May 2009

Crude Futures Finish Off Session With Largest Monthly Gain In Over 10 Years

Commodities – Energy

Crude Futures Finish Off Session With Largest Monthly Gain In Over 10 Years

Crude Oil (WTI)   $66.360                               +$1.280                                +1.97%
Crude prices  finished off its biggest monthly gain in over ten years as dollar weakness continued. Since crude oil is a dollar-denominated asset, any decline in the greenback would boost prices to make up for the lower buying power. With this in mind, the large amount of capital injected into the financial system has not had its expected impact on the dollar, which has been supported by its safe-haven status. Given this attribute, there are two likely scenarios that can come about within the near-term. On the one hand, if a recovery truly takes hold and the economy begins a turnaround,  investors who were positioned in the US dollar due to its safe-haven status will likely pull out of positions and move into higher yielding assets. If that occurs, dollar weakness will accelerate. In conjunction with an increase in economic activity, this would push crude prices further. On the other hand, financials still face risk of losses from a slew of securities related to residential mortgages, commercial mortgages, credit-cards, consumer loans, or student-loans—All of which present higher chance of losses in a downturn. If defaults do indeed occur (as some major Bank CEOs have already warned about), the financial system may once again face a credit squeeze, cutting a recovery short. This would return focus to downward pressure from supply and demand that for past few months has had little impact on crude pricing. Furthermore, after prices have grown so fast and so quickly without any major  reason beyond optimism, it is unlikely such strength will continue. As a result prices will likely decline somewhat in the short-term.

Commodities – Metals

Safe-havens Gain As Dollar Weakness Continues

Gold                   $979.800                           +$16.600                             +1.72%
Gold prices soared for the day as Dollar weakness showed little sign of remittance. Strength is likely a sign of investors building positions around two long-term factors. The first— if the perceived risk of US debt downgrades increases, the US dollar will decline further. Given its competing status as a safe-haven vehicle, many investors will move to gold instead of the currency. The second factor—inflation. Once a recovery will begin to take hold, dormant inflationary pressures will emerge. The amount of capital injected since the crisis began makes high inflation a very real risk. Investors looking to hedge against this will likely invest in gold. As a result, Gold prices will likely maintain strength and continue gains for the short to medium term.

Silver                 $15.6800                   +$0.5200                            +3.43%
Silver prices more than doubled gold’s gain as dollar weakness benefited the metals. If expectations remain such that the economy will recover, silver has the potential to continue to gain at a much faster pace than gold due to its historically lagging year over year price movement. Expect gains for the near to medium-term.

-Written by Stefan Tifigiu, CFDTrading Research
Questions/Comments about this article? Send them to Stifigiu@fxcm.com

European Shares Flat After Volatile Session

Europe Session Key Developments

• Optimism Quelled By Negative US Data
• Three Month Rally Has Been Built On Positive Expectations
• Given Dearth Of Positive Economic Data, Is Market Due For a Pullback?

European shares traded higher for most of the day but ending mostly flat as negative news out of the US quelled optimism. In this regard, equities have held on to optimistic gains for the past three months, despite signs of steepened economic contraction. This may change as European indexes are approaching a significant resistance level. Investors may reevaluate their positions, focusing on expected economic conditions rather than sentiment indicators. If so,  economic data that point toward extended weakness could lead to a sharp reversal for markets. Furthermore, a recovery in Europe will depend to a large degree on a recovery in the US. A rebound in the states cannot happen until financial institutions are fully stabilized and able to lend. In this regard, expectations are not very promising. With such securities as those backed by or related to commercial mortgages, credit card loans, student loans, or even from residential mortgages, the possibility for further losses is real, and outlook remains insecure. Fitch ratings agency today mirrored this possibility with a negative outlook for major US financial institutions. In turn, current equity optimism without major solid data to anchor it will eventually subside. Given the ratio of negative to positive data pointing to further weakness, bearish sentiment could overtake the markets and lead to declines for the short to medium-term.

FTSE 100                       4417.94        +30.40        +0.69%
The UK index showed the most gains for the day despite weakness in all sectors except for Basic Materials, Financials, and Oil&Gas sectors, which gained 3.35%, 1.72%, and 1.18% respectively. Strength came for basic materials as Xtrata PLC and Anglo-America PLC gained over 5.1% on prospects of a merger between the two. Barclays also gained as it completed first sale of 600,000m  metric tons of UN emissions reduction credits. Overdraft rates for the company were also cited to be raised by 4%. Lloyd’s added to financial strength as it rose 4.2% as it redeemed €5.5million of notes due in 2010.

CAC40                          3277.65        +13.95        +0.43%
The French Index modest gains as well led by the Financials, Oil&Gas, and Technology sectors, gaining 1.89%, 1.70%, and 1.49% respectively. Technology was raised by STMMicroElectronics, which gained 4.47% despite reports that its EBITDA for the quarter dropped to -€64,000,000. Société Générale helped buoy Financials, gaining 3.02% after confirming preference share sale of €1.7billion. transportation services company, Dexia SA rose 3.10% after announcing it planned to add 200 new commercial employees.

DAX                        4940.82        +7.94        +0.16%
The German index showed modest gains with modest strength in the Financials, Basic Materials, and Consumer Goods sectors, which gained 1.09%, 1.07%, and 1.03% respectively. Bayer AG gained over 3.55% as the market weighed possibility of having blood clot drug Xerotol denied approval in the US by the FDA. Deutsche Borse gained 2.7% after being added to the “most preferred” list at Bank of America.

IBEX35                        9424.30        -11.20        -0.12%
Oil&Gas and Consumer Services Sectors gained 1.93% and 1.89% respectively. The two sectors offset declines in all sectors with health care showing the most weakness declining 1.01%. Major movers were Mapfre which gained 4.68% after being revised to “buy” by Deutsche-Bank AG. Cintra also gained 2.91% after posting a first quarter profit of €12million despite expectations for a loss from analysts. Iberdrola declined 0.84% after announcing that energy supplier margins might have dropped this quarter.

S&P/MIB                       19884.00        -226.00        -1.32%
The Italian Index declined the most out of the indexes. Weakness was primarily in the Utilities sector which declined 4.18% Consumer Goods and Consumer Services sectors followed closely behind with declines over 2.3%. Enel SPA declined 5.59% after announcing sale of 80% of its gas network to infrastructure fund F2i Spa. Fiat Spa declined 4.15% after comments from CEO Marchionne that he would not attend meeting today, possibly foreshadowing Fiat’s pullout in bidding for General Motor’s European arm, Opel.

-Written by Stefan Tifigiu, CFDTrading Research
Please send any comments about this report to Stifigiu@fxcm.com

Nikkei Advances to Seven-Month High as Japanese Industrial Outputs Rise the Most in 56 Years

Asia Session Key Developments

· Japan household spending falters as unemployment rises

· Australian private-sector credit rises less than expected

Nikkei Advances to Seven-Month High as Japanese Industrial Outputs Rise the Most in 56 Years

Stocks in the Asia/Pacific region advanced on Friday, with all three of the benchmark indices ended the week on a higher note. At the same time, a report by the Japanese government showed industrial outputs increased 5.2% in April to market the biggest rise in 56 years, while the annual rate of unemployment increased to 5.0% from 4.8% in March. Furthermore, household spending slumped 1.3% in April from the previous year, while housing starts slipped at an annual pace of 32.4% during the same period.

NKY 225 9522.50

The Nikkei 225 picked up 71.11 points (0.75%) to end the week at a seven-month high of 9,522.50 in Tokyo following a government report that showed a marked recover in industrial outputs. The rise was led by a 3.70% jump in oil & gas, with basic materials advancing1.33%, while consumer services increased 1.24%. Mitsui O.S.K. Lines Ltd gained 5.1% as commodity freight costs surged to an eight-month high, while shares of Ipex Corp jumped 6.3%. Moreover, Nippon Mining Holdings Inc advanced 3.3% after metal prices pushed higher, while Toshiba Corp gained 2.6% after the firm announced it may increase its outputs of flash memory chips in July.

HSI 18171.00

The Hong Kong equities market moved higher following the holiday, with the Hang Seng index advancing 285.73 points (1.60%) to end the session at an eight-month high of 18,171.00. The rally was led by a 6.88% jump in technology, with consumer services gained 3.3%, while consumer goods weighed on the market as the sector slipped 1.54%. Cnooc Ltd, the largest offshore oil producer in China, added 4.2% as crude oil prices surged to a six-month high, while the Bank of China Ltd, the regions third-largest bank, gained 7.4% after Deutsche Bank raised the share to ‘buy.’

ASX 200 3818.10

The ASX 200 gained 62.40 points (1.66%) to finish the week at 3,818.10, led by a 2.58% advance in financials. In addition, basic materials picked up 1.88%, following the rise in commodity prices, while utilities weighed on the index as the sector slipped 1.47% from the previous session. Commonwealth Bank of Australia led financials higher as shares rose 3.51%, while Macquarie Group gained 3.63% after the firm announced it would acquire Tristone Capital Global Inc, a Canadian energy investment bank, for $105M. Moreover, shares of BHP Billiton, the world’s largest mining company, increased 1.88% as copper prices surged nearly 2%, with Rio Tinto gaining 0.86%.

Notable Asian Session Event Risk / Economic Releases

Crude Prices Jump As Dollar Weakness Boosts Reaction To Supply Report

Commodities – Energy

Crude Prices Jump As Dollar Weakness Boosts Reaction To Supply Release

Crude Oil (WTI)   $64.810                               +$1.360                                +2.11%
Crude prices jumped over 2.2% in the US session as dollar weakness boosted reaction to a DoE report showing supply drops.  The department of energy report showed a drop in stockpiles of over 5 million barrels. While the decline was significant, most price strength was likely provided by expectations of future dollar weakness. Since crude is a dollar-denominated asset, any decline in the greenback will boost prices to make up for the lower buying power. Treasury yields continued to rise for the day and may reflect investor qualms related to dollar strength and possible debt downgrades for US debt. While the risk of a ratings slice for US debt is low, weakness in the US dollar is not. Given the large amount of capital injected into the financial system, the dollar has largely been supported by its safe-haven status. Given this attribute, there are two likely scenarios that can come about within the near-term. On the one hand, if a recovery truly takes hold and the economy begins to turnaround,  investors who were positioned in the US dollar due to its safe-haven status will likely begin to move funds into other assets with higher yields. If that occurs, dollar weakness will take hold. Combined with an increase in economic activity, this would raise crude prices further. On the other hand, Financials still face risk of losses from a slew of securities related to residential mortgages, commercial mortgages, credit-cards, consumer loans, or student-loans—All of which present higher odds of losses in a downturn. If defaults do indeed occur, the financial system may once again face a crisis prompting a halt of crude price strength.

Commodities – Metals

Safe-havens Gain As Dollar Weakness Continues

Gold                   $960.700                           +$5.500                             +0.58%
Gold prices bounced slightly for the day on Dollar weakness. The lack of movement for the metal despite continued equity rallies may be a sign of positions built around two long-term factors. The first— if the perceived risk of US debt downgrades increases, the US dollar will show further weakness. Given its competing status as a safe-haven vehicle, many investors will move to gold instead of the dollar. The second possible factor is inflation. Once a recovery will begin to take hold, dormant inflationary risks may begin to emerge. These risks are very high given the amount of capital that has been injected into the economy. Investors looking to hedge against this risk will likely invest in gold. As a result, Gold will likely maintain strength and gain modestly for the short to medium-term.

Silver                 $15.1500                            +$0.2850                           +1.92%
Silver prices continue to gain as a safe-haven. One aspect to remember though is that while silver is perceived as a safe-haven, it may not necessarily move in lock step with gold. Since it is also used in many production applications, industrial demand for the metal could decline if the economy turns sour again and offset some gains. On the other hand, if the economy shows signs of recovery and inflationary risks pump up demand for safe-haven metals, silver has the potential to gain at a much faster pace than gold.

—Written by Stefan Tifigiu, CFDTrading Research
Questions/Comments about this article? Send them to Stifigiu@fxcm.com

European Stocks All Lower for the First Time in a Week

Europe Session Key Developments

•    Commodities Continue to Climb Higher
•    Indicator Releases Show  Signs of Improvement

European markets closed lower across the board for the first time this week as markets appear to be forming a top following a sharp rally that has been in effect since early March. Financials gave back some of the gains today along with most sectors except those involved in Health Care and commodities. Indicator releases today were mixed as Italian business confidence rose to the highest in six months while German unemployment raised optimism with barely any change from the previous month compared to expectations for 64,000 jobs lost. Other releases however were more negative as Euro-Zone business climate weakened along with industrial confidence. Retail PMI data also pulled back slightly as contraction continues. Data from the British CBI showed retail sales in the UK may have dropped. Commodities managed to keep losses on indices at a minimum as oil and metals continued to climb higher. While optimism on the future remains relatively high, investors are beginning to wake up the realization that market valuations may be too high compared to earnings for the current year.

FTSE 100                      4,387.54                   -28.69               -1.06%
The UK index closed lower for the first time since last Thursday as seven of the ten sectors finally succumbed to selling pressure. Gains were once again minimal with no sector rising more than one percent while losses in five sectors came in between one and two percent. Consumer Services and Financials led declines with losses of 1.66% and 1.60%, respectively. Hedge fund manager Man group dropped the most with a 6.90% move as a statement by the firm revealed assets under management fell 7.8% in the period from March to May 26. Profit at the fund also fell to $1.24 billion from $2.08 in the prior year. On the upside were firms correlating to commodities which rose today. Leading was Cairn energy with a 3.5% move higher following by a gain of 3.39% in shares of miner Fresnillo. Today’s data included the CBI’s retail sales survey which showed 17% of retailers reporting a drop in sales compared to net 3% citing an increase in the previous month.

CAC 40                     3,263.70                   -31.16                 -0.65%
Trading in the French market led to the smallest decline of the five majors as a rise of more than one percent in Basic Materials and Health Care partially offset losses in seven of the ten sectors. Leading the gains was steelmaker ArcelorMittal with a 3.5% gain on news that the firm will shut additional units to cut operating expenses in the face of lower capacity utilization. Also seeing considerable upside were shares of Air France, up 2.43%, and drug maker Sanofi-Aventis, up 1.40%. Leading decliners was building materials supplier Saint Gobain, which fell 6.56% on a cut to “hold” at Kepler and concerns of a prolonged recession. Data in France today showed housing permits fell significantly at 22.6% in April for the three month period while retail PMI showed a narrower contraction in May.

DAX                         4,932.88                    -67.89             -1.36%
The German Index fell back under 5,000 with the largest decline of the five majors as eight of the nine sectors fell. Consumer Goods and Industrials led the weakness with downside of 2.31% each trailed by a 1.81% fall in financials. Health Care proved resilient to the selling pressure with Merck rising 1.47%, the most on the session, followed by fertilizer maker K & S which moved up 1.07%. Four stocks closed higher. The large move in German equities comes in sharp divergence to indicator releases today, the biggest of which was a surprisingly low unemployment change from the previous month. The figure came in at 1K compared to expectations for 64,000 jobs lost. The sharpest decline on the day was seen in Deutschebank, which fell 3.73%.

IBEX 35                     9435.50                   -75.30                 -0.79%
Trading in Spain led to a small move lower for the IBEX as seven of the nine sectors fell while Basic Materials gained 2.34% on a rise in commodities. Spanish trading of steelmaker ArcelorMittal led for a second day with a rise of 3.55% followed by lender Bankiter’s 1.77% move. Lagging moves proved more volatile with builder Acciona falling 4.95% on a downgrade to “underperform” at Bank of America.

S&P/MIB                        20,150.00                    -162.00                  -0.80%
Italy’s main index closed lower by nearly one percent as losses were seen in six of the nine sectors and the ratio of losers to winners was almost 3:1. Basic Materials and Oil & Gas rose on the session as commodities climbed higher while Financials fell the most at 1.62%. Building materials firm Buzzi Unicem fell the most with a 3.17% move as firms in the industry across Europe suffered on downgrades. On the upside was utility firm A2A, which rose 2.30%.

-Written by Roman Kadinsky, CFDTrading Research
Please send any comments about this report to Rkadinsky@fxcm.com

Asian Equities Mixed, Australian Business Investments Plunge Lower in First Quarter

Asia Session Key Developments

· Japanese retail trade improves in April

· Australian business investments falter in first quarter

Asian Equities Mixed, Australian Business Investments Plunge Lower in First Quarter

Price action in the Asian equities market was mixed on Thursday, with the Nikkei tipping higher following the drop in the Japanese yen. The USD/JPY surged higher to trade above 96.00 on speculation Japanese investors were increasing their purchases of foreign assets, while a report by the government showed domestic demands rose more than expected in May. Meanwhile, business spending in Australia plunged 8.9% in the first quarter after rising 7.3% in the three-months through December, and fears of a deepening downturn weighed on the markets as RBA Deputy Governor Battellino continued to hold a dour outlook for global growth.

NKY 225 9438.77

The Japanese benchmark equity index added 12.62 points (0.13%) to close at 9451.39 in Tokyo, led by a 1.19% gain in technology. The advance was following by basic materials, which gains 1.00% during the session, while telecommunications led the decline in the market as the sector slumped 1.58%. Sanyo Electronic Co, the world’s largest maker of rechargeable batteries, jumped 5.2% after the government announced it will try to raise its dependence on rechargeable cells, while Toyota Motor Corp, the world’s largest automaker, advanced 2.7% following the drop in the Japanese yen. At the same time, Japan Tobacco Inc tumbled 6.9% on policymakers look to increase taxes on cigarettes, while Sumitomo Metal Mining Co, the largest gold producer in the region, advanced 6.1% on speculation investors will increase holdings of the precious metal in order to hedge against inflation.

HSI 17885.27

The Hong Kong equities market was closed for the Tuen Ng Festival (Dragon Boat Festival)

ASX 200 3755.70

The ASX fell 45.40 points (1.19%) to end the trading session at 3,755.70, with 9 of the 10 components falling lower. Health care dropped 2.97% to lead the decline, and was followed by a 2.42% drop in industrials, while oil & gas gained 0.04% after Carnarvon Petroleum Ltd discovered a new oil reserve in Thailand. Meanwhile, share of BHP Billiton and Rio Tinto dropped 1.8% and 0.6%, respectively, following the drop in commodity prices, while Australian and New Zealand Banking Group lost 1.2% after the firm sold shares at discount.

Notable Asian Session Event Risk / Economic Releases

Crude Continues To Gain Despite Equity Declines

Commodities – Energy

Crude Continues To Gain Despite Equity Declines

Crude Oil (WTI)   $63.090                               +$0.640                                +1.02%
Crude prices gained for the day despite equity markets declining for the US session. At first glance, the move may be puzzling given the condition of the global economy. However, sharp selling in US Treasuries could indicate that markets may be pricing in concerns of the effects of large government deficits and dormant inflationary risks. As a result of these concerns, the US dollar could continue to follow suit with selling, weakening its strength to other currencies. If that is the case, dollar-denominated assets such as crude oil will appreciate in price to make up for the lower buying power. Crude prices may thus be valuing in such expectations. Nevertheless, even with the sharp reversal in equity rallies, crude prices continued to gain for the day. Price strength continued despite equity weakness and may be a sign that crude may be overbought and due for a reversal.  True, long-term the above-mentioned risks are real but they will likely not have an immediate affect for some time. In the meantime, crude prices will have to address more pressing fundamental pressures of supply and demand. With stockpiles amassed near decade highs and a global economy that continues to limp into steeper contraction, about the only support for current price growth comes from dollar weakness. As a result, crude prices will likely begin to reverse gains in the near-term.

Commodities – Metals

Safe-havens Show Some Strength As Dollar Weakens

Gold                   $952.400                           -$2.700                             -0.28%
Gold prices remained flat for much of the day. The lack of movement for the metal may be a sign of positions built around two long-term factors. The first, if the perceived risk of US debt downgrades increases, the US dollar will show further weakness. Given its competing status as a safe-haven vehicle, investors looking for such assets will likely move to gold instead of the dollar. The second possible factor being inflation. Once a recovery will begin to take hold, dormant inflationary risks may begin to emerge. These risks remain very high due to the amount of capital that has been injected into the economy. Investors looking to hedge against it may pile into gold as well. As a result, Gold will likely gain for the short-term to medium-term.

Silver                 $14.7950                           +$0.8350                           +1.34%
Silver prices gained more than gold today. Even though silver is perceived as a safe-haven, it may not move in lock step with gold. While it too would benefit from uncertainty within the market, industrial demand for the metal could decline if the economy turns sour again and offset some gains. On the other hand, if the economy shows signs of recovery and inflationary risks pump up safe-havens metals, silver has the potential to gain at a faster pace than gold.

European Markets Close Slightly Higher on Volatile Session

Europe Session Key Developments

• Commodity Stocks Rise on Demand Prospects
• Housing Markets Remain Weak

European markets closed higher with minimal gains following a volatile session in which indices traded between gains and losses several times. Indicators released today were generally mild as Italian confidence held steady and UK loans for house purchases rose nearly in line with estimates. Despite the upside in the figure, British lender Nationwide commented that house prices are likely to keep falling through the rest of the year as unemployment continues to soar. Other releases late in the session included German CPI data, which posted the first annualized decline under the EU harmonised system since at least 1996. The regular index fell to neutral on an annual basis and is likely to fall into deflation in the months ahead. Consumer service stock gained as falling prices, along with uplifting confidence, may lead to increased sales. Also leading were stocks in the Basic Materials sectors included steelmakers commenting on rising demand in the months ahead as global fiscal spending and monetary easing measures start to significantly affect markets. European markets have rallied significantly since early March and many analysts are expecting a retracement lower in the near-term. A top may in fact be in the process of forming in equities.

FTSE 100                      4,416.23                   +4.51               +0.10%
Equities in the UK rose slightly as greater than one percent moves in Technology, Consumer Services and Financials, were tempered by small declines in four of the ten sectors. Nearly 60% of stocks traded higher with hotel operator Intercontinental advancing the most with a 5.97% rise on a WSJ report that the CFO of the company expects economic recovery by the end of 2010. British trading of German automaker MAN group followed closely behind with a 5.37% gain. Other companies seeing considerable upside included travel agency Thomas Cook and insurer Old Mutual. Leading declines as metal prices fell were platinum producer Lonmin, down 4.06% and miner Fresnillo, which fell 4.03% despite citing a strong start to 2009. Loans in the UK for house purchasing increased slightly in line with expectations, which caused little movement in affected firms as the release was anticipated correctly. The recent rally in the pound to above 1.60 is also hurting firms that earn significant revenue abroad.

CAC 40                     3,294.86                   +24.77                 +0.76%
Trading in France led to a modest gain into the close with nine of the ten sectors rising while Health Care fell 1.45%. Basic Materials and Consumer Services led advancers by more than two percent on the strength of steelmaker ArcelorMittal’s 5.34% gain and a rise of 4.83% in retailer PPR. ArcelorMittal announced intentions to raise 2.5B in a bond sale and also gained on news that it plans to increase price for the first time in nearly a year. Plane maker EADS saw its shares rise 5.61% on news that revenue will be in line with previous year despite a fall in net income expected on increased R&D costs. Declines on the session were minimal with no firm seeing a decline of two percent or more.

DAX                         5,000.77                    +15.17             +0.30%
The German market traded back above 5,000 with a small gain while six of the nine sectors posted minimal declines on the day. The strength in Financials continued with a 1.41% sector gain along with 1.29% for Industrials and 2.55% in Consumer Services. Leading advancers was steelmaker Salzgitter on reports that the firm will increase capacity utilization significantly as demand and prices rise for commodities. Also leading was retailer Metro with a 3.76% gain as rival Arcandor may be considered for state aid, according to a statement by Finance Minister Peer Steinbrueck. Of the 14 firms that posted declines today, Volkswagen led with a 3.73% fall in its shares as talk continues to circulate surrounding Porsche’s perceived inability to exercise call options. Domestic releases today included CPI, which posted the first annual contraction since harmonised EU data was first recorded in 1996.

IBEX 35                     9,510.80                   +105.10                 +1.12%
Stocks in Spain led advances as Basic Materials climbed 4.56% on the strength of world’s largest steelmaker ArcelorMittal. Also seeing a significant move higher was wind turbine maker Gamesa, up 4.56%. While most stocks posted gains, healthcare firm Grifols fell 2.34% following an agreement to extend distribution of the firm’s products to Italy.

S&P/MIB                        20,312.00                    +15.00                  +0.07%
Italy’s index closed with the smallest gain of the five majors as four of the nine sectors closed lower despite greater than one percent gains in Utilities and Technology. UBI led decliners with a 2.31% following by holding company Atlantia, which fell 1.92%. On the upside, insurer Fondiaria along with food company Parmalat, and Banco Popolare, rose more than four percent each.

-Written by Roman Kadinsky, CFDTrading Research
Please send any comments about this report to Rkadinsky@fxcm.com

S&P 500 MAy Find Resistance At 200-Day SMA

To review: “The decline from the October 2007 high is in 5 waves, therefore a multi-month countertrend 3 wave advance is underway.  Fibonacci resistance does not begin until 8736.  Wave B within an A-B-C corrective advance from 6470 is complete at 7792.  The Dow should rocket higher in wave C in the next few weeks.”  9088 is the former 4th wave extreme and an objective.  Near term, there is the potential for a drop below 8230 in order to complete an expanded flat.

The Dow rallied after testing 8,215 which has provided short-term support and is on the verge of testing resistance at 8,522 the 61.8% Fibo extension of the 9,795-6,470 decline.  If we see a hold there then the broader index may remain range bound, but a break above leaves a test of 9,000 as a possibility over the near-term.

The S&P count is the same as the Dow count.  A B wave is complete at 827.  A target is 1086 (100% extension) and the index should remain above 827.

The S&P 500 continues to find support at 880 which led to a rally back above 900. However, the 200-Day SMA has come into play and could slow momentum at 930, with 943- the January 6th high as the next major barrier.

The Nasdaq is in the same position as the other US indexes although the short term pattern is not clear.  A deeper corrective rally is likely; perhaps to the 50% at 1902 or the 61.8% at 2094.

The Nasdaq rallied ahead of support at 1,660, and is looking to re-test the November 4th high of 1,785. A hold there would leave the tech laden index range bound.

Asian Equities Surge Higher, Hang Seng Advances to Eight-Month High

Asia Session Key Developments

· Japanese exports fall less than expected in April

· Hong Kong Government will increase spending, cut taxes by HKD16.8B

The equities market in the Asia/Pacific region surged higher, following the rally on Wall Street as U.S. consumer confidence marked the biggest advance in six years. Meanwhile, the Hong Kong government announced it will lower taxes, cut fees and increase spending in an effort to stimulate the economy, which pushed the Hang Seng to its highest level in nearly eight months. At the same time, a report by the Japanese Ministry showed exports fell at a slower pace in April, which reinforced expectations for improved growth in the second quarter.

NKY 225 9438.77

The Nikkei jumped 127.96 points (1.37%) to end at 9,438.77 in Tokyo, with 8 of the 10 components advancing higher. The rally was led by a 2.44% gain in technology, followed by a 2.36% rise in financials, while oil & gas slipped 0.91% from the previous trade. Toyota Motor Corp, the world’s largest automaker, advanced 2.8% following the rise in U.S. consumer confidence, while Nikon, the world’s second largest digital camera maker, added 3.5% after the firm took additional steps to lower its cost structure. In addition, shares of Nidec Copal Corp, which makes electronic components for optical equipments, jumped 11% after Credit Suisse raised the firms rating to ‘outperform’ from ‘neutral’, while Chuonyu Co. surged 23% to mark the biggest advance since April 2007 after Suzuken Co, a drug wholesaler in Japan, announced its plans to subsidize the transportation company.

HSI 17885.27

The Hong Kong benchmark equities index surged 893.71 points (5.26%) to end the trading session at an eight-month high of 17,885.27, with all of the components pushing higher after the government announced it will increase spending and cut taxes. Consumer goods led the advance, jumping 8.79%, followed by a 6.04% gain in industrials, while financials increased 5.56%. Li & Fund Ltd, the main supplier of toys and clothing to Wal-Mart and Target, jumped 11% after the rise in U.S. consumer confidence, while Cnooc Ltd, the largest offshore oil producer in China, gained 4.9% following the rise in crude price.

ASX 200 3801.10

The ASX 200 ticked higher, gaining 12.70 points (0.34%) to close at 3,801.10, led by a 1.45% advance in industrials. Shares of BHP Billiton Ltd, the world’s largest mining company, rose 1.1% following the rise in commodity prices, while Ausenco Ltd surged 8.2% after the firm was awarded the contract for the Gosowong Gold project in Indonesia. Meanwhile, Crane Group, the nation’s biggest distributor of plumbing, lost 5.2% after Credit Suisse lowered the company’s rating to ‘underperform,’ while Energy Resources of Australia Ltd, which produces nearly a 10^th of the world’s uranium supplies, fell 3.5% as UBS lowered the firms rating to ‘sell’ from ‘neutral.’

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