October 2009

Australian Equities Ride Channel Resistance

The Nikkei broke down at the end of September but has staged a strong rally since finding a low on October 6th.  A short term resistance line is at current price and weakness off of this level would be a sign that a head and shoulders top is underway since mid July.

The S&P/ASX rally continues to ride along channel resistance.  A total of 19 days touch this channel.  The market clearly deems it worthy.  RSI remains in a divergent condition and even the final portion of the advance channels nicely (in red).  The technical condition of the uptrend is weak.  Coming below the red channel support line would be the first sign that the index has formed a top.

The Hang Seng has more than doubled since its October 2007 low.  I want to show a monthly chart in order to convey that the larger is probably still bearish.  A 5 wave move from at least the mid 1980s is complete and this bear market has only lasted 2 years.  The next move is most likely either lower or sideways (in which case the index would still consolidate at a lower level).

Written by: John Kicklighter and Jamie Saettele, Strategists for CFDTrading.com
Questions? Comments? You can email them to John at jkicklighter@cfdtrading.com.

U.S. Equities Fall Off Yearly Highs As Housing Data Disappoints

U.S. Session Key Developments

•    Housing data surprised to the downside, overshadowing earnings.
•    Crude oil closed lower after eight days of gains, USD gained off 14-month low against euro.

U.S. equities fell from yearly highs as weak housing data overshadowed positive earnings, driving stocks down throughout the session.  Housing starts rose to an annual rate of 590K in September, short of its 610K expectation, while the August housing data was also revised lower from previous estimates.  Building permits also fell for the second time in three months and fell short of expectations.  Pulte Homes Inc. fell 5 percent on the weak data and Home Depot, the country’s biggest home-improvement chain, shed 2.4 percent.  The weak economic data also overshadowed positive earnings from companies as they were attributed to cost-cutting measures as opposed to revenue growth.  Sales have fallen 2.2 percent at S&P companies that reported third-quarter results since October 7.  Large companies from Apple Inc. to Caterpillar Inc. gained on better-than-estimated earnings, while Coca-Cola shares fell 1.3 percent after revenue decreased by 4.2 percent.  Other market-moving data today included the U.S. dollar gaining off a 14-month low against the euro, driving commodities lower including crude oil futures which fell after eight days of gains.  This caused pain for commodity-dependent firms Exxon Mobil Corp. and Alcoa Inc. which fell by 0.8 percent and 1.9 percent respectively.

DJIA 30                      10,041.48                   -50.71               -0.50%
The Dow Jones Industrial Average finished lower today after reaching its highest close in over a year yesterday at 10,092.2.  Six securities finished higher on the day, but only one- Caterpillar up 3.04 percent- added a full percentage point or more.  The main laggards of the index were Boeing, DuPont, and Home Depot, each down over 2 percent on the session.  Boeing had the largest fall of the Dow after Morgan Stanley downgraded the commercial-plane builder to “underweight” from “equal-weight.”

S&P 500                    1,091.06                   -6.85                 -0.62%
Investors exited many of their equity positions after the morning’s disappointing housing data, causing all-but-one broad S&P sector to sell-off throughout the day.  The one bright spot was the technology sector, which finished slightly higher as Apple’s earnings exceeded expectations.  Earnings for S&P companies have been generally positive, with 79 percent of reported companies beating estimates, but weak macroeconomic fundamentals drove the index down today.

NASDAQ                         2,163.47                    -12.85             -0.59%
The tech-heavy NASDAQ made slight gains early in today’s session after Apple’s earnings announcement, but then succumbed to weak economic data and faltered to its close.

Crude Looks to Post its First Down-Day in Nine Sessions

North American Commodity Update, Last Updated 10/20/2009 3:46 PM EST (GMT = EDT +4:00)

Commodities – Energy

Crude Looks to Post its First Down-Day in Nine Sessions

Crude Oil (WTI) -  $78.29  //  -$1.32  //  -1.66%

It had to happen eventually. Oil’s steady, eight consecutive session advance marked the strongest trend in nearly three months and weathered fundamental ambiguity through that time; but the trend has finally been broken by cooled sentiment and bearish comments from the OPEC Secretary General Abdalla El-Badri. Investor sentiment ebbed through the European and US sessions as the 3Q earnings season offered little buoyancy in the face of disappointing housing starts data from the United States. Offering the more direct link to price action were the bearish comments delivered by El-Badri to reports after an Oil & Money conference in London. The official said OPEC said crude above $80 per barrel would hamper growth. It is therefore notable that the intraday high for Tuesday was $80.05. The Secretary General went on to say he did not expect to see prices near $100 per barrel in the near future as there was “no shortage of oil supply.” The overhang of 125 million barrels of crude and other petroleum products in floating storage was an express concern.

Efforts to talk down crude prices are not unusual and neither are they consistently effective. There is little doubt that market sentiment and speculation surrounding tomorrow’s Energy Department numbers have relieved the pressure in sustaining the most consistent advance in many months. However, while this pull back may have called an end to a chain of positive session closes, it has not confirmed a reversal of the October bull trend. A true turn will likely require a catalyst. Survey’s in advance of the weekly inventory report show expectations for a pickup in crude stocks (a Dow Jones survey sees a 1.1 million barrel rise and Bloomberg 1.5 million barrel) and contraction in gasoline holdings (the Dow calling for a 1.5 million barrel drop and Bloomberg 1.6 million barrels). Despite the likelihood of a reversal in the near-term, the CBOE Crude Oil Volatility Index is at 39.02 percent – just off its lowest levels since May of 2008.

Commodities – Metals

Gold and Silver See a Sharp Correction Tuesday yet Broad Ranges Still Stand

Gold  -  $1053.15 //  -$11.05  //  -1.04%

Gold furthered the congestion pattern that has slowly developed over the past two weeks with a sell off through the US trading session Tuesday. The market was able to hold on the highs won through the previous day through Asian trading; but this strength waned when US liquidity came online and disappointing curbed investor sentiment across the markets. This morning, the US reported an exaggeration of factory-gate price pressures and a far more tame increase in housing construction than expected through September. This tempers the commodity’s appeal for an inflation hedge and an enduring source of capital gains. In the background, the October contract expired today and has rolled over to the December contract with a modest price adjustment. Furthermore, the CBOE Gold Volatility Index slipped to 20.13 percent – the measure’s lowest reading since September 1st.

Silver  -  $17.45  //  -$0.39  //  -2.19%

Silver took its paces from gold and more directly from risk appetite. The Dow’s intraday dip below 10,000 accelerated the sharpest sell off in spot silver since October 1st. The stability in the latter part of the session has subsequently maintained the two-week range between $17.65 and $17.00 per ounce. The expiration of the October contract and rollover to December encouraged a little more volatility than usual; but the day’s bearish conviction was seen playing out down the contract table and was therefore clearly following underlying risk trends.

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

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Asian/Pacific Gain on Higher Commodity Prices, Better-Than-Expected Earnings

Asia Session Key Developments

• Japan’s Finance Minister Sees Weaker Employment, Wage Growth
• Reserve Bank of Australia Minutes Signal Further Hikes

The Asian/Pacific stock markets advanced on Tuesday on the back of higher commodity prices paired with better-than-expected earnings results, while Japan’s Finance Minister Hirohisa Fujii held a cautious outlook for the economy and stated it’s too early for policy makers to implement an exit strategy. Mr. Fujii went onto say that employment and income growth may worsen by year end following the slump in global trade, and said that the recent appreciation in the Japanese yen stems from the underlying weakness in the U.S. dollar. At the same time, the Reserve Bank of Australia said that it may be “imprudent” for the central bank to maintain the benchmark interest rate at the emergency level, and said that the “very expansionary setting of policy was no longer necessary” as the economy returns to growth. Moreover, the RBA held a hawkish outlook for inflation and said price growth was “significantly higher than earlier thought,” and went onto say that a “very expansionary policy could result in the build-up of other imbalances in the economy,” which could hamper the prospects for sustainable growth.

Nikkei 225                          10,336.84

The Japanese equities market advanced on Tuesday, with the Nikkei 225 gaining 100.33 points (0.98%) to close at 10,336.84, led by a 2.19% advance in telecommunications. Share of ALPS Electric Co. rose above 4% for a second successive day, adding 4.55% after the company narrowed its full-year net loss with Casino Computer Co shed another 1.88% following yesterday’s 8.95% decline after reversing its full-year forecast, while Japan Airlines advanced 4.4% as the firm is in talks with Delta Air Lines and American Airlines over a possible alliance. At the same time, Nomura Holdings advanced 4.31% after the Irish government appointed the Japanese break as a Primary Dealer for government bonds.

Hang Seng                        22,384.96

The Hang Seng Index rallied 184.50 points (0.83%) to close at 22,384.96 on the back of higher commodity prices and better-than-expected earnings from Apple. Shares of Foxconn international Holdings gained 6.33% after Apple’s net income grew 47% in the fourth-quarter. Moreover, Sun Hung Kai Properties and Cheung Kong Holdings soared 7.74% and 7.09% respectively as luxury-home prices rose to a record, while Industrial & Commercial Bank of China added 2.42% after Allianz SE and American Express affirmed they would maintain their stake in the bank.

S&P/ASX 200 Index           4,846.20

Stocks in Australia strengthened on Tuesday, leading the ASX to rise 53.40 points (1.11%) to end at 4,846.20, with basic materials surging 2.04% to lead the advance. Shares of BHP Billion rose 2.12%, with Rio Tinto advancing 3.33% on the back of higher metal prices, while Oil Search Ltd plunged 7.26% after the firm scrapped plans to sell Abu Dhabi’s energy unit a stake in its $15B gas project with Mobil Corp. At the same time, Challenger Financial Services rose 6.27% as demands for annuities and related products more than doubled in the third quarter, while Platinum Australia soared 7.85% as platinum spot prices rose to its highest level since December 2008.

Notable Asian Session Event Risk / Economic Releases

Dow Targets 11,000 With Only Fibo-Zone As Resistance

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 continues to march higher after breaking above 10,000 which leaves the 50.0% Fibo level of the 14,198- 6,470 decline at 10,390 as the next barrier. 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 continues to see continued support and is now looking to test 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.

Oil Loses Steam Ahead of $80, Metals May Falter on US PPI

Commodities – Energy

Crude Loses Momentum Ahead of $80, US Construction Data Looms Ahead

Crude Oil (WTI)       $79.26        -$0.35       -0.44%
Crude prices have turned lower after failing to build traction above the psychologically significant $80/barrel level. The fundamental landscape offers room for further losses with September’s US Housing Starts and Building Permits data set to cross the wires. The American construction sector is the world’s largest consumer of oil, and positive readings here could add a much-needed story about rising demand to the more portfolio-driven catalyst of US Dollar weakness and inflation hedging. While expectations do in fact point to slightly higher figures from the previous month, yesterday’s unexpected drop in the National Association of Home Builders (NAHB) measure of construction-sector confidence may be hinting at a disappointing outcome. Technically, prices are testing below the lower boundary of a near-term Rising Wedge formation with momentum studies still negatively divergent coming down from overbought territory, which opens the door for a move to test support near $78 at the lower boundary of the rising channel that has guided prices higher since the beginning of the month.

Commodities – Metals

Metals Trading Focused on Risk, US Dollar but PPI Could Make a Splash

Gold       $1063.57       -$0.63        -0.06%
Gold rebounded test resistance below $1070 but prices now look on pace to form a double top, showing a Bearish Engulfing candlestick formation. Near-term support is seen at the top of a minor rising channel that was broken earlier, with a move lower to target just above the $1050 figure. The fundamental picture remains closely linked with equities and the US Dollar: A slew of high profile earnings reports are due late into European hours before the opening bell on Wall St, with positive outcomes likely to weigh on the greenback and boost optimism about the global economic recovery, both of which are gold-positive. That said, tomorrow’s US PPI figures may present potential for a downswing. A disappointing outcome (particularly in the Core PPI reading that excludes food and energy) would help to ease some near-term concerns about future inflation and help validate technical positioning.

Silver       $17.23        -$0.11       -0.62%
Fundamentally, the drivers remain much the same as with gold. The technical picture looks a bit less bearish, however, with prices unable to re-test the previous swing high above $18 and faltering below the figure. 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.

Crude Rallies an Eighth Session along with Equities

Commodities – Energy

Crude Rallies an Eighth Session along with Equities

Crude Oil (WTI) -  $78.84  //  $0.31  //  0.39%

Crude has extended its impressive rally to fresh yearly highs for an eighth consecutive day. This is the one bullish close short of the advance between July 15th and 23rd – though the current bull wave is far stronger than its predecessor with a 13.6 percent climb. However, with each daily advance, fundamental buoyancy is steadily shifted to speculative lift – a fickle and ultimately limited driver. Guiding price action today was the general advance in market sentiment. Oil’s push to a new high matches the Dow’s advance to a fresh 12-month high of 10,092.19. Yet, unlike this attractive, capital market; this commodity has a more pertinent economic use and greater curbs on traders’ interests.

A lack of specific, fundamental news related crude likely opened the market to risk appetite and preserved the steady trend. Looking ahead, the next round of scheduled inventory data from the Department of Energy is due at the usual, Wednesday release time. Forecasts from a Dow Jones Newswires survey has called for a 1.1 million barrel drop in crude inventories last week – offsetting the advance from the previous period. What’s more, gasoline supplies are expected to extend their steepest contraction in more than year as refiners make seasonal repairs. Nonetheless, even if stockpiles slip as expected, it will do little to deflate bloated supplies. Refiners are running at their lowest capacity levels on record for this time of the year as they wait for excess inventories to be absorbed before putting new product on the market. Another consideration to factor in for tomorrow is the expiration of the November NYMEX crude contract and rollover to December. This may lead to interesting price action and may even call an end to crudes steady advance.

Commodities – Metals

Gold and Silver Follow a Tentative Advance as Speculative Interests Struggle with Market’s Heights

Gold  -  $1057.40 //  $3.80  //  0.36%

Gold prices rose through Monday’s session; but the advance was far more reserved than the bullish moves seen in crude and equities. This is likely a side effect of the rally’s dependency on sentiment. While stocks and other asset classes continue to retrace ground lost through the financial crisis through the past few years, gold is burdened with raising the bar with record-breaking highs. For an asset that does not bear traditional interest or dividends but is instead dependent on capital gains; speculators consider it a dangerous proposition to extend the precious metal’s climb without running the risk of a significant retracement. Last week’s CFTC Commitment of Traders report puts it perfectly into perspective. Non-commercial long interest on the COMEX hit 288,214 contracts while shorts were a sparse 34,259. This is the greatest contrast on record.

Silver  -  $17.59  //  $0.13  //  0.75%

With more room to run, silver is not the speculative burden that gold is. Nevertheless, it is important to note the substantial role that risk appetite is playing in the metal’s appreciation. Silver’s largest, single-day rally in nearly two weeks found more than a little support from the impressive advance in equities – which was itself bolstered by promising earnings forecasts. Another fundamental accomplice to today’s bullish interest was a reported 48-hour strike in Peru copper production which has spilled over to this semi-industrial metal. From Friday’s COT report, we can see that long, non-commercial positions rose 918 contracts to 55,532. Short interest in contrast slipped to a total 7,257 contracts.

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

Asian/Pacific Shares Mixed on Monday; Hang Seng Advances to 14-Month High

Asia Session Key Developments

• Japan’s Service Activity Expands for Third Month
• Hong Kong Unemployment Rate Unexpectedly falls

The Asian/Pacific stock markets were mixed on Monday, while the Hang Seng index rose to a 14-month high as government officials in China said the economy grew more than 7% during the first nine-months of the year. Moreover, crude oil prices climbed to $79.05 a barrel, which is the highest since October 2008, as investors raised the outlook for global growth, while the unemployment rate in Hong Kong unexpectedly slipped to an annual rate of 5.3% from 5.4% in the previous month as the labor force weakened for the second consecutive month. At the same time, service-based activity in Japan expanded for the third month in August, with the Tertiary index increasing 0.3% from July amid expectations for a 0.1% rise.

Nikkei 225                          10,236.51

The Japanese equities market pulled back on Monday, with the Nikkei 225 slipping 21.05 points (0.021%) to close at 10,236.51, led by a 2.00% drop in consumer services. Shares of Casio Computer Co plummeted 8.95% after the company abandoned its profit forecast and JP Morgan Chase & Co. lowered the rating on the stock from “neutral,” to “underweight,” while Japan Airlines surged 11.88% as the Mainichi newspaper said policy makers asked banks for a JPY 200B bridge-loan to finance the restructuring of the firm. At the same time, ALPS Electric Co gained 4.96% as the company narrowed its full-year net loss forecast 36% to 8 billion yen on the back of lower costs and higher sales, while Asahi Kasei Corp advanced 2.18% after the firm reported JPY 4B in net-income for the first-half of the year.

Hang Seng                        2122,200.46

The Hang Seng index rallied 270.56 points (1.23%) to close at 22,200.46 as government officials in China said the economy grew more than 7% during the first nine-months of 2009. As a result, 8 of the 9 components traded higher and pushed the index to a 14-month high, with technology gaining 5.91% to lead the advance. Shares of Foxconn International soared 9.03% as Taiwan’s Hon Hai Precision Industry Co, the firms major shareholder, said the firm will invest $1 billion in a factory in Chengdu, China, while CNOOC LTD gained 4.19% on the back of higher oil prices. At the same time, Li & Fung rose 3.74% as the company’s luxury division, Trinity Ltd, seeks to raise as much as $99.7 million from IPO’s, while PetroChina advanced 3.01% amid the company announcing that they will focus on expanding exploration and increasing overseas cooperation next year.

S&P/ASX 200 Index           4,792.80

Stocks in Australia weakened on Monday, leading the ASX to give back 43.60 points (0.90%) to end at 4,792.80, with financials slipping 1.71% to lead the decline. Shares of National Australia Bank slipped 2.22%, with Australia & New Zealand Banking Group tumbling 3.38% as Bank of America reported a $1B loss in the third quarter. At the same time, Fortescue Metals Group shed 3.60% as the firm expects BHP and Rio Tinto’s newly established alliance to carry though, while Harvey Norman Holding decline 1.13% after UBS lowered its rating on the stock to ‘neutral’ from ‘buy.’

Notable Asian Session Event Risk / Economic Releases

Oil, Metals Look Vulnerable as Technicals Point to Weakness

Commodities – Energy

Crude Tests $79 but Technical Positioning Points to Correction Lower

Crude Oil (WTI)       +$78.55       +$0.02       +0.04%
Crude prices continue to trend firmly higher, but near-term technical positioning has started to hint that a bearish reversal may be brewing in the near term. Price action from last Thursday has formed a Rising Wedge with negative RSI divergence, hinting that (at least) a corrective decline to the bottom of the rising channel that has guided crude from the beginning of the month is likely in the days ahead. Significant event risk does not enter the picture until Tuesday with October’s US Housing Starts and Building Permits data (the US construction sector is the world’s largest consumer of oil) as well as inventory figures from the American Petroleum Institute. This leaves the window open for a downswing, and broad trends in risk-correlated assets (stocks, commodities, high-yielding currencies) will be important to keep an eye on. To that effect, watching the third-quarter outcomes for headline names like Texas Instruments and Apple could prove telling.

Commodities – Metals

Metals to See Consolidation Give Way to Renewed Bearish Momentum

Gold      $1055.56      -$1.90      +0.18%
After a brief bounce from $1045, a double bottom, gold prices look set to return to bearish momentum with after testing the top of a falling channel that has guided the recent downturn. A break below near-term support opens the door for a move to the channel bottom below the $1040 level. On the fundamental front, tomorrow brings a speech from Fed Chairman Ben Bernanke; while the central bank chief is not scheduled to make any general remarks on the economy at large, he may do so anyway (if only in passing). Traders will be particularly keen to hear what he has to say on rates and price growth expectations, as gold has been widely viewed as an inflation hedge.

Silver      $17.48      +$0.02      +0.11%
Silver looks even more prone to bearish momentum than that of its more expensive precious metal counterpart. Prices have failed to maintain momentum on a run above key resistance at $17.50, with continued stalling leaving the door open for the bears to capture momentum and engineer a push to the channel bottom near the $17.00 figure. Fundamentally, the drivers remain much the same as with gold, with traders eyeing Bernanke’s remarks tomorrow.

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