Analysis for Short Term Option Trading!
Outside Market Influences-
World stocks rose on Friday, with Europegaining half a percent on the last trading day of a strong quarter as investors bet ministers will agree later in the day to almost double the euro zone's crisis-fighting funds.
But the backdrop was clouded across all asset classes, having soured since mid-March due to growth concerns centered on China, uncertainty about the strength of the U.S. recovery and the conviction that huge injections of central bank money may be no more than a panacea for Europe's debt troubles.
"All the European (share) markets have broken below their 2012 trend channels ... Now, indices are getting close to March lows," Aurel BGC chart analyst Gerard Sagnier said. "We'll have to wait for the consolidation phase, which has just started, to stabilize before going 'long' again."
Prime Minister Lucas Papademos said on Friday Greece may need a third bailout package if the sweepingausterity measures demanded by its international creditors fail to stabilize its shattered economy and restore market confidence.
It was the first time Papademos publicly confronted his people with the risk, already mooted by wary EU, IMF and German officials, that the austerity program might fall through if they don't try hard enough.
As the first quarter ends, investors will turn their eyes to earnings reports, starting with Alcoa on April 10. How companies perform this time around will tell us a lot about the recovery’s strength. But though earnings drive stock prices, actions by governments and central banks are driving the markets to a degree I’ve never seen before.
The Federal Reserve’s second round of quantitative easing (QE2) in August 2010 and the European Central Bank’s similar move to flood European banks with liquidity through long-term refinancing operations (LTRO) last December both helped spark big stock market rallies.
Economic activity generates income that has to end up in someone’s pocket. This year more money will probably end up as worker compensation rather than head to the corporate bottom line. Stock portfolios won’t soar as they have this quarter, but more people will find new jobs.
Expectations of future solid profit gains are needed to keep stock prices rising, but earnings growth will be under pressure this year. That’s because companies are expected to hire more workers, and higher labor costs will cut into margins. The result: the years of double-digit profit growth are probably over. Read “GDP report: Good for economy, bad for shareholders.”