October 2009

Crude Backs Off its New High as Market Sentiment Settles, OPEC Warns it May Increase Output

North American Commodity Update, Last Updated 10/22/2009 1:54 PM EST (GMT = EDT +4:00)

Commodities – Energy

Crude Backs Off its New High as Market Sentiment Settles, OPEC Warns it May Increase Output

Crude Oil (WTI) -  $80.65  //  $0.72  //  0.88%

The late afternoon break for crude in yesterday’s US trading session was backed with enough momentum to drive the benchmark commodity to a new 12-month high of $82. The pressure behind the sizable 2.2 million barrel drop in gas inventories and smaller than expected 1.3 million barrel pick up in oil stocks from the Energy Department slowly built enough pressure to overrun the closely watched $80 level. However, since that aggressive run, we have seen bullish interest has backed off. Among the notable headlines for news traders today was the EIA’s natural gas inventory numbers. Further suppressing supply concerns in the energy complex, the report showed stores rose 0.48% to 18 billion cubic feet (BCF) last week. The more inciting news came with commentary from OPEC Secretary General Abdalla El-Badri. With something of a contradictory tone, El-Badri said that he felt that oil prices were in a “very comfortable zone,” but then went to suggest that the group may raise output if prices held within the $75 to $80 price range. He suggested any increases to the quota would likely come through in December.

Looking ahead into the end of the week, we will watch short-term speculative interests fending off (or perhaps catalyzing) a glaring imbalance in the supply/demand dynamics of crude. There is little doubt that general risk appetite has taken a significant level of responsibility in this commodity’s steady advance. As capital returns to the market, investors are looking for the promise of capital gains and some level of tangibility should instability once again develop. However, when the inevitable period of profit taking develops we will see just how substantial the percentage of speculative funds in the market really is. For oil, the background fundamentals may help to leverage a reversal. With oil inventories at their highest levels since August and demand softened by the weak economic recovery ahead, there is little justification for a rapid rally in prices.

Commodities – Metals

Gold Still Carving a Bullish Trend but Interest and Price Peaks are Waning

Spot Gold  -  $1059.13 //  $0.13  //  0.01%

Gold prices were little changed through mid-day on the US session; and volatility was relatively light. While the favored trading metal has maintained its general bullish bias and has a wide buffer above the $1,000 mark, there is a clear divergence in swing highs since the market set a record high of $1,070.80 last Tuesday. The previous two sessions’ intraday highs have produced a steady retreat from fresh records – mimicking the hesitation seen with equities. Underlying sentiment is winded and speculative interests are not as readily compensating for the lack of fundamentals behind the build in optimism. A potentially notable breakout will likely develop within a week’s time considering the congestion in risk and gold prices. In the meantime, we are starting to see a notable weight on demand for gold. From the speculative side, the SPDR Gold Trust reported a 1.22 ton decline in its holdings yesterday to 1,108.09 tones – the first decline in over two weeks. From an economic perspective, demand from India has eased after the end of the Diwali festival. With prices at such great heights, it will be difficult to find interest for industrial and consumption purposes even as the global economy ramps up its recovery.

Spot Silver  -  $17.57  //  -$0.12  //  -0.69%

Chop in spot silver price action is far more prominent than in the precious metal’s pricier counterpart. The Dow’s inability to push new highs is acting as an anchor to speculative interest for the commodity; but holdings among funds are still near record highs. Investor interest in this and other commodities is floating the market when industrial demand is still extraordinarily light. Economic data today suggests that the world’s largest economy is heading towards a recovery; but the pace will certainly be far weaker than what capital markets are pricing in now.

-Written by John Kicklighter, Strategist
Questions or Comments about this article? Send them to jkicklighter@dailyfx.com

Asian Stocks Falter as Investors Speculate China to Tighten Policy

Asia Session Key Developments

• Japan’s Exports Fall at Slowest Pace in 10 Months
• China’s 3Q GDP Expands the Most in a Year

Stocks in the Asia/Pacific declined for a second consecutive day on the back of lower commodity prices paired with speculation that the Chinese government will look tighten policy as the economy expands at its fastest pace in a year. Economic activity in China grew at an annual pace of 8.9% in the third quarter amid expectations for a 9.0% expansion, with industrial outputs increasing 13.9% in September from the previous year to top forecasts for a 13.2% rise. Moreover, retail spending grew at an annualized pace of 15.5% during the same period, while consumer prices slipped 0.8% from the previous year. The extraordinary efforts taken on by policy makers have helped the nation to skirt the global however, as the economic expansion increases the threat of inflation, policy makers may look to conclude its easing cycle over the near-term in an effort to balance the risks for the economy.

Nikkei 225                          10,267.17

The Japanese equities market traded lower for a second day on Thursday, with the Nikkei 225 slipping 66.22 points (0.64%) to close at 10,267.17, led by a 2.07% drop in telecommunications. Shares of Sanyo Electric advanced 7.51% as the company plans to build factories in Europe, the U.S. and Canada as early as 2012, while KDDI Corp slid 3.97% subsequent to Citigroup cutting the rating on the firm to “hold” from “buy.” Meanwhile, Japan Tobacco Inc scaled back 3.85% as the Ontario government sued the company last month for the treatment of smoking-related diseases, while Japan Airlines fell 3.17% after the Yomiuri newspaper said the firm may announce a JPY 500B loss for the year ending March 31.

Hang Seng                        22,210.52

Hong Kong shares weakened on Thursday to mark the second decline in three day, leading the Hang Seng index to shed 107.59 points (0.48%) to close at 22,210.52, with 7 of the 9 components trading lower on the day. Consumer goods fell 3.51% to lead the decline, while technology advanced 4.42% to taper the downturn. Shares of Li & Fung plunged 3.51% after rallying 4.09% yesterday as the company announced it will acquire Wear Me Apparel for up to $401.8 million, while Esprit Holdings slumped 2.55% after the firm said first-quarter profits fell 8%. Moreover, Ericsson slumped 8.1% after posting a 71% drop in 3Q net income, with Hang Lung Properties slipping 0.80% on speculation the central bank may tighten policy as the economy expands at its fastest pace in a year.

S&P/ASX 200 Index           4,812.80

Stocks in Australia pulled back for a second successive day as investors curbed expectation for global growth, leading the ASX to shed 25.80 points (0.53%) to end at 4,812.80, with consumer services falling 0.98 % to lead the decline. Shares of Newcrest Mining slipped 1.7% as outputs weakened 22% in the first quarter, Extract resources and Paladin Energy scaled back 3.19% and 3.16% respectively on the back of lower commodities. At the same time, Panoramic Resources rallied 7.34% after the firm’s annual report illustrated the company is set to fulfill their goals, while Ten Network slipped 2.84% after announcing a A$89.4M loss for the year.

Notable Asian Session Event Risk / Economic Releases

Dow May Look To Test Support Before Pushing Beyond 10,000

As is often the case in Elliott, the picture is becoming much clearer as the rally has matured and nears its end.  The advance from the March low is a complex W-X-Y (a-b-c-x-a-b-c) rally.  The Dow has actually satisfied minimum expectations for the rally by exceeding 9918 (wave iii of c) so a reversal could occur at any time.  Wave c of y would equal 61.8% of wave a of y at 9947.  Momentum is as one would expect at an important top with RSI failing to confirm the new price high.

The Dow break back below 10,000 increases the possibility of a test of trendline support near 9,600. However, we could start to see consolidation around the psychological level as markets await another catalyst.

The S&P is in the exact same position as the Dow. The analysis presented there applies here.

The S&P 500 like the Dow saw its advance slowed and a test of trend line support is a possibility before an ultimate test of 1,120-50.0%Fibo of 1,576-666.

The NASDAQ pattern is the same as the Dow and S&P patterns with one exception – this index has yet to exceed its September high.  It’s interesting that the NASDAQ is the weaker of the 3 indexes at this point since it is the one that has led the advance since March, retracing a larger percentage of its 2007-2009 decline.  It is possible that the divergence (new highs in Dow and S&P, not in NASDAQ) sets up a non-confirmation that results in a turn lower.  In Elliott terms, failure to exceed iii of c would constitute a truncation.

The NASDAQ advance slowed yesterday which increases the chances of a test of trendline support near 2,110. A test of 2,250- 61.8% Fibo of 2,861-1,265 may follow after the tech laden index finds support.

Oil, Metals Threatened as Risk Appetite Stumbles

Commodities – Energy

Crude Vulnerable as Markets Begin to Shy Away From Risky Assets

Crude Oil (WTI)      $80.79       -$0.58       -0.71%
Crude prices have backed off a bit after barreling through the key psychological barrier at the $80/barrel level in US trading and are now re-testing the juncture on the downside. From a technical perspective, the picture is largely the same as it has been for most of this month, with prices trending higher in a well-defined rising channel. If this pattern is to hold, the $80 level should offer support and a foundation for the next push upward. However, the dynamics of risk sentiment appear to have been shifting rapidly since the end of the Wall St session and the opening bell in Asia. Traders latched on to slightly worse than expected (but still the highest in a year) Chinese GDP figures and the downgrade of Wells Fargo, the largest US home lender, by a single out-of-consensus analyst to send the MSCI Asia Pacific regional equities benchmark index down over 1 percent and weigh by about as much on European equity futures. This hints that investors are becoming jittery at current highs and worried about being the last ones out as the (arguably inevitable) downward correction materializes. The correlations between stocks, crude, and the US Dollar remain potent and, with the WTI contract less that $1 above the critical $80 mark, traders may be in for a near-term trend-defying breakdown if risk aversion continues to dominate the equities landscape going into the New York session. A break out of the rising channel initially sees support around $78.17.

Commodities – Metals

Gold, Silver Outlook Hinges on Risk Sentiment as Confidence Falters

Gold       $1057.22        -$1.84       -0.17%
As with crude oil, gold prices are likely to find their most potent catalyst in the overall trajectory of risk appetite, with the cues from Asia and Europe distinctly bearish for the time being. That said, a host of high-profile earnings reports are set to cross the wires and things could change very quickly. The economic data docket is largely uneventful, with only September’s US Leading Indicators report likely to generate any significant interest from the market. Technically, prices remain confined in the same $20-25 range that has characterized price action for much of this month.

Silver      $17.58       -$0.12       -0.66%
Yesterday’s price action followed a familiar dynamic, with silver mimicking the trajectory of its more expensive counterpart but failing to deliver an equally robust result. Technically, a descending triangle looks to be forming above the key $17.15–24 support region, hinting at bearish bias that favors a break below the $17 handle to challenge $16.75.

US Stocks Pare Gains at Close on Spending Concerns; Wells Fargo Downgrade

U.S. Session Key Developments

•    Crude Rallies to New High on Inventory Report
•    Market Falls in Final Hour on Wells Fargo Downgrade
•    Beige Book Shows Improvements

US Markets fell sharply in the final hours of trading as spending concerns in the Fed’s Beige Book, coupled with a cut to “sell” for Wells Fargo by Rochdale analyst Dick Bove, led to weakness across the board. The Federal Reserve’s report on economic developments in the twelve districts showed manufacturing and residential real-estate leading gains, while lending remained weak and consumer spending has yet to show substantial recovery. Retailers in several districts do not expect sales to rise sharply in the final quarter of the year, and a weak lending environment may indeed be a sign of a shift in consumer spending habits. While earnings reports from firms including Yahoo, Morgan Stanley and others have proven favorable to traders today, the overall picture remains clear: With stocks more than 50% off their lows, and the NASDAQ composite up 36% year-to-date, equities have run a tight upward trend with small retracements along the way. However, contractions may be limited in the future, just as in the past, as confidence remains high and sidelined cash remains ready to fill in the dips. The months ahead may prove to be optimistic as seasonal sales are likely to boost retailers while recovery in M&A activity amid fewer job losses could propel stocks higher.

DJIA 30                      9,949.36                   -92.12               -0.92%
The Dow ended the day below 10,000 for the first time in three sessions as nearly all sectors fell with financials down nearly two percent. The drop came amid a downgrade to Wells Fargo as it becomes clear that recovery will not lead to winners across the entire sector. Rochdale analyst Bove downgraded the bank, while citing lower taxes and mortgage servicing fees as involved in nearly 30% of the breakout profit reported by the lender. Also dropping from recent highs were JPMorgan and Bank of America, down approximately three percent each. Despite breaching psychological resistance in the recent week, the Dow may have more room to drop following a rally of 25% since early July.

S&P 500                     1,081.40                   -9.66                 -0.89%
The broad S&P500 saw a fall of nearly as much as the Dow as weakness in Financials and Consumer Services led stocks lower. Major movers on the index included banks, with Wells Fargo tumbling 5.12% following a downgrade to “sell” at Rochdale Securities. Other losers outside the financial sector included Walmart, down 2.07%, and a 2.9% drop in Pfizer. Ultimately, a bit of divergence was noted as firms which reported strong earnings managed to close higher. Morgan Stanley and U.S. Bancorp ended higher with gains of 4.8% and 2.65%, respectively, while Apple also climbed 3.1%. Profit taking or panic selling as it may be, optimism remains high and may not lead to a significant pullback.

NASDAQ                    2,150.73                    -12.74             -0.59%
The technology-heavy NASDAQ saw a fall of just over half-of-one percent as two stocks fell for each that gained, while the tech sector closed little changed. Major movers included Apple, up 3.1% on strong earnings, along with a nearly 1% gain in Microsoft as Windows 7 nears release. Pent up demand during the recession may lead to a resurgence in sales for tech companies. Many have rallied immensely off their lows in such anticipation and it remains no sure bet that further upside is high. With a move of more than 70% off its early March bottom, and the highest performance of the three major indices year-to-date, the NASDAQ remains a questionable bet going forward. At the same time, the index may not fall as severely as its counterparts could as many of the giants making up the composite are well positioned in terms of low debt and global sales.

Notable US Event Risk / Economic Releases

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

European Stocks Recover into Close on Strength in US Financial Earnings

Europe Session Key Developments

•    Commodities Higher as Dollar Weakness Continues
•    UK Minutes Show Unanimous Support for Present QE Target

European markets pared losses into the close as earnings from Wells Fargo and Morgan Stanley came in well ahead of estimates, fueling optimism that less-restrictive bank lending will lead to quicker economic growth. Initial pressure in the market sent the FTSE100 down more than 1.5% as earnings results from DeutscheBank, and French automaker Peugeot, caused concern. Germany’s largest bank saw its shares fall more than two percent as improving profits failed to lift the stock to a new high. Meanwhile, Peugeot posted a decline in revenue even as the amount of vehicles it sold increased by ten percent. Underpinning such weakness and remaining a viable threat to exporters is the euro, which today soared above $1.50 for the first time since August 2008. Ultimately, growth in the second half of 2009 and into the early part of 2010 appears to be cemented in the minds of investors as most indices are up more than 20% on the year. In fact, the Italian FTSEMIB has nearly doubled off its March lows as financials recovered, leading to the conclusion that stocks may be adequately priced going into the year end. Despite cracks emerging in profits for some firms, along with lackluster revenue, corrections in the near-term may be minimal at best given the breadth of confidence and sidelined liquidity ready for opportunistic buying.

FTSE 100                      5,257.85                   +14.45               +0.40%
The British index recovered into the close as Financials gained nearly one percent following stellar earnings from Morgan Stanley and Wells Fargo in the US. Ultimately six sectors advanced, while Technology and Industrials fell more than one percent each. With oil soaring to a new high, along with other commodities moving higher in the wake of dollar weakness, the industrial heavy FTSE may continue to advance.

CAC 40                     3,873.22                   +1.77                 +0.28%
Stocks in France rose slightly following a mixed session in which most stocks fell. Ultimately, major firms include France Telecom, BNP Paribas and Sanofi-Aventis, helped the index close higher. The chart of the French composite shows intra-day movement to the lowest level in six sessions of trading, a grim reminder that sentiment can quickly turn as the index consolidates near recent highs.

DAX                         5,833.49                    +21.72             +0.37%
Slightly more than half of German stocks closed higher while Financials proved to be the only sector that fell as Deutsche Bank’s earnings, while a sharp improvement from the previous year, failed to meet the mark some investors were hoping for. Shares of the largest bank in the nation fell 2.42% while Commerzbank also saw its stock fall slightly in the crossfire. Other major losers included Allianz along with Steelmakers ThyssenKrupp and Salzgitter.

IBEX 35                     11,875.20                   +85.00                +0.72%
Trading in the Spanish index led to the highest gain of the five majors as financials in the nation advanced 1.34%. The move followed on Banco Santander’s goal to keep a dividend payout ratio of 50% in 2010. Shares of the stock rallied nearly two percent for more than 50 index points, while Banco Bilbao also gained more than one percent. Spain’s financial sector has seen little of the hardships that its more-exposed neighbors in France, England and Germany, have. Recovery in construction and housing may also fuel further rallies in an index still leading on year-to-date performance.

S&P/MIB                        24,175.87                    -52.18                  -0.22%
Italian equities diverged from its peers as the only index that fell of the five majors tracked. Approximately two-thirds of stocks tumbled including major firms such as STMicroelectronics, automaker Fiat, and UniCredit. STMicro shares fell 4.94% as the firm expected sales of chips to fall 17-18% globally this year. Meanwhile, earnings at Fiat left the stock lower by more than two percent as a surprise as profit in the third quarter was not followed through with a revision to the company’s full year forecast.

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

Crude’s Tentative Bearish Trend Break Quickly Corrects to New Yearly Highs After DoE Data

Commodities – Energy

Crude’s Tentative Bearish Trend Break Quickly Corrects to New Yearly Highs After DoE Data

Crude Oil (WTI) -  $79.75  //  $0.63  //  0.80%

Initially, it seemed as if crude had called a sure end to its steady rising trend channel for the past 10 sessions with a quick dip below $78 per barrel. However, a sharp correction would pull the market up and actually forge a new high (rising well above $80 at the time that this article was written). What was the reason for this unexpected reversal? Inventory data. The initial decline would be encouraged by the American Petroleum Institute’s (API) figures released Tuesday afternoon. According to the group’s weekly report, domestic crude stockpiles rose by 3.8 million barrels last week, soundly beating expectations. In contrast, gasoline stocks reportedly fell by 558,000 barrels – less than was expected. Alone, this data could have catalyzed the long-anticipated correction in crude; but the US Energy Department’s bullish measures would override the market’s developing bias.

Released in the morning hours of the US session, the government reported that both gasoline and crude inventories fell through the week ending October 16th. Oil stores rose 1.31 million barrels (short of the 1.5 million expected) to 339.1 million, the biggest glut since August. Clearly, American refiners are concerned about building inventory and the potential impact it can have on cost as imports fell last week to their second lowest levels since hurricanes in the Gulf of Mexico closed ports back in September of last year. Along with the larger than expected drop in gasoline inventories (2.2 million barrels against 800,000 forecasted), this data shows a clear effort to limit supply which could certainly push crude prices deeper into the $80’s. On the other hand, inventories are still unusually high and can certainly fill in for any demand pressures that develop. Yet, the Energy Department’s statistics suggest demand will not be able to absorb the excesses that have been built up for quite some time. Demand for motor fuel dropped 3.3 percent for the sharpest one-week plunge since May.

Commodities – Metals

Gold Sees a Sharp Reversal as Risk Appetite Recovers from a Temporary Dip

Spot Gold  -  $1059.05 //  $3.85  //  0.36%

Gold was seen trading only moderately higher heading into the close of the US floor trading session. However, this moderate change belies the volatility that was experienced intraday. Through the Asian and European session, the precious metal was extending the bearish reversal from Tuesday’s swing high at $1,067.97. With equities easing off back and the dollar gaining ground, speculative interests seemed sated for the time being. However, when US liquidity came into the fold, sentiment was bolstered across the board. From the exchange open, the precious metal rallied more than $17 or 1.6 percent to $1,065.09. Unless some of the more purely speculative assets can establish new highs however (the Dow is struggling to climb above 10,100) capital flowing into this non-interest bearing security could begin to dry up and eventually unwind through profit taking. The SPDR Gold Trust (the world’s largest ETF backed by metals) was reportedly unchanged at 1,109.31 metric tons while ETF Securities reported its holdings fell from 8.1 million ounces to 7.99 million. Looking at trading activity on the new front-month December contract, we can see that open interest is steadily climbing. However, positioning in COT data is showing long interest is growing increasingly extreme at its record high.

Spot Silver  -  $17.65  //  $0.15  //  0.86%
Congestion is developing for silver at its 14-month high just off $18 per ounce. This activity is developing in tandem with the Dow and other risk sensitive assets – where the bullish trend is still intact but progress is fading. Looking at trading activity on the active futures contract, open interest is rising steadily but is capped below 100,000 ounces. For a short-term reading, daily volume seems to have peaked with the initial push towards $18. There is little conviction in this data as to which direction the market may take when a breakout does develop. According to ETF Securities, their silver assets rose to a record 21.1 million ounces yesterday; yet another extreme to be wary of.

-Written by John Kicklighter, CFDTrading Research
Questions or Comments about this article? Send them to jkicklighter@dailyfx.com

Asian/Pacific Decline as Earnings Results Disappoint, Bank of Japan Holds Cautious Outlook

Asia Session Key Developments

• Bank of Japan Maintains Cautious Tone
• China Mobile, China Telecom Earnings Miss Expectations

Stocks in Asia/Pacific declined on Wednesday for the first time in three days on the back of lower commodity prices paired with lower-than-expected earnings results. Meanwhile, Bank of Japan Deputy Governor Nishumura said Japan’s economy recovery will be “very bumpy” and warned that maintaining the expansion in monetary policy for too long can lead to moral hazards. At the same time, BoJ Governor Masaaki Shirakawa said that the domestic economy remains “far below” the levels seen in the previous year, and policy makers may continue to hold a cautious tone throughout the second-half of the year as global demands remain subdued. Meanwhile, the leading indicator for Japan weakened to 83.2 in August from an initial forecast of 83.3, with the coincident index slipping to 91.2 from 91.4, while machine tool orders slumped at an annual pace of 62.1% from the previous year.

Nikkei 225                          10,333.39

The Japanese equities market traded lower on Wednesday, with the Nikkei 225 slipping 3.45 points (.03%) to close at 10,333.39, led by a 0.86% decline in technology. Shares of Japan Airlines Corp added 6.78% on top of yesterday’s 4% gain as the Yomiuri newspaper said Finance Minister Hirohisa Fujii and Transport Minister Seiji Maehara agreed to back bridge loans for the firm, while Mitsui Mining & Smelting rallied 3.72% after the firm unexpectedly posed a net income of JPY 1.5B for the first half of the year. Furthermore, Fukuoka Financial Group rose 4.68% as Credit Suisse raised the lender rating from “neutral” to “outer perform,” while Sanyo Electrics rose 2.40% after the Asahi newspaper stated that the firm will supply lithium-ion batteries for Toyota’s hybrid vehicles.

Hang Seng                        22,318.11

Hong Kong shares weakened on Wednesday to mark the first decline in three days, leading the Hang Seng index to shed 66.85 points (0.30%) to close at 22,318.11, with 5 of the 9 components trading lower on the day. Consumer services fell 2.11% to lead the decline, while consumer goods advanced 4.09% to taper the down turn. Shares of Li & Fung rallied 4.09% as the firm acquired a U.S. company that holds the licensing for Calvin Klein and Disney, while Esprit Holdings pulled back 3.60% as Capital Research and Management Co cut its stake in the from 9.07% to 8.99%. At the same time, China Mobile shed 1.90% as the firm’s third-quarter net income fell short of expectations, while Cnooc slipped 2.09% after the Wall Street Journal said the firm’s nine-month pretax profit decline 46% from the previous year.

S&P/ASX 200 Index           4,838.60

Stocks in Australia pulled back on Wednesday on the back of lower commodity prices, leading the ASX to fall 7.60 points (0.16%) to end at 4,838.60, with financials falling 0.43% to lead the decline. Shares of Virgin Blue Holdings, Australia’s second-biggest airline, soared 8.82% as the Royal Bank of Scotland raised the company’s rating from “hold” to “buy,” while Transfield Services rallied 6.77% after winning a 35-year contract for the port of Miami. At the same time, Macquarie Media Group rose 6.61% amid speculation that the company will release details of its plan to gain management independence from Macquarie Group, while Woolworths slipped 1.59% after Credit Suisse Group lowered its rating on the firm to “neutral” from “outperform.”

Notable Asian Session Event Risk / Economic Releases

Dow May Look toTest Trendline Support Before Next Advance

As is often the case in Elliott, the picture is becoming much clearer as the rally has matured and nears its end.  The advance from the March low is a complex W-X-Y (a-b-c-x-a-b-c) rally.  The Dow has actually satisfied minimum expectations for the rally by exceeding 9918 (wave iii of c) so a reversal could occur at any time.  Wave c of y would equal 61.8% of wave a of y at 9947.  Momentum is as one would expect at an important top with RSI failing to confirm the new price high.

The Dow slowed its advance yesterday but found support at 10,000, a break below the psychological level leaves open the possibility of a re-test of trendline support near 9,600. However, if the level becomes a source of strong support then a test of the 50.0% Fibo level of the 14,198- 6,470 decline at 10,390 appears likely. The Fibo-zone is the only true resistance levels before a test of 11,000.

The S&P is in the exact same position as the Dow. The analysis presented there applies here.

The S&P 500 like the Dow saw its advance slowed and a test of trend line support is a possibility before an ultimate test of 1,120-50.0%Fibo of 1,576-666.

The NASDAQ pattern is the same as the Dow and S&P patterns with one exception – this index has yet to exceed its September high.  It’s interesting that the NASDAQ is the weaker of the 3 indexes at this point since it is the one that has led the advance since March, retracing a larger percentage of its 2007-2009 decline.  It is possible that the divergence (new highs in Dow and S&P, not in NASDAQ) sets up a non-confirmation that results in a turn lower.  In Elliott terms, failure to exceed iii of c would constitute a truncation.

The NASDAQ eclipsed its yearly high of 2,167 and continued bullish sentiment could lead to a test of 2,250- 61.8% Fibo of 2,861-1,265. However, a re-test of trend line support near 2,110 may come before the next advance.

Oil, Metals May Correct Higher But Beige Book, Earnings Threaten Volatility

Commodities – Energy

Crude Validates Near-Term Bearish Outlook, Beige Book Now in Focus

Crude Oil (WTI)        $78.70        -$0.42       -0.53%
Crude prices behaved in line with yesterday’s technical forecast, breaking below support at the lower boundary of a bearish Rising Wedge formation to stall near $78 at the lower boundary of the rising channel that has guided prices higher since the beginning of the month after failing to build traction above the psychologically significant $80/barrel level. As expected, disappointing US construction sector data catalyzed the decline (the industry is the world’s largest consumer of crude). Tomorrow’s release of the Federal Reserve Beige Book, a survey of current conditions combined by the central bank’s regional branches, may further fuel downward pressure if traders see that the economic recovery is not as strong as seems to be priced given the breakneck pace of the rally in risky assets since March. Mortgage applications data is also due for release, but any weakness here may already be priced in after the housing data that has already crossed the wires this week. Finally, the Department of Energy is expected to report a jump in crude inventories, which points to ample supply and could weigh on prices. Continued bearish momentum from here will target just below the $76 handle.

Commodities – Metals

Metals May Correct Higher But Beige Book, Earnings Threaten Volatility

Gold       $1056.60       +$1.40       +0.13%
As we noted in yesterday’s forecast, gold prices put in a double below $1070 after showing a Bearish Engulfing candlestick formation, breaking below resistance-turned-support at the top of a minor rising channel pause just above the $1050 figure as PPI figures proved disappointing. As with oil, the Fed’s Beige Book will be important in setting the trajectory for risk appetite and the US Dollar, guiding gold trading by extension. A wealth of earnings reports is also on tap, with the triple threat of Morgan Stanley, Wells Fargo, and US Bancorp of note in particular after a disappointing result from Bank of America sunk capital markets earlier in the week. Continued bearish momentum will target near $1045. Equity index futures are pointing higher ahead of the opening bell in Europe so a bit of a bullish correction (at least) before Wall St comes online may be in the cards.

Silver       $17.47       -$0.02       -0.10%
Silver behaved much the same as gold yesterday and the fundamental drivers are analogous to its more expensive counterpart going forward. Technically, the $17.15–24 region remains critical, with sustained break below that paving the way for a move below the $17 handle to challenge $16.75.

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