Dow Jones (Weekly Update 22-06-2012)

Stocks ended a volatile week on a strong note, with all three major indexes finishing sharply higher in trading today. Stocks bounced back after Thursday’s huge sell-off.

The DJIA ended the day 0.53% higher at 12,640.78, the S&P 500 ended the day 0.72% higher at 1,335.02, and the Nasdaq ended the day 1.17% higher at 2,892.52.

The week began on a promising note as Greek voters opted for the pro-bailout parties in the election last Sunday. Although the Greek election results ended a great deal of uncertainty, Spanish borrowing costs rose to a euro-era high. Italian borrowing costs also surged raising renewed worries over the euro zone debt crisis.

Investors’ sentiment was also weighed down by lack of action from the Federal Reserve at the end of its two-day monetary policy meeting on Wednesday. The Fed extended its Operation Twist program on Wednesday, which was expected. However, the central bank did not hint at more aggressive monetary easing.

Worries over the euro zone, lack of action from the Fed, and some concerns over global economic growth sparked a huge sell-off on Thursday.

Although stocks made a recovery today, the Dow Jones and S&P 500 ended lower for the week. The Dow Jones fell 0.99%, while the S&P 500 fell 0.58% for the week. Nasdaq managed to post a 0.68% gain for the week.

Financials led the gains in trading today, gaining 1%. The gains in the sector were led by bank stocks, which rose despite a rating downgrade of five of the six biggest U.S. banks by Moody’s. The ratings agency also downgraded the credit rating of several European banks.

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Euro Crisis Will Never End in 1 Chart

Is this how the euro crisis ends? Not with a bang, but a “firebreak”?

What’s a firebreak? And how is it different from a firewall? And what distinguishes that from a financial bazooka? These are semantic, if not existential, questions that markets have little use for. Whatever you want to call it, the meaning is clear: throwing money, and lots of it, at Europe’s problems.

It’s been enough to send Spanish borrowing costs tumbling the past few days. On Monday, the yield on Spanish 2-year bonds was 5.5 percent; on Thursday it was 4.6 percent. Is the euro saved?

Haha, no. Of course not.

We’ve seen this movie before. Every few months, Eurocrats hint at SOMETHING BIG. And every few months, it turns out to not be something big. Here’s the anatomy of a euro salvation rumor. It starts with a top official saying that the euro bailout funds — the EFSF and ESM — might buy bonds from troubled countries on the open market to push down borrowing costs. That’s fine. But it’s not “new”. It’s the definition of what those bailout funds can do.

But here’s the catch. The ESM doesn’t even exist. Not yet, at least. It still needs to be ratified. And that will take a bit longer than expected. But there’s an even bigger catch. There isn’t enough money in the actual bailout fund, nor will there be in the hypothetical one. Suppose the EFSF buys some bonds. That will push down yields for awhile. But what happens when the money starts to run out? Yields will go back up. A firebreak/firewall/bazooka needs unlimited funds to work.

In other words, it needs to be the ECB. They have infinite money. That’s the magic of the printing press.

And that’s the final part of every euro rumor. It involves the EFSF getting a banking license so the ECB can give it money. Of course, the ECB doesn’t want to do that. That’s when the rumor dies.

This chart from Societé Generale, via Simon Hinrichsen of FT Alphaville, lists the things Europe could do, how big a hurdle there is to them happening, and how much they’d help. To paraphrase Ezra Klein, everything that would help a lot is politically impossible and everything that’s politically possible wouldn’t help a lot. Hence, the neverending crisis.

euro-crisis

There’s another takeaway here. Europe’s currency union needs a fiscal union and a banking union if it’s going to work, in the long run. But Europe needs the ECB to get it to that long run. Spain and Italy won’t stay solvent anywhere near the years it will take Europe to make the tough political decisions on fiscal and banking unions. The ECB needs to bridge that gap.

That’s the scariest part about the euro crisis. There are very few scenarios where the euro survives that don’t involve the ECB doing much, much more. Their track record doesn’t exactly inspire confidence.

In the mean time, did you hear that the EFSF might buy some bonds?

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Stock Guesstimates on JSW Steel

Buy jsw steel stop loss below 640

Target = 654-658-665

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Stock Guesstimates (Updated on 22-06-2012 Time 09.10 AM)

Yesterday we enjoyed long position in

Nifty Future and quick intraday gain in Aditya Birla Nuvo

 Axis Bank and Hind Petro.

Long in Tata Steel from 417 and saw

the surge upto 432.

Don’t get trapped in panic. Use it  as entry in

up trending stocks instead.

Reliance Ind.

710-712 are good intraday support zone.

721-726 area is intraday hurdle.

Reliance Capital

326-328 are buying zone.

349-350 are strong resistance

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Free Banknifty Spot Trading Calls

Bank Nifty Tips

FREE BANKNIFTY SPOT

(Updated on 21-06-2012 Time 08.45 AM

Short term resistance at 9860-9874.

If trades above 9887 then expect it to move up to

9917-9943 levels.

But short term trend is bearish and likely to remain

under pressure.

9735-9691 are support levels.

Below 9860 will try to range between 9800-9740

Below 9735 with volumes trades then expect

fall up to 9691-9667.

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NSE Stock Tips on ShriRam Transport, Petronet, HPCL

Shri Ram Transport

Below 516 sell on rise.

If breaks 495 with volumes then expect 489-484 levels.

Petronet LNG

Below 130-133 sell and breakout below 128 with volumes

may slide up to 125-124 levels.

Buy HPCL ABOVE 315 WITH STOPLOSS AT 310-305

TARGET=327-336

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