September 2009

Dow May Stall At Fibo Resistance

The Dow has seen momentum slowed after testing the 50.0% Fibo of 14,402-6,667, where we could see a retrace. A break above there should lead to a test of 10,000 where we could see the psychological level hold.

The S&P broke above resistance at 1,052- the 50.0% Fibo of 14,402-6,667 leaving upside potential to 1,144-50.0% Fibo of 1,079-812.

The NASDAQ after clearing resistance at 2,009 the 31.8% Fibo extension of 2,861- 1,265, has only psychological resistance at 2,200 before a test of 2,250-61.8% Fibo.

Daily Commodities Fundamentals: Commodities Could Move Lower Should Dollar Strength Continue in Week Ahead

North American Commodity Update, Last Updated 9/18/2009 4:00 PM EST (GMT = EDT +5:00)

Commodities – Energy

Crude Trades Lower on Stronger Dollar

Crude Oil (WTI)   $71.86                               -$0.61        -0.84%
Crude started the session lower, while seeing considerable volatility as a result of contract expirations today. Ultimately the commodity saw resistance in the high $72 region and pared its weekly advance to a still-respectable 3.6%. While oil has risen for the second week in a row, there appears little fundamental impetus to further upside. The strength seen in the US dollar today could be a sign of a potential rebound in the currency, while concern in equities could lead to a pullback that would likely send oil back towards $65 per barrel. Indeed, oil has traded in a tight range between $68 and $75 since early August, and while a break in either direction is bound to occur, the bearish case seems more compelling. Supplies of crude have dropped sharply in the past week, but at the same time driving demand from the peak summer season has ended, and stockpiles of distillate fuels continue to increase to new records.

Commodities – Metals

Metals Fall on Dollar Strength Following Recent Rally

Gold                   $1008.70                           -$4.80                              -0.47%
Gold fell for a second day following a peak on Thursday above $1025 per ounce. Strength in the US dollar affected the move, while the rapidity of the pace may be a sign that the advance in the metal is at an end. Ultimately closing higher for the 5th week, gold is likely to continue to trend in whichever direction the greenback follows. There remains considerable cases from both sides as to the future direction for gold, as economic improvement may increase demand as well as inflation hype, while near-term weakness in equities and the possibility for a rebound in the greenback could send gold sharply lower. Ultimately, the recent moves have largely been a reflection of currency activity, and the dollar remains the key force to watch to determine where gold heads.

Silver                 $17.02                   -$0.245                               -1.42%
Silver prices closed lower by more than one percent with the metal having crossed below $17 per ounce for the first time in three days. Ultimately, the metal closed the week higher, while having pared a rise of nearly 6% to just under two percent. While the commodity is likely to outperform gold in the year ahead on economic recovery and demand in industrial use, the near-term outlook is less favorable. The recent break above resistance at $16.25 led to a sharp move higher in the recent weeks, leading the metal well into overbought territory. A pullback is likely, while possible rebounding in the US dollar could add further impetus to a correction.

-Written by Roman Kadinsky, CFDTrading Research
Questions/Comments about this article? Send them to Rkadinsky@fxcm.com

European Stocks Closed Mixed Following Strong Week of Gains

Europe Session Key Developments

•    Commodities Lower on Dollar Recovery
•    Traders Take Profits Heading Into Weekend

European Markets end the session in mixed territory with most stocks lower as equities succumb to profit taking following a strong week of trading. The FTSE managed to close higher on the day, extending its weekly gain to 3.2%, while the German DAX fell the most today at nearly half of one percent to pare its weekly advance to 1.4%. Commodities slid on dollar strength while the “triple-witching” of options, futures and stock, led to volatility throughout the session. Ultimately, markets have rallied sharply in recent weeks, with technical factors bearish against further upside. The months ahead may see a technical swing, while potentially weaker-than-expected Q3 earnings could support further bearish sentiment.

FTSE 100                      5,172.89                   +8.94               +0.17%
The British market closed higher by the most of the five majors as investors see stability in the region, while equity moves have been less extensive since March than in other European nations. Half of the ten sectors tracked closed higher, while nearly 60% of the 102 companies closed lower. Basic Materials and Utilities fell the most, while several major firms saw advances including HSBC up nearly two percent along with drug maker GlaxoSmithKline and retailer Tesco. Major index point losers included Barclays, down just 1.22%, while mining stocks also dipped on lower commodity prices.

CAC 40                     3,827.84                   -7.43                 -0.19%
French stocks closed lower slightly as six of ten sectors fell along with losers outnumbered winners by a ratio of 2-to-1. Health Care gained the most at 1.42% while losses were limited to a 1.02% dip in Consumer Goods. Air France climbed the most at more than four percent on news yesterday from IATA of “early signs” of upturn in passenger demand in premium seats. On the opposite end, automaker Renault, among others, fell more than three percent on no specific news, while the stock appears to be forming a top.

DAX                         5,703.83                    -27.31             -0.48%
German stocks closed lower by the most of the five majors as the Consumer Goods and Services sectors fell nearly two percent each while only three sectors advanced by as little as a 0.18% gain in Utilities. Automakers suffered in Europe today, with Volkswagon down 6.73% as the free float of shares narrowed. Other major losers included retailer Metro, down 3.51%, and a 2.54% move lower in Deutsche Bank.

IBEX 35                     11,777.30                   +6.30                +0.05%
Spain’s IBEX index closed up slightly with gains in three sectors, including the heavily weighted Financials, while losses were noted in six sectors. Engineering firm Abengoa fell the most at 2.43% while insurer Mapfre rose the most at 2.7%. Overall the Spanish market remains the strongest performer on the year-to-date level of the five majors with a gain of more than 28%.

S&P/MIB                        23,483.97                    -99.04                  -0.42%
Italian equities closed higher this week by more than one percent while narrowing the gain as investors took profit ahead of the weekend. Major firms seeing considerable moves included a 1.1% rise in utility Enel as Cheuvreux upgraded its rating to “outperform” on the stock. Automaker Fiat followed the European car companies lower with a drop of 1.9% while banks stocks showed stability.

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

Dollar Bear Boat Too Full

Euro / US Dollar

I wrote yesterday that “the EURUSD has exceeded the December 2008 high and is approaching 1.4850 (a 100% extension), which is a potential target.  The line extended from the March and June highs is also a potential target; that line is at 1.5160 this week and increases about 60 pips a week.  RSI is above 70 on the daily, divergent with the December high (RSI reached 79 then) and former trendline support turned resistance is near current price.  The risk of a bearish reversal is high but until there are signs of such (candle pattern or short term wave pattern for instance), it is dangerous to be short.”  Today, I’ve zoomed in to view short term structure.  The recent break was from a triangle and triangles preceded terminal moves.  The rally from 1.4500 appears to be unfolding as a diagonal and may be complete.  Even so, one more high would probably complete the rally.  Watch 1.4850.

British pound / US Dollar

Head and shoulders patterns have been our focus of late.  “On the daily, a potential head and shoulders top is evident (although the pattern can not be confirmed until price breaks below the neckline – which is near 1.6200).  Bolstering the bearish bias is the shorter term head and shoulders top (which comprises what may be the larger right shoulder), which is confirmed.  Bears are favored against 1.6665.”  Risk can be moved to 1.6575 and 1.6400 now serves as probable resistance (this level is former support).  It is important to note that the minimum objective of 1.6300, which is derived from head and shoulders measurement technique, has been reached.  Still, it is ok to short on pullbacks to 1.6400/trendline resistance in anticipation of the break below the larger pattern neckline.

Australian / US Dollar

“The AUDUSD continues to work higher towards the 78.6% of the decline from .9856-.6007, which is .9032.  This level intersects with a potential resistance line on September 24.”  It is possible that the rally from .7700 is an ending diagonal and that wave iv of that diagonal is underway towards .8476.

New Zealand Dollar / US Dollar

Kiwi is top heavy.  Divergence with DDiff (derived from DMI) warns of a reversal as does failure at a resistance line.  .6900 is potential support.  A push to a new high would expose .7250.  This is where the rally from .6193 would be equal to 61.8% of the .4890-.6601 rally.  The level also rests in between 2 prominent former pivots (.7222 and .7384).

US Dollar / Japanese Yen

Keep the long term outlook in perspective – “a 4th triangle ended in 2007 above 124.00 therefore the decline from that level is viewed as a 5th wave that will not be considered complete until price drops to an all-time low (below the 1995 low near 80).”  The USDJPY is trendline resistance.  If broken, then focus shifts to former support at 93.08.

US Dollar / Canadian Dollar

Barring a break above the resistance line, the USDCAD is vulnerable to a drop towards 1.0330 – which has been both support and resistance over the last several years.  This level is also the 61.8% extension of the 1.3068-1.0782 decline (from 1.1730).  Thus far, the 61.8% retracement of the rally from .9055 has held.  The circled area could be a triangle, in which event the immediate move is higher towards 1.1100.

US Dollar / Swiss Franc

“The print below 1.0367 (December 2008 low) satisfies the minimum requirement for wave v of C.”  Divergence with momentum on nearly all time frames warns of a sharp turn against the Franc.

Jamie Saettele publishes Daily Technicals every weekday morning (930 am EST), COT analysis (published Monday mornings), technical analysis of currency crosses on Monday (Euro and Yen crosses), and intraday trading strategy as market action dictates.  He is the author of Sentiment in the Forex Market.  Follow his intraday market commentary at DailyFX Forex Stream.

Contact Jamie at jsaettele@dailyfx.com if you would like to receive his reports via email.

Stocks in Asia/Pacific Falter as Regulators Urge Banks to Strengthen Risk Management

Asia Session Key Developments

• Japanese Domestic Demands Falter in August
• China Banking Regulatory Commission Sees Increased Competition for Lending

Asian markets weakened on the Friday, dragging the MSCI Asia Pacific Index lower, as policy makers in China and Hong Kong warned increased competition for lending could spark a rise in risky loans. The China Banking Regulatory Commission said that banks within the region face higher risks following the surge in lending, with Chairman Liu Mingkang urging banks to strengthen its risk management process, while Hong Kong’s Monetary Authority Deputy Chief Executive Y.K. Choi said banks have lowered borrowing costs “to such an extent that they might not have given due regard to the reputation risk, interest rate risk and liquidity risk potentially associated with their pricing.” As the financial system remains fragile, policy makers may step in to stem the surge in lending as the rise in risky loans pose a threat to the recovery, and increased risk for an asset bubble may curb market optimism over the coming months.

Nikkei 225                            10,370.54

Stocks in Japan decline following the slump in commodity prices, with the Nikkei shedding 73.26 points (0.70%) to close at 10,370.54 as 8 of the 10 components plunged on the day. Oil & gas plunged 1.39% to lead the decline, while utilities and healthcare advances 0.33% and 0.31% to taper the downturn. Shares of Sumitomo Osaka Cement, a Tokyo based cement marker and Taiheiyo Cement Corp, Asia’s largest cement producer, declined 9.55% and 7.97% respectively amid weak domestic demand, while Nippon Telegraph and Telephone Corp added 2.12% after a newspaper said the company will pitch interactive video programs to increase its market share. In addition, Yamaha Corp shed 4.08% after its rating was downgraded from AA- to A+ by JCR, while Sanyo Electronics slumped 3.15% following a report that said the firm will incur its second consecutive net loss for the year ending March 2010.

Hang Seng                         21,623.45

Stocks in Hong Kong weakened on Friday as the Hong Kong Monetary Authority warned increased competition amongst lenders may lead to a surge in risky loans, with the Hang Seng retreating from a 13-month high. The index closed at 21,623.45, down 145.06 points (0.67%) from the previous day, with all nine components of the index lower. Consumer goods plunged 3.32% to lead the decline, with technology declining 2.38%, while basic materials weakened 1.72% on the back of lower commodity prices. Shares of Industrial and Commercial Bank of China Ltd, the nation’s largest lender fell 1.12% following the announcement from the central bank, while BOC Hong Kong Holdings Ltd. plummeted 7.11% after CEO He Guangbei sold 623,000 shares. At the same time, Hang Lung Properties decline 3.85% on speculation the government will step in to curb home lending going forward, with Sun Hung Kai Properties slipping 1.45%.

S&P/ASX 200 Index           4,693.20

The ASX declined 21.70 points (0.46%) to end at 4,693.20 on Friday, led by a 1.81% drop in basic materials. At the same time, industrials slumped 1.02% on the day, while utilities advanced 2.59%, with financials adding 0.32% to end the week on a brighter note. Shares of BHP Billiton fell 2.25% after JPMorgan Chase lowered the firms rating to ‘underweight’ from ‘neutral,’ with Newcrest Mining slipping 2.75% on the back of lower commodity prices. Meanwhile, Lynas Corporation, a rare earth minerals exploration company, increased 7.89% after China-based ECI raising its stake in Arafura resources, with Qantas Airways advancing 3.73% after RBS raised its rating on the firm to ‘buy’ from ’hold.’

Notable Asian Session Event Risk / Economic Releases

Crude Oil Looks for Breakout From Range

Crude oil has fallen sharply on the day, testing its 50-day SMA and getting closer to long-standing trendline support. Potential price floors include the approximate trendline level at 68, while previous congestion near 67.50 likewise offers support. A break lower eyes extension towards August spike-lows near 65, while a hold of support keeps the commodity in its 12-month long ascending wedge formation. Resistance in said case would be eyed near 75.

Gold prices have thus far held important psychologically significant support at the 1000 mark, but price has been unable to break above yearly highs near 1015. Continued failure at said level would keep the commodity price in its long-term ascending triangle formation—leaving a return to trendline support near 950 as the more likely outcome. Closer price floors can be found at the psychologically significant 1000 mark.

Silver has hit extremely overbought territory on its run to fresh 12-month highs, and continued rejection of 17.000 would make further short-term corrections likely. Said level represents congestion from 2008 and has thus far provided a formidable price ceiling. Given daily RSI well-above overbought levels, corrections are likely. Near-term support is at recent congestion of 16.50, while the psychologically significant 16.00 mark could likewise provide a price floor.

Equities in a Precarious Position

The DJIA made a key reversal (new high but the close is below the prior day’s close) today.  The implications are extremely bearish when considering not just where the bar pattern occurred – but also how it occurred. 

Where – today’s high reversed at a line that is extended from highs in May, June and August.  The reversal also occurs at the wave iv of 3 extreme (labels not shown but this is the circled area).  4th waves of one or two lesser degrees often mark the level at which the correction (in this case, the correction is a bear market rally) will end.  9708-9852 (today’s high was 9854) also mark lows that occurred in May, August, and October of 2004.  Former support is now probably resistance.

How – momentum has slowed considerably as evidenced by divergence with RSI.  Volume (not shown) today was the fourth highest since June 22.  Rallying to an 11 month high but closing the day lower on relatively high volume signals distribution.  The implications for US equities are bearish.

Daily Commodities Fundamentals: Oil, Metals Close Lower on Day

North American Commodity Update, Last Updated 9/17/2009 5:34 PM EST (GMT = EDT +5:00)

Commodities – Energy

Crude Trades Slightly Lower on Ample Supply

Crude Oil (WTI)   $72.47                               -$0.04        -0.06%
Crude oil followed U.S. equities higher after the markets opened before settling just below its opening price.  Oil struggled to find direction all day, trading between 71.66 and 73.16, as the bulls and bears clashed over positive economic data and ample inventories.  Reports on jobs and housing showed economic improvement as well as the Philadelphia Fed Business Survey which rose to its highest level since November 2007.  Crude oil fundamentals, however, remain poor as there is lacking demand for relatively strong supply.  Despite a 4.73 million barrel decline last week, crude oil stockpiles still remain 7.9 percent higher than the five-year average.  Last week, gasoline inventories rose by 547 thousand barrels and distillate inventories rose to their highest levels since 1983.  Furthermore, OPEC announced today that it will increase oil shipments by 0.9 percent this month, exporting 200 thousand more barrels a day by sea.  Currently, it appears that oil’s main driver is economic optimism coupled with continued weakness in the U.S. dollar against its cross currencies.  Once the greenback stabilizes, supply and demand fundamentals of oil should have a greater impact on its price.

Commodities – Metals

Metals Pull Back After Strong Month

Gold                   $1012.60                           -$6.60                              -0.65%
Gold saw a slight move to the downside in trading today despite a weak U.S. dollar, as traders looked to take profit from the commodity’s 7 percent price increase this month.  From a fundamental perspective, the main driver for gold to the upside is weakness in the U.S. dollar and investors’ fears of inflation going forward as the world’s central banks discuss implementing an exit strategy from months of monetary easing.  From a technical perspective, gold’s relative strength index (RSI) has topped out at 70 in recent days- a sign that the commodity may be overbought and is due for a correction.  If gold continues to sell-off, support exists at $1006 according to market analysts.  Look for increased volatility in the gold trade going forward as technical traders clash with fundamentally driven investors.

Silver                 $17.24                   -$0.16                               -0.95%
Silver prices closed lower in today’s session, following price dips in gold and U.S. equities.  Having more industrial use than gold, silver generally makes larger moves than gold on economic data.  After a month of solid gains, equities markets may be due for a correction and silver will likely follow suit.  However, like all commodities, the silver price will be greatly affected by dollar strength or weakness against its crosses.

Written by James Russell, CFDTrading Research
Questions/Comments about this article? Send them to JRussell@fxcm.com

Dollar Bear Nearing Terminus

Euro / US Dollar

The EURUSD has exceeded the December 2008 high and is approaching 1.4850 (a 100% extension), which is a potential target.  The line extended from the March and June highs is also a potential target – that line is at 1.5160 this week and increases about 60 pips a week.  RSI is above 70, divergent with the December high (RSI reached 79 then) and former trendline support turned resistance is right at current price.  The risk of a bearish reversal is high but until there are signs of such (candle pattern or short term wave pattern for instance), it is dangerous to be short.

British Pound / US Dollar

On the daily, a potential head and shoulders top is evident (although the pattern can not be confirmed until price breaks below the neckline – which is near 1.6200).  Bolstering the bearish bias is the shorter term head and shoulders top (which comprises what may be the larger right shoulder), which is confirmed.  Bears are favored against 1.6665.

Australian Dollar / US Dollar

The AUDUSD continues to work higher towards the 78.6% of the decline from .9856-.6007, which is .9032.  This level intersects with a potential resistance line on September 24.  Former support at .8951 is also a level to keep in mind.  Momentum indicators are divergent (not shown).  The message is the same here as for the EURUSD – the risk of a reversal is high and increase with each tick higher in price.

New Zealand / US Dollar

A NZDUSD objective is .7250.  This is where the rally from .6193 would be equal to 61.8% of the .4890-.6601 rally.  The level also rests in between 2 prominent former pivots (.7222 and .7384).  Weakness near there would warrant a closer look.  Divergence with DDiff (derived from DMI) warns of a reversal.

US Dollar / Japanese Yen

Keep the long term outlook in perspective – “a 4th triangle ended in 2007 above 124.00 therefore the decline from that level is viewed as a 5th wave that will not be considered complete until price drops to an all-time low (below the 1995 low near 80).”  At this point, former support in the 91.73/94 zone is potential resistance.

US Dollar / Canadian Dollar

Barring a break above the resistance line, the USDCAD is vulnerable to a drop towards 1.0330 – which has been both support and resistance over the last several years.  This level is also the 61.8% extension of the 1.3068-1.0782 decline (from 1.1730).

US Dollar / Swiss Franc

“The print below 1.0367 (December 2008 low) satisfies the minimum requirement for wave v of C.”  An objective is 1.0037 (100% extension).  Trading above channel resistance would indicate with a high probability that a low is in place.

Jamie Saettele publishes Daily Technicals every weekday morning (930 am EST), COT analysis (published Monday mornings), technical analysis of currency crosses on Monday (Euro and Yen crosses), and intraday trading strategy as market action dictates.  He is the author of Sentiment in the Forex Market.  Follow his intraday market commentary at DailyFX Forex Stream.

Contact Jamie at jsaettele@dailyfx.com if you would like to receive his reports via email.

Hang Seng, ASX Hits Fresh Yearly High – Bank of Japan Holds Mixed Outlook

Asia Session Key Developments

• BoJ Holds Rate Steady, Sees Signs of Stabilization

Asian stocks surged higher on Thursday, with the Hang Seng and ASX advancing to a fresh yearly high as investors held an improved outlook for global growth. At the same time, the Bank of Japan held the benchmark interest rate at 0.10% and stated that the economy is “showing signs of recovery” as the government takes unprecedented steps to stem the downside risks for growth and inflation. However, the central bank continued to see a risk for a slower recovery, with Governor Masaaki Shirakawa stating that the board is “not confidence about the strength” of the recovery as the government stimulus tapers off. Moreover, the central bank head said that he will continue to monitor the appreciation in the exchange rate, which continues to add downside pressures on price growth, as trade conditions remain weak, and held a dour outlook for domestic demands as households face a weakening labor market paired with tighten credit conditions.

Nikkei 225                            10,443.80

Stocks in Japan pushed higher on Thursday, with the Nikkei gaining 173.03 points (1.68%) to close at 10,443.80 as 9 of the 10 components advanced on the day. Oil & gas rose 2.49% to lead the rally, with industrials and basic materials rising 2.38%% and 2.16%, respectively on the back of higher commodity prices. Shares of Yokogawa Electric Corp rose 10.55% after its rating was raised from “reduce” to “neutral” by Nomura Holdings, with Dowa Holdings, which produces metal-related products, rose 6.73% amid the rise in gold prices. In addition, Japan Tobacco, the world’s third-largest publicly traded cigarette maker,  surged 5.14% as Mizuho Securities Co. raised the company rating to ‘strong buy’ from ‘hold,’ while Sumitomo Mitsui Financial tumbled 5.62% after Shizuka Kamei was named the Financial Services Minster, who plans to extend bank repayment for small businesses by nearly three years.

Hang Seng                         21,768.51

The Hang Seng surged to new 2009 high as the index advanced 365.59 points (1.71%) to end the session at 21,768.51, with eight of the nine components pushing higher. Technology rallied 3.02% to lead the advance, with consumer services and basic materials adding 2.62% and 2.55% respectively, while utilities slumped 0.23%, driven by a 0.92% drop in Hong Kong & China Gas Co. At the same time, China Shenhua Energy Co., China’s largest coal producer, gained 2.27% after announcing coal output increased last month, while Esprit Holdings Ltd., climbed 2.53% after Goldman Sachs raised the rating on the stock to “buy”.  Moreover, Cathay Pacific surged 5.50% as the airline prepares to sell its HK$1.9 billion stake in Hong Kong Aircraft Engineering Co. to its largest shareholder to boost its cash holding, while Aluminum Corp of China rallied 3.5% on speculation the firm may expand its market share in Latin America.

S&P/ASX/200 Index           4,714.90

The ASX rose 64.50 points (1.39%) to end at 4,714.90 on Thursday, led by a 3.13% rally in technology. Shares of Eircom Holdings tumbled 60.69% as shareholders voted for a return of capital of $0.80 a share after accepting the takeover bid by Singapore’s Technologies Telemedia, while Linc Energy, a company which converts coal into liquid fuels, surged 16.33% after receiving offers for its coal assets in the Queensland state. At the same time, Gunns Limited, which holds a 17.9% stake in Forest Enterprises of Australia, rose 9.09% as the firm avoided to take part in FEA’s plan to raise A$35M in new capital, while Macquarie Group rallied 4.5% after CEO Nicholas Moore stated that the investment bank plans to expand market share in North America.

Notable Asian Session Event Risk / Economic Releases

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