Europe’s New “Walk on Banks”

This article by John Dalt at Galt Stock explains what happened on the European markets today, which included a new phenomena: “a walk on banks,” rather than “a run on banks.” The Obama administration wants us to believe Europe’s weakness took the Dow down 500 points. I submit that maybe our government’s fiscal insanity took down the European markets, albeit, Italy and Greece didn’t add stability to the EU. Sigh. I’m not the expert, but John Dalt is.

European Flu
Research for Online Investors

by John Dalt @ galtstock.com

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.

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 1149 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.

S&P 500 8.4.11

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.