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This Won't Have a Happy Ending

By Jeff Clark
Thursday, September 15, 2011

Well, thank goodness that's settled.
 
Tuesday night, stock index futures were trading sharply lower because Greece was running out of money... again.
 
Little Papandreou got on the phone and called Papa Sarkozy and Mama Merkel from his dorm room and pleaded for more money. Nobody knows for sure exactly what was said, because the three speak three different languages.
 
But based on a statement released by Reuters just after the call ended, Mama and Papa agreed to send more money. Papandreou agreed not to blow the cash on pizza and beer and promised he'd try to get straight As next semester.
 
Global stock markets rallied on the news. Gold slumped. And the euro gained almost 1% versus the dollar.
 
At first glance, it looks like another happy ending to another wonderful story... But it's not. In the real world, financial catastrophes don't always turn out happily ever after. While the currency markets cheered the news that Greece would be saved again, we haven't closed the book on this fable.
 
Take a look at this chart of the euro... 
 
 
The euro broke down from a several-month-long consolidating-triangle pattern. The MACD momentum indicator has been declining for the entire move, and there is no positive divergence. So the momentum behind the decline is strong... and it's unlikely to reverse before falling even further.
 
Yesterday's bounce in the euro is a short-term reaction that relieves the slightly oversold condition brought about by the sharp decline over the past month. It is not the start of a resurgent rally for the currency.
 
The euro is toast. We laid out the reasons for its destruction here and here. Any short-term bounce in the currency is an opportunity for aggressive traders to go short. The euro is ultimately headed much lower.
 
Best regards and good trading,
 
Jeff Clark




Further Reading:

"In an effort to keep the EU together, the union is forcing nearly all its members to do something none of them wants to do," Jeff wrote earlier this summer. Find out why he says the European Union is about to collapse.
 
A month later, he gave Growth Stock Wire readers an interesting take on the EU's plan to bail out Greece. Read more here: There Goes the Neighborhood.

In The Daily Crux
Market Notes
Gold takes a breather... "real money" has traded sideways over the past month after rocketing more than 25% in July and August.
 
World Dominating tech giant Cisco quietly surges to a three-month high.
 
Tiny shipping company Genco jumps 20% in a week.
 
The financial sector (XLF) is stuck near a two-year low after falling 25% over the past six months.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1188.68 +1.4% +6.0%
Oil (USO) 34.34 -1.5% +1.3%
Gold (GLD) 177.21 -0.7% +42.9%
Silver (SLV) 39.60 -0.7% +97.5%
U.S. Dollar 77.04 -0.1% -5.2%
Euro 1.38 +0.5% +5.8%
Volatility (^VIX) 34.60 -6.3% +60.5%
Gold Stocks (^HUI) 602.51 -1.8% +21.4%
10-Year Yield 2.01 +1.0% -24.7%

World ETFs
Symbol Price
Change
52-Wk
USA (SPY) 119.37 +1.4% +8.1%
S. Africa (EZA) 65.65 -0.3% +6.2%
Canada (EWC) 28.32 +0.2% +4.1%
S. Korea (EWY) 52.06 -0.6% +1.8%
Taiwan (EWT) 12.89 -0.9% +0.0%
Singapore (EWS) 12.13 -0.2% -2.1%
Japan (EWJ) 9.52 +0.4% -2.6%
Israel (ISL) 14.23 +3.3% -6.3%
Lat.America (ILF) 43.78 +0.6% -7.5%
Russia (TRF) 17.26 -0.3% -9.0%
China (FXI) 35.97 +0.3% -12.8%
India (IFN) 26.04 +1.1% -18.4%

Sector ETFs
Symbol Price
Change
52-Wk
Internet (HHH) 77.07 +1.9% +26.4%
Oil Service (OIH) 128.90 +1.2% +21.4%
Retail (PMR) 20.15 +1.6% +19.9%
Big Tech (QQQQ) 55.36 +1.4% +17.6%
Consumer Svcs (IYC) 67.52 +1.6% +14.9%
Semis (PSI) 13.72 +4.2% +12.2%
Utilities (XLU) 33.52 +0.7% +11.0%
Health Care (IYH) 67.39 +0.9% +10.7%
Basic Mat (IYM) 67.63 +1.1% +8.9%
Media (PBS) 12.78 +2.2% +8.1%
Big Pharma (PPH) 65.89 +0.6% +7.9%
Real Estate (IYR) 55.16 +0.6% +6.6%
Industrials (IYJ) 59.03 +1.9% +6.1%
Telecom (IYZ) 21.73 +1.3% +5.7%
Transportation (IYT) 83.03 +1.9% +4.3%
Biotech (PBE) 19.42 +1.3% +3.9%
Water (PHO) 16.37 +1.6% +3.8%
Software (PSJ) 22.68 +3.0% +3.4%
Defense (PPA) 16.87 +1.9% +1.8%
Construction (PKB) 10.95 +2.9% -0.7%
Insurance (PIC) 13.86 +4.5% -7.3%
Financials (IYF) 47.33 +1.4% -9.3%
Nanotech (PXN) 7.04 +2.8% -16.9%
Alt. Energy (PBW) 6.87 +1.6% -25.8%

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