A Volcano in Iceland, Goldman Sachs, Sovereign Debit, and A Trillion Dollar Housing Bubble in China. Can these four things make for a perfect storm, or at least a big nor’easter?

The volcano in Iceland is costing airlines 100’s of millions a day. Airlines, world wide from New Zealand, China, USA, UK, multiply 100’s of millions by the number of airlines by 5 days, you’re into the billions pretty quickly. But… what is a billion dollars to the airlines and markets? This is also an oil trade and a euro trade, a glut of jet fuel and damage to the euro zone economy, especially tourism.

Sovereign debit is still a large black cloud hanging over Greece and others. The volcano actually caused a meeting with Greece, the IMF and the EU to be cancelled. The longer the sovereign debit issues remain without resolution, the closer each one of the countries in question including Spain and Portugal get to defaulting. What if the Volcano in Iceland continues to erupt and impact the euro zone tourism season? Not to mention who funds the IMF? Are we just borrowing our way out of a crisis today and putting it off until tomorrow?

Goldman is quickly becoming a larger black cloud that will need to be resolved one way or the other. Gordon Brown whose political life hinges on the UK economy is calling for a UK investigation and action into Goldman, ditto Germany. The political demand for new regulations is strong, yet what these regulations will be and what their impact on the financial industry as a whole is still a giant unknown. Markets do not usually like uncertainty. Even as to the specifics of the SEC complaint there are serious questions that have surfaced many of them also very political. Do we see a theme here?

The final and most important ingredient is China’s housing bubble. Hedge fund manager Jim Chanos is, and has been for quite a while, openly short on China, especially real estate. Last month alone the Chinese housing market grew by 12%. Clearly bubble material. Last week in an effort to control the bubble the government is setting up new regulations on mortgages, no mortgages on third homes, and greater down payments on second homes. Some members of the media have called these measures draconian; maybe they are actually prudence in disguise. Yet, all bubbles pop, and they have effects on both local economy and in the case of China the local economy could be global.

Markets still remember October of 2008; the light volume we have seen at the recent highs would suggest unwillingness for new traders to take on new positions. So collectively will this be an economic storm? Or will the markets sort through each of these issues individually and overcome their worry to make new highs. While the answer is unknown the astute technical trader can use all of the tools in their tool box’s to identify early signs of weakness or strength that will give you an edge.

These are interesting questions to ponder yet for technical traders they are not yet actionable items. For actionable items we need to look at our large picture, weekly daily and 60 minute charts looking for signs of strength or weakness.

So far the US Indexes especially on the daily and weekly time frames nothing is broken yet. We are still in an up trend and value is slowly being accepted higher than it was being accepted before. Therefore we need to buy the key areas at the lows and sell or the extreme bigger time frame highs. Because we are ever wary, we must always maintain strong risk management.

The chart below shows value moving higher and value today, Monday April 19 within last weeks value area. Remember, the week is not over yet, and we will be watching value closely.

Click on image to enlarge!

For more from Rick, visit Value Zone Trading to follow his blog.