May 2009

Crude Reaches New Multi-month High While Gold Struggles to Find Momentum

Long-Term Technical Forecast for Crude Oil

Recent commentary has been that “a possible wave count is an expanded flat, which would require a push above 59.66.”  The wave count described is no longer possible but probable as crude is about to exceed 59.66.  Although the minimum for wave C is just above 59.66, crude could soar as high as 78, which is both the 161.8% extension of wave i of C and the 50% retracement of the entire decline.

Short-Term Technical Forecast for Crude Oil

Long-Term Technical Forecast for Gold

Gold is oscillating between the 55 and 200 SMAs.  Structure is non-existent.  In other words, waves are not clear right now.  However, having broken a trendline from February yesterday, bulls are slightly favored at this point.

Short-Term Technical Forecast for Gold

Long-Term Technical Forecast for Silver

Silver on the other hand is clear.  The drop from the March 2008 high to the October 2008 low was in 5 waves, indicating that any subsequent rally should prove corrective.  The rally from 8.65 was corrective but the decline from 14.63 was also corrective.  As such, it is likely that a complex correction is underway towards an extension at either 16.08 or as high as 19.5.

Short-Term Technical Forecast for Silver

U.S. Retail Sales And EZ GDP May Sink Optimism and Weigh On Global Markets

The week has gotten off to an ominous start with equity markets giving back some of last week’s gains. Now that we have gotten past the bank stress tests and the ECB rate decision it appears that the focus has returned to fundamentals.  Therefore, this week’s releases may have significant sway over risk appetite.

Today Fed Chairman Ben Bernanke will speak about the stress tests and his comments could add to the confidence that the report generated. Tuesday will put the spotlight on the U.K. with the Trade Balance Report, Industrial Production and the NIESR GDP estimate. Although, forecasts are calling for a 0.9% decline in activity for March, an increase in April growth could offset its impact. However, if the GDP estimate shows that the economy is continuing to contract at its recent pace, we could see U.K. trade heavy. Wednesday will bring the most volatility as the BoE Quarterly Inflation Report will be released. The continuation of falling prices will diminish the outlook for company profits lowering analyst’s valuations. Additionally, we will see the U.K. labor report which is expected to show jobless claims rose by another 85K, which should dim the outlook for domestic growth.  In Japan the Eco Watchers Survey which polls business cycle sensitive workers like cab drivers will give insight into the Japanese economy. Expectations are for a small improvement to 30.0 from 28.4. The biggest release of the week may be the U.S. Retail Sales report as the world is looking toward a U.S. recovery to lift the global economy. Consumer spending in the U.S. accounts for the majority of GDP and if we see continued weakness in demand it could spark concern over corporate profits and may push out expectations for an economic recovery. Also, watch for initial jobless claims the following day, the weekly reading isn’t typically that market moving but following the labor report will put in focus. Thursday will also see U.S. Producer Prices cross the wires and expectations are for a 3.9% decline on an annualized basis following a 3.5% drop in March. The release will be an early indicator for the next day’s U.S. CPI reading. Indeed, inflation in the U.S. is forecasted to decline by 0.6% in April which will keep alive deflation concerns and lower the outlook for profits. However, markets have started to move toward the argument that upside risks are the growing concern as the government pumps money into the system and a pick up in prices could raise concerns over future consumer spending. The Empire Manufacturing and U of Michigan Consumer Confidence readings are also out that day and have market moving potential as well.

Treasuries Remain Buoyant Through Government Purchases And Earnings Season

US Treasuries

• Will the Government’s Stress Test Revive Investor Fears?
• Fed Chairman Ben Bernanke Sees “Tentative Signs” of a Cooling Slump

Treasuries Remain Buoyant Through Government Purchases And Earnings Season

US 10-Year Treasury Note                              3.226       -8bps
Treasuries have held to congestion as global investors are torn between their desire for yield and fear of a persistent recession along with the seizures in financial markets that come along with it. Taking stock of market sentiment over the past month and a half, there has been a tangible recovery in risk appetite. Benchmark equity indexes have risen, junk bond spreads are falling and risk premiums on credit default swaps (among other high-finance products) have tumbled significantly. In the T-notes run up through the past six to eight months, the primary driver was demand for liquidity. Investors desperate to stem the bleeding were diverting capital to the safe harbor of US government debt. Even now, with traders showing interest in putting their capital back to work in the market after an extended period of congestion and uncertainty, we can see that there is still an overwhelming need for safety. Such sentiment is well founded considering fundamentals. While there was room for investor sentiment to recovery from the severely panic-depressed levels following the October market crash, a genuine recovery requires the prospect for a true rebound in expected returns (found through positive growth) and a lasting decline in risk (both economic and financial). These conditions have not been met with many Fed officials warning the public that the recession will likely deteriorate through the summer months and President Obama cautions that unemployment may rise above 10 percent over the same period.

There have been other, more specific factors helping to sustain the T-note’s near record highs. Fading confidence in the G20 meeting on April 2nd has been instrumental in propping up not only US debt; but government paper in most economies. A gathering of policy officials from 20 countries that account for an estimated 85 percent of economic activity, the summit was seen as one of the few events that could provide a tangible shift in policy efforts from domestic to global that could finally correct the momentum behind the world’s recession and financial troubles. However, the statement full of action points released after the gathering offered broad goals; but the steps to accomplish such high level objectives were lacking. With only a day to come to a very difficult agreement, expectations were already low. A completely different prop to the T-note’s strength has been the Fed’s pursuit of quantitative easing. After the Fed’s decision to keep rates unchanged at the last policy meeting, the market’s true interest was in their plans to increase purchases of longer dated Treasuries in an effort to lower interest rates.

Looking over the coming week and beyond there will be a few notable fundamental themes deciding the market’s interest in the safe haven Treasury. The most immediate and unpredictable dynamic is the impact earnings season will have on growth forecasts. First quarter numbers are coming down the wires; and recent optimism will have to be reconciled to the reality of weak demand and production synonymous with a general recession. Expectations are already set low; but a disappointment could defer the forecasts for the eventual rebound in growth. Furthermore, the market may intensify its focus on the accounting for the nation’s 19 largest banks. There have been suggestions that the Fed is holding back the release of the ‘stress tests’ done on these largest financial institutions until after earnings season (and that officials have told management at these corporations not to allow any premature leak). As such, market participants will fall back on speculation. Ongoing writeoffs (even after the change to accounting rules) and a unwavering decline in revenues could play on fears.

European Government Bonds

• Gilt Traders Show Tempered Confidence In G20 Outcome
• Bunds May Soon Find The Support Of The ECB

European Policy Authorities Bank On A Natural Recovery As Options Running Out

UK 10-Year Government Bond (Gilt)                          3.285      -23bps
Few economies stood to benefit from a strong and coordinated G20 effort more than the United Kingdom. The economy has been ravaged in the worldwide downturn (leading the IMF to predict Europe’s second largest economy to suffer the worst recession in the industrialized world through 2009) and the fires of financial crisis have grown so hot that the government has long fallen back on quantitative easing and nationalization. However, the vows the world’s leaders ultimately announced were released upon a skeptical market that immediately realized the lack of a catalyst to put such sweeping efforts into motion. Since this release, we have seen both Parliament and the Monetary Policy Committee hit theoretical barriers on their capabilities for turning local growth around. The BoE rate decision had no room for further cuts; but the group did announce its intention to hold up efforts to purchase 75 billion pounds worth of Gilts over three months. This will certainly keep the benchmark paper bid. What’s more, speculation will begin to ramp up for the advanced reading of first quarter GDP reading, Chancellor of the Exchequer budget statement and quarterly manufacturing report all due next week. Such a complete reading for activity could be either boon or burden.

German 10-Year Government Bond (Bund)               3.340       -1bps
The pull-back in the ten year bund from its record high a month ago has finally stalled. More or less following the general path of investor sentiment over this period, we have seen the fragility of this confidence wear away in the face of true fundamentals. Still considered one of the strongest, major economies in the world, the Euro Zone (and its largest members) has the most room to fall should conditions continue to decline. The growth outlook has been dealt few favors with rising unemployment, devastated output figures and sentiment tethered to record lows. As the release of first quarter activity numbers near (due in early May), the reality that this regional powerhouse is in the same situation many of its global counterparts are in (just behind the curve) could encourage diversification away from European sovereign debt whether investor sentiment is rising or not. What’s more, the decay in economic health further diminishes the European Central Bank’s position. The benchmark lending rate is still at 1.25 percent; but this leaves little room to maneuver. Should the need for lax policy outlast the central bank’s frugality, they may finally have to turn to the quantitative easing that the US and UK are already practicing. Expansion of the bank’s balance sheet would not only undermine the nation’s role as a source for yield; but it would also wear on the bund’s safe haven status.

Asian Government Bonds

• Japanese Officials Prepare Another Round Of Stimulus
• Will Chinese Demand Encourage A Rebound In Japanese Exports

Japanese Government Bonds Plunge As Bailout Efforts Balloon

Japanese 10-Year Government Bond (JGB)                    1.716        3bps
Over the past few weeks, Japanese government bonds have plunge precipitously. This move departs from that of its global counterparts; though the fundamentals warrant it. While it is true that market participants are still desperate for liquidity, not all government debt is created equal in its status as a safe haven. As the second largest economy in the world, JGBs are hardly questioned for their payment status; but with alternatives like US Treasuries, Bunds and Australian government paper, money managers can afford to be more discriminating with their Japanese investments. A critical look at Japanese economic activity (the worst recession in over a quarter century with central bankers forecasting a more aggressive recession going forward) and the nation’s financial health exposes an economy whose suffering will be leveraged by its dependency on exports and foreign investment. What’s more, the government’s aggressive efforts to correct the economic malaise have ballooned national debt. With yet another financial stimulus package in the pipeline (this one weighing in around $154 billion), the government has boosted spending nearly 3 percent of GDP and has to raise debt to fund such efforts.

Questions? Comments? You can send them to John at jkicklighter@cfdtrading.com.

Federal Reserve’s Stress Test Offers Few Surprises Yet Results Still Dour

After weeks of waiting, an impromptu delay and rumors whose source seemed to be policy officials themselves, the Federal Reserve finally released the results of its highly anticipated Stress Test. Ultimately, the net results were more or less in line with expectations. Ten of the 19 banks under review were judged to have insufficient capital to survive an extended recession and were told that they will need to raise their capital levels to fortify their positions in the market.

The short-falls ranged from massive (Bank of America needs $33.9 billion) to relatively modest (PNC has fallen short $600 million). However, should these ambiguous numbers cull the need for further concern; or are the scenarios the central bank measured these firms against just as much an exercise of speculation as a traders forecast?

The Score

To fully understand the implications of this stress test, we have to first look at the ‘raw data’ that the Fed has passed along. The nineteen banks put up to the Fed’s tests account for approximately two-thirds of the assets and half of the loans in the US banking system. Clearly, systemic risk can be largely encapsulated by this heavily weighted group. From the data, the first concern traders have had was the list of those banks that would fail to meet the capital requirements to ride out the government’s worst case scenario for the economy and those that were well positioned. As expected, 10 of the banks were judged to have insufficient reserves; but this came as little surprise considering the market had fully expected as much. In fact, many of the names that populate the list were discounted ahead of time. The accuracy behind the market’s outlook can be ascribed to ‘rumors’ and ‘comments’ from unnamed Fed officials ‘with knowledge of results.’ This was likely an effort encouraged by policy makers to help temper market sentiment to the results before the official numbers were released – and thereby curb a volatile reaction.

The Numbers

Whereas the breakdown of the pass/fail proved to be very accurate, the actual shortfalls were less so (though they certainly came close enough to suggest leaked numbers were being utilized). In total, the ten banks that fell short of their benchmarks will have to raise a cumulative $74.6 billion. This may seem like a parsley sum given the massive bailouts of AIG, Freddie Mac, Fannie Mae and others; but in reality, these funds are expected to come from the public sector. This is a considerable sum to raise considering the state of the economy (a recession is fully forecasted for the rest of the year). Picking out the neediest of the firms, Bank of America (who acquired Merrill Lynch for better or worse) is expected to increase its reserves $33.9 billion. Treasury Secretary Timothy Geithner and executives have suggested that normal methods for raising capital – like converting preferred shares into common stock – will meet the requirements; but what effect that will have on investor sentiment remains to be seen.

Longer Term

Altogether, it seems that the Fed has provided the market with the perfect solution to a lingering problem. However, this exercise in defining boundaries on recession and the impact this malaise has on the market does not accurately account for sentiment. The forecast for recession that the central bank has benchmarked individual company losses against is an act of speculation itself. Perhaps the contraction economic activity will be better or worse than expected. Even more threatening is the possibility of another financial shock that has an immediate impact on credit and liquidity for these firms and the broader market in general. Even if these numbers prove accurate, these 19 companies can still lose $600 billion through 2010. That is substantial in the best of times and at least a severe dampener given current conditions.

Crude Bounces As Fed Comments Rally Markets, Will Optimism Last?

Commodities – Energy

Crude Bounces As Markets Rally, Will Optimism Last?

Crude Oil (WTI)                   $50.930           +$1.010      +2.02%
Crude prices regained some of the previous session’s declines as equity markets rallied strongly worldwide. As we noted yesterday, risk sentiment has been heavily influential on crude pricing and has even trumped downward pressure from heavy supply gains. Rallies were bourne from US Federal Reserve commentary in which officials stated that conditions have improved slightly in the past six months and that it would maintain current operations. Markets responded optimistically to this announcement as many participants have been pointing to signs of a bottom. Nevertheless, the US Fed also reiterated that weakness would continue despite the slight improvements. Perhaps echoing this fact further was a US GDP release which showed the sharpest two quarter contraction in over 50 years. Today’s market optimism may thus be a bit hasty and as a consequence, rally-supported strength in crude prices is on shaky ground. Prices thus far seem to be disconnected from reality and continue to defy principal supply and demand factors that point sharply toward lower prices. For example, in today’s Department Of Energy report crude stockpiles showed a gargantuan increase to over 4 million barrels. This was almost double what was expected. Meanwhile, demand is expected to remain weak as the global economy has continued to contract in past weeks. Any support for crude demand that was likely to come from the summer driving season will now be offset by the swine flu pandemic deterring drivers. The flu has shown some signs of continuing to spread as the World Health Organization has raised its pandemic alert to the highest level since 2005. Nevertheless optimism will continue to weigh heavily on pricing. If markets continue to remain optimistic and risk appetite increases, prices will likely maintain near current levels. If not, expect declines in crude prices for the short to medium term.

Commodities – Metals

Safe-havens Jump As GDP Report Triggers Dollar Selling

Gold                                    $899.900          +$6.9880     +0.71%
Gold prices rose today as US GDP data showed the worst two quarter decline in over 50 years. The unexpectedly- lower report triggered heavy selling in the US Dollar. Dollar weakness benefitted precious metals as investors seeking safe-havens moved away from the dollar. Other factors such as economic uncertainty over financial institutions and the economic impacts of the swine flu outbreaks may contribute further to gold price strength. Expect modest gains in the short-term.

Silver                                  $12.7650          +$0.339       +2.73%
Silver prices bounced off of yesterday’s declines as investors reacted to the negative US GDP report. As stated earlier, silver has many industrial applications. As a result, declines in production activity may place some downward pressure on prices. Nevertheless, any heightened risk aversion that would benefit precious metal value will still benefit silver prices. Look for modest gains in the near-term.

European Stocks Fall Slightly as Rally Begins to Cool

Europe Session Key Developments

•    Basic Materials Fall on Demand Prospects
•    Optimism Begins to Wane on Valuation

European Stocks Fall Slightly as Rally Begins to Cool

European markets started the week off slightly lower as optimism begins to fade. Equities have rallied significantly since early March and closed with year-to-date gains in the past week. The strength has largely been on the back of improvements in the financial sector and declines in the spreads of LIBOR-OIS and credit default swaps that signal a resurgence of lending and optimism. In the previous week, US non-farm payrolls came in better than expected at 539,000 lost versus Bloomberg estimates for 600,000. While such data may signal a bottoming in the US economy and improvement to come, the figure still remained high with more than five million jobs lost since the start of 2008 in the world’s largest economy. In Europe, conditions remain grim as global trade remains poor. Germany, a heavily export dependent nation, has seen significant layoffs and is currently expected to contract in the current and following year. Later this week, first quarter GDP readings for Germany and the Euro-Zone are to be released and the revision to Germany’s advanced reading is expected to show a sharp contraction. Today’s released included Italian and French production declines and sharper year-over-year contractions.

FTSE 100                      4,435.50                   -26.59               -0.60%
The UK index closed the least of the five majors as four of the ten indices closed higher despite a decline of 2.01% in oil & gas and weakness in several other sectors. Leading decliners was miner Kazakhmys with a 13.62% move lower as commodities came off their recent highs. Not trailing far behind was platinum producer Lonmin with a 9.99% decline following a first quarter loss and news of a share sale. Despite the downward bias, several firms closed positively with security company G4S leading advancers with a 6.34% move on a Deutschebank upgrade followed by energy supplier Centrica with a 6.04% gain as the firm expects earnings to rise.

CAC 40                     3,248.67                   -63.92                 -1.93%
Trading in the French market led to the sharpest decline of the five majors as manufacturing in the nation showed a greater-than-expected decline in March. All sectors fell on the session with financials falling the least at 0.63% and industrials falling 4.18% for the largest slide. Retailer PPR, owner of the Puma line of shoes and Gucci brand, fell the most on the session with a 7.10% move following weaker-than-expected first quarter earnings unveiled last week. Also falling sharply was building materials supplier Cie de Saint-Gobain with a 6.69% decline as the company’s CEO expects the economy to worsen. Others seeing significant downside included airliner EADS and AirFrance. BNP Paribas was the only firm to see its stock trading more than one percent higher as optimism in the firm lingers.

DAX                         4,866.91                    -46.99             -0.96%
The German DAX closed lower by nearly one percent as nearly all sectors fell with the exception of technology and telecom. Considerable moves of more than two percent were seen in healthcare group Fresenius and and software maker SAP while declines of more than six percent were seen in Commerzbank and Truckmaker MAN group. Commerzbank fell for the first time in eight days as news spreads that the firm is considering a debt sale of as much as three billion dollars. MAN fell as investors remain concerned that conditions may worsen in Europe’s largest economy along with poor demand in the auto market.

IBEX 35                     9,316.80                   -91.30                 -0.97%
Spain’s leading index saw a nearly one percent decline as all sectors fell with the exception of technology. Basic materials and oil & gas fell the most on the session with both sectors moving lower by more than two percent. The leading lagger was ArcelorMittal which fell 4.04% in the Spanish market as commodities fell as optimism over future demand begins to cool. Upside on the other hand was limited to Gestevision Telecinco continued its advance with a 3.28% move to start the week. Overall, nearly 75% of the 35 member index traded lower.

S&P/MIB                        20,200.00                    -309.00                  -1.51%
Italian trading led to a more than one percent decline while the index remained above 20,000. Telecom gained 2.45% and consumer services rose 0.64% while all other sectors fell. Losses scaled from as small as 1.12% in financials to a sharp fall of 5.06% in the technology sector. Sparking the selloff in technology, STMicroelectronics fell 5.06% as UBS cut its recommendation on the firm to “sell” from “neutral” on concerns that revenue growth won’t translate into improving profit margins. Italy’s fourth-largest bank, UBI, fell the most on the session with a 7.14% move as the bank reported an 89% drop in first quarter profit on Saturday.

ECB Rate Decision and U.S. Non-Farm Payrolls May Impact Global Sentiment

Weekly Outlook May 4th – 8th

This week is full of major event risk with several rate decisions and the U.S. Non-farm payroll report on Friday which could potentially add to increasing optimism and send global equity markets higher. The Reserve Bank of Australia will start things on Tuesday and is expected to keep their target rate at 3.00% which could disappoint investors who may be looking for additional stimulus. Australian retail sales expected to rise by 0.5% and the employment change predicted to drop by 25,000 will give conflicting signals latter in the week. Speaking of consumption Euro-zone retail sales are forecasted to rise by 0.1% but that mat get overlooked with the ECB rate decision scheduled for Thursday. The central bank is expected to cut rates by 25 bps points, but markets will be looking to see if policy makers will initiate non-standard measures. A rate reduction and additional efforts to improve credit markets and boost the economy could send European shares higher. The BoE rate decision will precede the ECB but isn’t expected to have a significant impact as markets are forecasting that they will keep their benchmark rate at 0.50%. The MPC stated last month that it would take two months for their initial government bond purchasing program to be completed. Therefore, don’t expect a statement following the policy meeting as nothing has changed. PMI construction and industrial production are expected to show relative improvements from the month prior which could give U.K. stocks a lift. The U.S. Non-Farm payroll report may be the biggest release for global sentiment. I considerable improvement in the labor market could spur hope of a U.S. recovery which would bring the global economy which is expected to drag the global economy along with it. Forecasts are for a job loss of 610,000 which would be down from last month’s 663,000. A print below 600,000 could send U.S. equity markets higher as they have already started to price in a recovery.

U.S. Futures Lower Ahead OF Bernanke Speech, Banks Remain In Focus

What To Watch For In The US Session

•    Bernanke To Speak On Economy
•    Banks Start To Raise Capital

U.S. Futures Lower Ahead OF Bernanke Speech, Banks Remain In Focus

The banking sector will remain in focus today as Fed Chairman Ben Bernanke will speak today about the state of the economy and the bank stress test results. Several of the 19 banks have started to issue common shares to meet their capital requirements mandated by the government’s worst case scenario including U.S. Bancorp and Capital One Financial Corp. Traders are questioning what the market reaction will be to the influx of all the new paper form the same sector. A lack of demand could weigh on the whole sector. Also, traders are starting to become concerned that consumer consumption will decline with unemployment reaching 8.9% and climbing. Therefore, we could see caution ahead of this week’s U.S. retail sales report.

Dow Jones     8574.64
The DJIA futures have remained in negative territory and following the sell off in European we could see similar price action today.

NASDAQ      1739.00
The Nasdaq has started to come under pressure as money is rotating out of the tech sector which was used as a safe haven during the height of the crisis.

S&P 500      929.23
The S&P 500 may also be weighed down by concerns over domestic growth as expectations are that the labor market will take considerable time to erase the monumental losses of the past six months.

Nikkei Marks Longest Advance in Four Months Led by Financials, Toyota Cuts Dividends

Asia Session Key Developments

·Global commodity prices slip lower – crude oil pulls back below $58/bbl
·Goldman Sachs raises HSBC to ‘buy’

Nikkei Marks Longest Advance in Four Months Led by Financials, Toyota Cuts Dividends

The Nikkei 225 advanced for the fifth day to mark its longest winning streak in four months, led by financials however, the ASX and the Hang Seng Index slipped lower from the previous week as investors soaked in profits following the drop in global commodity prices. Despite the downtick in the equities market, the Asian indices have gained nearly 50% from the March lows, and stock prices may continue to push higher over the week as market participants continue to raise their appetite for higher risk/reward investments.

NKY 225                                           9451.98
The Japanese benchmark index advanced 19.15 points (0.20%) to close at 9451.98 in Tokyo, led by 3.33% gain in financials. Mizuho Financial Group, which obtains more than half of its profits from commodities, jumped 14.68% as oil prices surged to a six-month high last week, while  Inpex Corp, the largest oil and gas explorer in Japan, picked up 3.7%. On the other hand, Toyota dragged on the markets as shares fell 4.8% as the world’s largest automaker cut its dividend for the first time, and said that its net loss for 2010 will widen to $5.58B. Furthermore, Bridgestone Corp, the world’s top tire-maker, plunged 6.99% as investors speculate that the firm will post a bigger-than-expected loss for the first half of 2009 as demands falter, which weigh on Sumitomo Rubber Industries Ltd, who’s shares slipped 4.1% after the firm raised its forecast for first-half losses.

HSI                                                         17087.95
The Hang Seng index plunged 301.92 points (1.74%) to end at 17,087.95 after rising as much as 1.7% during the session. Utility stocks led the decline as the sector slipped 2.67%, while consumer goods fell 1.94% from the previous week however, shares of HSBC, the biggest bank in Europe, surged 3.9% in Hong Kong after Goldman Sachs raised the stock to ‘buy’ from ‘neutral.’ Moreover, Cathay Pacific Airways jumped 7.78% on speculation that the firm plans to sell some or all of its stake in Hong Kong Aircraft Engineering (Haeco) in an effort to weather the downturn in the global economy.

ASX 200                                            3926.00
The ASX 200 slipped 15.07 points (0.40%) to close at 3,926.00 in Sydney, led by a 2.67% drop in utilities. Rio Tinto Group, The world’s third-largest mining firm, shed 3.2% after metal prices slipped lower in London, while shares of Australian Agricultural Co slumped 9.2% after the firm dropped plans to sell its ranches worth nearly $192M. Meanwhile, Woodwide Petroleum Ltd, Australia’s second biggest oil and gas producer, jumped 3.96% as oil prices held near a six-month high.

UK Stocks Extend Gains, German Shares Range-Bound Below 5000

FTSE 100

Long-term Technical Outlook

There is little change to the outlook for the FTSE 100.  5 waves down from the 2007 high are complete and A 3 wave advance is underway now, probably towards the former 4th wave / Fibonacci resistance in the 4676 – 5232 zone.  The index should stay above 3876 on its way to mentioned resistance.

Short-Term Technical Outlook

The FTSE broke higher out a rising wedge formation and taken out resistance at the 76.4% Fibonacci retracement level near the psychologically significant 4400.00 level. Prices are now on pace to challenge the previous swing high 4675.68.

DAX

Long-term Technical Outlook

A 5 wave decline is also complete in the DAX.  Fibonacci resistance is the 5409-5959 zone.  The DAX should remain above 4391 on its way to the mentioned levels.

Short-Term Technical Outlook

German shares have oscillated sideways since testing resistance at the top of a rising channel. Initial support remains at the 76.4% Fibonacci retracement level. The psychologically significant 50000 handle adds to the topside hurdle.

CAC 40

Long-term Technical Outlook

In examining the CAC 40 pattern from the 2007 high, it is possible to count 5 waves down with wave 5 as an ending diagonal.  The diagonal is clear on this chart.  The index should remain above 2899 on its way to 3691.

Short-Term Technical Outlook

Recent days have seen the French benchmark index continue to inch higher along the top boundary of a rising channel. Initial support is seen at 313487 near February’s swing top.

IBEX 35

Long-term Technical Outlook

The rally from the low (6703) is viewed as corrective.  The IBEX 35 likely remains above 8416 on its way to Fibonacci resistance, which is the 10369-11493 zone.

Short-Term Technical Outlook

Spain’s benchmark index is working its way higher inside a rising channel toward the psychologically significant 95000 handle. Beyond that, resistance is seen at January’s swing top (98000) and the channel top (now at 98204).

S&P/MIB

Long-term Technical Outlook

It appears that the Milan index needs at least one more low prior to formation of a longer standing bottom.  An impulse (5 waves) appears to be unfolding from the 2007 high.  Wave 3 is complete at 12332.  I wrote last week that “a wave 4 recovery could be large as initial Fibonacci resistance is not until 19543.”  The index is closing in on Fibonacci resistance so beware of a top forming in the next few weeks.

Short-Term Technical Outlook

The MIB Index is continuing to work through resistance in the 20703-21387 congestion region. Support lines up nearby at a rising trend line (now at 20242).

« Previous Page — Next Page »