June 2009

Most European Stocks Little Changed, IBEX Hints at Bullish Breakout

FTSE 100

Long-Term Technical Outlook

I wrote last update that “the FTSE is at risk of at least a pullback if not an outright reversal as daily RSI has rolled over from overbought territory.”  The implications from the above count suggest a drop beneath the March low in order to complete 5 waves down from the 2007 high

Short-Term Technical Outlook

FTSE price action is locked in a narrow range between support-turned-resistance at 4307.72 and the 61.8% Fibonacci retracement level at 4225.52. A break lower will target the 100-day simple moving average, while a move higher will challenge the psychologically significant 4400.00 level.

DAX

Long-Term Technical Outlook

The DAX pattern is the same as that of the FTSE 100.  The rally from the March low counts well as wave 4 within the 5 wave decline from the 2007 high.  Moreover, the decline from 5178 (on short term charts) is unfolding as an impulse (5 waves). 

Short-Term Technical Outlook

German shares found near-term support at 46885, a familiar pivot level.  Near-term resistance is seen at 48659, the 38.2% Fibonacci retracement level.

CAC 40

Long-Term Technical Outlook

The decline from 3400 in the CAC 40 is unfolding as an impulse (5 waves).  Expect weakness below 3097 in order to complete 5 waves down from 3400.  A corrective rally should then unfold before the decline resumes.

Short-Term Technical Outlook

The French benchmark index has been confined to a narrow falling channel after breaking below support at a rising trend line that had guided the CAC since early March. The next leg of the down move sees initial support at the 100-day moving average.

IBEX 35

Long-Term Technical Outlook

The IBEX 35 appears to have already completed 5 waves down from its 2007 high.  Also, the index is at a new high which is unusual given that the other European indexes are off of their respective highs.  One possibility near term is an expanded flat.  This would require a reversal from near current levels. 

Short-Term Technical Outlook

The IBEX has apparently broken above resistance at 97447, a double top. From here, prices aim at support-turned-resistance found at the 105711 level.

FTSE MIB

Long-Term Technical Outlook

After reviewing the FTSE / MIB index yet again, the above count seems most probable.  This count, in which a 4th wave has just ended, is more in line with the other European indexes.  Also, the 200 day SMA is holding as resistance.  Favor weakness and a drop below the March low.

Short-Term Technical Outlook

Italian shares found near-term support in the 18442.00 – 18752.00 congestion region and is drifting cautiously higher. Near-term resistance is seen at 19479.98, the 14.6% Fibonacci retracement level.

Dow Stocks End Five-Day Winning Streak as Confidence Shrinks

US Session Key Developments

• Consumer Confidence Shrinks in June
• Home Prices Decline, Case-Schiller Shows

Dow Stocks End Six-Day Winning Streak as Confidence Shrinks

Blue-chip stocks ended their five-day winning streak after a report showed that June Consumer Confidence fell for the first time since February. The fundamental outlook may be looking bleaker as new data continues to show the the real economy is still lagging far behind that of the equity markets. Housing prices slid in April, the S&P/Case-Shiller Home Price Index suggested. Data for the metric showed that the broadest measurement of home values fell just a tad in April.

Dow 30              8447.38             -82.38                        -0.97%

The Dow  saw every sector in the index finish in the red with Telecommunications performing the worst. Caterpillar took the largest hit, plummeting 4.89% as confidence in an economic recovery turned sour.

SPX 500              919.32                 -8.33                        -0.85%

Every sector in the 500-stock index finished in the red today with Consumer Services actually performing the best, shedding only 0.66% .

NAS 100             1835.04                -5.84                          -0.49%

Two sectors in the NASDAQ actually finished ahead. Utilies and Oil & Gas were able to stay afloat as the defensive nature of investor sentiment took hold of trading momentum. Basic Materials and Financials suffered the most in the NASDAQ as confidence shook even the smaller banks represented in the index.

Commodities Daily Technicals: Crude Bounces Off Temporary Trendline Support, Risk For Further Corrections Remains

Short-term Technical Outlook For Crude-Oil

Short-term Technical Outlook For Gold

Short-term Technical Outlook For Silver

Daily Commodities Fundamentals: Commodities Trade Lower On Dissapointing Economic Releases

Commodities – Energy

Crude Prices Fall As Data Suggests Continued Global Contraction
Crude prices declined for the day as economic releases from the US and Europe pointed to further economic contraction. US Consumer confidence fell to 49.3, significantly lower than the expected 55.3, underscoring the difficult condition of the labor market. Spending will remain weak as consumers worry about job prospects. In turn this will weigh in on overall economic activity and reduce crude demand.  With crude supplies remaining at very high levels, this should provide significant downward pressures on prices. On the other hand, most of these selling pressures will be offset by dollar weakness as crude is a dollar-denominated asset. Since US government deficits remain at record levels and will likely remain so for some time, the US dollar will likely remain at lower parity to its major pairs for some time. So long as this continues, the push and pull between these factors will likely keep crude prices ranging between major resistance levels of $65 and $73 with higher levels of volatility for the near-term.

Crude Oil (WTI)   $70.070                              -$1.400                             -1.99%

Commodities – Metals

Safe-haven Metals Decline As Dollar Gains, Fundamentals Still Point To Gains?

Gold                   $927.450                           -$13.200                           -1.40%
Gold prices finished the session modestly lower as the US dollar gained against its majors. Fundamentals indeed stand in favor of further gains for the near to medium term but the metal will likely remain rangebound until a more solid view of economic direction is established. Inflationary pressures, though currently subdued, will likely emerge once a recovery takes hold. The US dollar will also remain subdued against its major counter-parts for some time and boost prices. Expect gains for the near to medium term.

Silver                 $13.5800                   -$0.3950                           -2.83%
Silver futures were declined for the day on the negative economic data. Prices will rise if safe-haven metals gain, but due to its industrial applications, economic weakness will mute gains somewhat. On the other hand, if signs of recovery are released, silver will gain at a much faster rate than gold for the same reason. Expect modest gains for the near-term.

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

European Daily Fundamentals: European Shares Pull Back Yesterday’s Gains

Europe Session Key Developments

• Shares Lock Declined For Day On Negative Releases, US Sentiment Weighed On Shares
• Fundamental Risks Remain That Could Derail Recovery
  
• Sentiment Likely To Gather Downward Momentum

European shares locked in declines toward late session trading after consumer confidence declined in the US following a string of negative European releases. Sentiment seems to have hit a wall of pessimism as of late and any further signs of a decline in economic activity will likely move the overall trend toward more bearish momentum. This makes sense as several factors remain that could anchor the Euro-zone economy in weakness for some time. On the financial front, while some banks show signs of stabilization, many hold a number of domestic and international exposures that now, under the pressure of an extended recession, will likely exhibit greater defaults. This could have big implications for an already fragile credit market. A shock here could send ripples through the rest of the economy and cut off the necessary capital supply to maintain a recovery. In this respect, while there have been some signs of bottoming in contraction, the domestic economy is far from returning to growth. Consumer spending will likely remain subdued as a weak job market weighs in on sentiment and consumption. Support from European exports that would offset domestic weakness will provide little relief as major trade partners like the US struggle with their own recessions. Fundamentally speaking, the prior months equity rallies are likely more

FTSE 100                       4249.21        -44.82        -1.04%
All Sectors declined for the day following greater contraction for GDP than expected, with Oil&Gas, Consumer Goods, and the Basic Materials sectors declining the most. The three declined 1.48%, 1.35%, and 1.20% respectively. Consumer Goods demand will likely continue to remain weak as job losses mount and consumer spending suffers as a result. Meanwhile, with prospects for recovery slipping somewhat globally, energy and basic materials sectors will likely continue to experience weakness. Focus however should remain on the financial sector, which comprises a large portion of the UK economy and remains exposed to international risks.

CAC40                          3140.44        -53.24        -1.67%
The French index declined in all indexes except for Health Care, which gained 0.24%. The biggest declines came from the Financials sector, falling 2.75%, and the Consumer Services Sectors, declining 2.44%. Weakness in these sectors will rest heavily on overall optimism within the market. If conditions continue such that consumers will struggle with high levels of unemployment, spending will remain subdued and continue to weaken consumer-based sectors. Meanwhile, French-based financials remain exposed to a number of international exposures that present concerns for the sector.

DAX                        4808.64        -76.75        -1.57%
The German index showed the second sharpest decline for the day as all sectors fell except for Health Care (which showed a paltry 0.23% gain). Weakness in the Consumer Goods, Industrial, and Utilities sectors will rest heavily on overall expectations for the coming months. For most of the past few months, optimism had spurred up these sectors in anticipation for increased spending. However, more and more evidence is pointing to continued contraction for some time. If this turns out to be the case, the index will continue to decline.

IBEX35                        9787.80        -57.90        -0.59%
Spanish equities were mixed for the day with gains of 1.21% in Health Care sector, 1.02% in Technology, and 0.88% in The Consumer Services sectors. Declines of 1.48% in Basic Materials and 1.42% in the Oil&Gas sector led the index to an overall decline however. While the Technology and Consumer Services sectors saw a bump today, these areas of the economy are particularly prone to weaker conditions. If unemployment remains at high levels, spending will remain subdued and impact these sectors heavily.

FTSE MIB                       19063.12        -33.04        -0.17%
The Italian Index declined the least of the indexes primarily buoyed by gains in the Health Care, Technology, and Consumer Services sectors. The three gained 1.21%, 1.02%, and 0.88% respectively, however the Index was pulled down by declines in the energy, basic materials, and telecom’s sectors which declined 1.48%, 1.42%, and 0.8% respectively. As with Spain, labor market conditions have deteriorated further and will likely weigh heavily on sectors that gained for the day. In turn the index will likely continue to decline in the near-term.

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

Dow Correction Still Looks To Continue

The Dow pattern remains bearish as the decline from the June high at 8878 can be counted as an impulse (5 waves).  A corrective rally is in its latter stages now.  Expect resistance from Fibonacci at 8642.  This is the 61.8% retracement of the decline from 8878 as well as where waves A and C of a zigzag correction would be equal.

Short-Term Technical Outlook
The Dow broke above resistance at the 200-Day SMA at 849 which casts some doubt on our contention that a head & shoulder’s pattern is forming remains. 8,250 is the key level, a break below there could lead to a test of 7,962 -38.2% Fibo of 6,470-8,877.

The S&P may take out its June high of 956.  The decline from that level is best counted as a 3 wave correction, so confidence is lacking in the bearish count.  Still, a potential head and shoulders top is evident and the decline could expand into a leading diagonal.

Short-Term Technical Outlook
The S&P 500 continued to trade higher from the 200-Day SMA at 890 but may still look to test support at 880. We could see the broader index fall to as low as 826 April 21st low with a break below.

The Nasdaq is in the same position as the S&P.  The advance above 1836 confirms that the decline from 1880 is a 3 wave correction.  However, as mentioned in the S&P analysis, the index could continue to decline in a leading diagonal (which is rare).

Short-Term Technical Outlook
The Nasdaq continues to trade higher after bouncing from support at 1,750 as we has expected. The break back above 1,800 is putting our theory that a test of 1,665 is imminent in doubt. However, a failed test of the June 11th high of 1,880 could lead to a sharp reversal.

Asian Equities Trend Higher as Crude Oil Prices Reach $73/bbl, Hang Seng Pares Gains

Asia Session Key Developments

• Private-sector credit in Australia unexpectedly falls in May
• Japan Finance Minister Yosano says 2009 budget ceiling will be around JPY 52.7T

The Asian stock market pushed higher on Tuesday, with the Nikkei leading the advance, while the Hang Seng gave back gains during the late trade as investors soaked-in profits. Meanwhile, a report by the Japanese government showed unemployment reached a five-year high of 5.2% in May, while household spending unexpectedly increased 0.3% from the previous year, and the data encourages a weakening outlook for the domestic economy as consumers face a weakening labor market. At the same time, housing starts plunged 30.8% in May from the previous year amid expectations for a 27.7% drop, while construction orders plunged 41.9% during the same period.

NKY 225                                           9958.44

The Nikkei 225 gained 174.97 points (1.79%) to end the trading session at 9,958.44, led by a 3.2% rally in basic materials. The breakdown showed all of the 10 sectors advanced, with oil & gas rising 2.7% on the back of higher crude price, while telecommunications gained , led by a 4.3% gain in KDDI Corp. At the same time, Nikon Corp rallied 6.4% after Mizuho Securities raised the firms rating to ‘strong buy,’ while Nippon Steel Corp gained 3.6% after the government said it expects steel production to fall at a slower place throughout the year. Moreover, Mitsui Co, the Japanese trading firm which obtains more than half of its profits from commodities, added 2.2% following the rise in crude oil prices, with shares of Inpex Corp, the largest oil explorer in Japan, advancing 5.0%.

HSI                                                         18422.32

Shares in Hong Kong tipped lower towards the end of the session, with the Hang Seng falling 125.11 points (0.71%) to close at 18,396.97. Eight of the nine components slipped lower, with the decline led by a 4.8% drop in consumer goods, while oil & gas gained 0.3% following the rise in crude prices. China Petroleum & Chemical Corp, the largest oil refiner in China, advanced 3.3%, while Bank of China Ltd gained 0.3% after a news report said new loans may exceed 1T yuan in June. At the same time, Cathay Pacific Airways led the market higher, with its shares gaining 3.9% as investors anticipate the firm to trim losses from hedging against higher oil price during the previous year.

ASX 200                                            3954.90

The Australian benchmark index advanced 68.00 points (1.75%) to end at 3,954.90 in Sydney, with all 10 components moving higher. The rally was led by a 2.8% gain in consumer services, with industrials rising 2.3%, while basic materials climbed 2.3% following the rebound in commodity prices. BHP Billiton, the largest mining company in the world, gained 2.4%, with Rio Tinto gaining 3.8%, while Woodside Petroleum added 1.6% as crude price reached $73/bbl during the trade. In addition, shares of David Jones Ltd, the second-largest department store in Australia, surged 10.1% after the firm raised its profit forecast for the second-half, while Harvey Norman Holdings advance 8.6% after Credit Suisse raised its outlook for the firm.

Notable Asian Session Event Risk / Economic Releases

Stocks Rise, Sending VIX To Lowest Since Before Lehman Collapsed

US Session Key Developments

• VIX Declines to Lowest Since Before Lehman Collapse
• Bank of America to Sell TALF Debt

Stocks Rise, Sending VIX To Lowest Since Before Lehman Collapsed

Stocks managed to finish the week stronger, sending the VIX volatility index to the lowest level since before the investment bank Lehman Brothers collapsed. Indeed, the so-called “fear gauge”, which measures the implied volatility of the S&P 500 using options contracts, sank to a 9-month low of 25.35. The strong start to the week may be a sign of positive sentiment leading up to the much awaiting labor data being released at the end of the week. Data is expected to reveal an Unemployment Rate shooting up 0.2 percentage points to the highest level in a quarter-decade, to 9.6% for June.

Dow 30              8529.38             +90.99                        +1.08%

The Dow saw only one stock decline today, Alcoa, after an analyst at FBR Capital Markets downgraded the aluminum producer’s share value to ‘Underperform.’

SPX 500              927.23                 +8.33                        +0.91%

Every sector in the 500-stock index finished in the green today with Financials jumping an impressive 1.37%. Bank of America swelled 3.45% after the company said it would be selling its TALF debt.

NAS 100             1844.06                +5.84                          +0.32%

Tech stocks traded stronger than that of the broader NASDAQ, moving ahead a slight 0.51% after Microsoft and Office Depot announced a special pre-sale offer to sell Windows 7.

European Stocks Start Week with Higher Close Following Confusion in Recent Sessions

Europe Session Key Developments

• Indicator releases raise optimism in markets
• Energy commodities move higher

European Markets closed higher across the board as economic indicators came in better than expected despite showing some signs for concern. Raising optimism were readings on confidence for the Euro-Zone in June, which beat out estimates along with a gain in retail PMI despite contraction for the ninth month in sales. Markets have trended lower in the past two weeks and recovery today may not be more than a temporary wave up before further downside momentum kicks in over the summer months. Some figures today showing concern were housing and credit in the UK. Consumer credit came in at a paltry 0.3B, with lending for housing, also at 0.3B, the lowest on record. Also, mortgage approvals barely rose from the preceeding month whereas economists polled by Bloomberg expected a considerable instead of more than two thousand to 46.0K. The stall in lending, and poor credit market conditions, raise concern over the recovery in housing. The housing market is seen as a vital component for economic growth ahead as a large bulk of household wealth is established in real estate assets and a large proportion of financial business is conducted and involved with the sector.

FTSE 100                      4,294.03                   +53.02               +1.25%
Trading in the British market led to a gain of more than one percent with all sectors up except for Health Care. On the whole, the gain was the smallest of the five majors as just over 20% of the 102 stock index traded lower. Oil & Gas led the gains at more than two percent, followed by a 1.85% move in Financials. Lloyds led advancers with a 6.12% gain followed by insurer Prudential at 5.89% as Goldman Sachs made positive comments on the sector while also issueing higher ratings on several firms. Oil traded higher as the underlying commodity rose back above $70 per barrel on positive fundamental data.

CAC 40                     3,193.68                   +63.95                 +2.04%
The French market closed higher by more than two percent as all sectors advanced except for Technology, which fell slightly at 0.03%. Industrials and Financials led the pace with respective gains of 3.13% and 2.78%. Schneider Electric gained the most at 4.45% as the company won an award for its APC surge protector. Also seeing a considerable gain were financials including a nearly four percent gain in insurer Axa.

DAX                         4,885.09                    +108.62             +2.27%
Trading in the German market led to the largest gain of the five majors as all sectors advanced with Industrials leading at 3.2% followed by a 2.82% move in Financials. Industrials posted a significant move as fundamental indicators in Europe showed improvement, along with positive overseas data. The sector is expected to grow as economic turnaround progresses. Financials meanwhile rose on the back of Goldman Sach’s positive statement on the sector’s recent stability and future potential. On the downside, retailer Metro fell more than one percent as retail PMI in Germany fell slightly to 46.0 from 46.3.

IBEX 35                     9,845.70                   +158.80                 +1.64%
The Spanish market rose to a new recent high as optimism grew that the nation will not suffer as sharp a decline as previously thought. The index is now the highest on the YTD level of the five majors at more than a seven percent gain. All sectors rose today with gains of more than two percent seen in Financials and Oil & Gas for reasons largely similar to those of other European markets. Banco Santander and Banco Bilbao led the index point move with stock gains of approximately three percent.

S&P/MIB                        19,096.16                    +264.68                  +1.41%
The Italian index advanced back above 19,000 as all sectors climbed with Basic Materials, Consumer Goods, and Industrials higher by more than two percent. Banks Unicredit and Intesa Sanpaolo  led index point moves as optimism in the sector grew following Goldman Sachs’ comment, while holding company Prysmian gained the most at 8.27% following news the firm is in talks to buy rival cable maker Draka in a stock deal.

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

Dow Head & Shoulder’s Forming as 200-Day SMA Provides Resistance

Last Thursday’s special report called the top in stocks.  After an exceptional rally in the second quarter, the Dow declined impulsively from 8878 to 8461.  A small correction ended at 8617 and the decline should accelerate from here.  Staying below 8617 keeps the short term trend pointed lower.

The Dow found resistance at the 200-Day SMA at 849 and as long as it remains the level our contention that a head & shoulder’s pattern is forming remains intact. 8,250 is the key level, a break below there could lead to a test of 7,962 -38.2% Fibo of 6,470-8,877.

The S&P count is the same as the Dow count.  The index declined impulsively from 956 to 904.  A small correction ended at 927 and the S&P should continue lower while remaining below there.

The S&P 500 continued to trade higher from the 200-Day SMA at 890 but may still look to test support at 880. We could see the broader index fall to as low as 826 April 21st low with a break below.

The Nasdaq is in the same position as the other US indexes.  The index should remain below 1838 on its way to a new multi year low.

The Nasdaq continues to trade higher after bouncing from support at 1,750 as we has expected. The break back above 1,800 is putting our theory that a test of 1,665 is imminent in doubt. However, a failed test of the June 11th high of 1,880 could lead to a sharp reversal.

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