They cited that the risks of “another large stimulus might be less than the possible costs of acting too cautiously.”  King and his two colleagues thought that the commitment of additional funds could be overturned if found to be “overly expansive.”

The majority of Monetary Policy Committee members who voted for a smaller increase in additional funding for the asset-buyback program said “the most immediate downside risks to the economy seemed to have receded.”  They also pointed out that the additional increases effects on the economy were “uncertain,”, and that this increase risked “unwarranted increases in some asset prices.”  Finally the members felt that additional asset purchases could “prompt a sharp rise in market interest rates that was unwarranted by the economic outlook.”

The September British Pound is selling off this morning as investors interpret the revelations from the minutes as bearish.  The fact that some committee members felt the economy was weak enough to warrant a substantial increase in funding while another faction signaled less of an increase is being interpreted as a sign of uncertainty.  Traders could also be losing confidence in the decision making committee’s ability to read the economic data. 

Technically, the September British Pound has resumed its downtrend following yesterday’s one day set-back.  A break through the low for the week at 1.6273 is likely to accelerate the move to the downside.  Longer-term traders should set their sights on a correction back to 1.5376 to 1.4981.

Another sharp sell-off in China’s stock market is triggering selling in global equity markets.  Overnight China’s Shanghai Index fell as much as 5.1%.  The total correction from the top is now over 20%, thereby putting it in the bear market category. 

The weakness in the equity markets is triggering a flight to safety rally in the September Treasury Bonds and Treasury Notes.  In addition safe haven currencies such as the U.S. Dollar and Japanese Yen are also posting gains.

December Gold is expected to feel downside pressure throughout the day if the U.S. Dollar continues to strengthen.  Speculation that liquidity issues in China will lead to less demand for industrial metals is expected to pressure December Copper today.

Economic and liquidity issues in China could also have a negative effect on energy prices.  Less demand from China, the world’s second largest crude oil user, is expected to exert downside pressure on September Crude Oil throughout the day.

Demand for soybeans could also fall if China tightens up its money.  Since announcing its stimulus plan in late 2008, China has gone on a commodity buying spree.  If this buying stops and the Dollar rallies, then look for lower prices in November Soybeans and December Corn.

Source: Courtesy of Brewer Futures Group

For more information, content and/or a preferred introduction to Brewer Investment Group, LLC and/or Brewer Futures Group, LLC, contact Investrend Communications via resources@investrend.com with “Brewer” in the subject line.

Brewer Futures Group advises that futures and options trading involves substantial risk of loss and is not suitable for every investor. The valuation of futures and options may fluctuate, and, as a result, clients may lose more than their original investment. The impact of seasonal and geopolitical events is already factored into market prices. Prices in the underlying cash or physical markets do not necessarily move in tandem with futures and options prices. In no event should the content of this correspondence be construed as an express or implied promise, guarantee or implication by or from Brewer Futures Group, LLC, Brewer Investment Group, LLC, or their subsidiaries and affiliates that you will profit or that losses can or will be limited in any manner whatsoever. Loss-limiting strategies such as stop loss orders may not be effective because market conditions may make it impossible to execute such orders. Likewise, strategies using combinations of options and/or futures positions such as “spread” or “straddle” trades may be just as risky as simple long and short positions. Past results are no indication of future performance.

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