Turkish Uncertainty

The market hates uncertainty, and the rapid fluctuations in the Turkish Lira has without question raised some uncertainty.  Banks around the world including many US Banks holding Turkish debit will obviously experience some pressure as the Turkish economy struggles.  Dow Futures have rallied significantly from overnight lows with the bounce off the Lira.  Asian markets closed lower and European markets are also under pressure this morning.

It’s unlikely the fluctuations of the Lira are over so we should expect an increase in volatility as a result.  The VIX bounced sharply on Friday indicating some fear is creeping into the markets.  It will be incumbent on the Bulls to defend key support levels, or we could experience some technical damage in the index charts.  Remain flexible, stay focused on price and be willing to shift if market sentiment begins to shift.

On the Calendar

We kick off the Economic Calendar this week with a very light day.  We have a Bond Announcement at 11:00 AM Eastern.  Then at 11:30 AM we wrap up the day with two Bond Auctions.  I would expect no market reaction.

On the Earnings Calendar, we have just over 140 companies reporting today.  Earnings numbers will begin dropping off this week, but although there will be fewer, we must remain vigilant, checking reports against holdings.

Action Plan

Asian markets were sharply lower overnight, and European markets also lower this morning as the collapsing economy in Turkey reverberates around the world.  Dow Futures were down nearly 200 points around midnight but have since rallied significantly currently pointing to a market open about 75 points lower.  Keep in mind a test of the overnight low would not be out of the question so plan your risk carefully.

Of course, even US Banks are being affected by the Turkish economic issues as they hold significant amounts of the countries debt.  The SPY and DIA indexes have the majority exposure of the exposure to the banks and thus will likely experience some volatility as the Turkish currency fluctuates violently.  Technically both the SPY and QQQ have failed at resistance however if the Bulls step up and defend support levels another push higher is certainly possible.  If prices begin to fail key supports, the Bears could easily take control so keep an eye on price action and prepare for an increase in volatility.

Trade Wisely,

Doug