November 2009

US Markets Rally With Dow Reaching Fresh 2009 High

U.S. Session Key Developments

•    Commodities Pare Gains into Close
•    Dollar Weakens on Risk Appetite
•    Existing Home Sales Rise at Record Pace

US equities closed higher to start the week following favorable indicators in the US and Europe, along with comments by Dallas Fed President Evans that alluded to a long time horizon before interest rates see an increase, while emphasizing that recession risk is now unlikely. Evans expects no increase until late 2010, echoing investor sentiment in fed funds futures. Should this forecast become reality, the US dollar may continue to see weakness as it recently passed below favorable support. Rallying in response, commodities saw significant upside with gold at a fresh high above $1170 per ounce while crude tested $80 per barrel before paring sharply in the afternoon, perhaps a sign of lingering concern. Also boosting sentiment today was a morning release of existing home sales for October, which came in with record growth north of 10% in October. Ultimately, the Dow reached a fresh 2009 high that could lift sentiment and lead to further gains across equities into the year-end. While there remains some clout as to the sustainability of recovery once government incentives are pulled back, it appears that this is far from becoming a chief concern. Following the strong data today, investors will be look ahead this week at revisions to third quarter GDP, consumer confidence, and other important event releases for the Tuesday session of trading.

DJIA 30                      10,450.95                   +132.79               +1.29%
Trading in the Dow Jones Industrial Average led to a higher close by more than one percent with all sectors higher while only aluminum producer Alcoa and drug maker Merck saw fractional losses. On the other end of the spectrum, telecom rallied the most with AT&T and Verizon both up nearly three percent. Ultimately the index set a new high today, which could bode well for further upside.

S&P 500                    1,106.24                   +14.86                 +1.36%
The broader S&P500 index closed strong with all sectors advancing while more than 88% of stocks gained. Leading the advance was a 2.73% gain in Telecom, while seven sectors posted moves in excess of one percent. 19 of the 20 largest firms posted higher on the session with Exxon Mobile up 1.77% as crude advanced.

NASDAQ                         2,176.01                    +29.97             +1.40%
Trading in the tech-heavy NASDAQ led to the largest move of the five majors, while the index remains the most dominant since the start of the year with a gain of 38%. All sectors advanced with technology accounted for the bulk of the index move. Major contributors included Apple, up nearly three percent, along with a 2.18% rise in iPhone carrier AT&T.

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

European Markets Rally as PMI Improves While Dollar Weakness Continues

Europe Session Key Developments

•    Dollar Weakness Sends Commodities High
•    Central Bank News Afflicts Sentiment

European markets rallied sharply by approximately two percent as risk appetite increased amid improving fundamentals and commentary by Chicago Fed Chief Evans that set off renewed buying. PMI data in the Euro-Zone showed expansion for the fourth consecutive month while the composite index posted higher than expected at 53.7 in November. Across the pond, Chicago Fed President Evans commented to the Financial Times news that rates in the US may not see any increase until late 2010. This comment echoes trader sentiment as the earliest expected increase may come late in the second quarter of the coming year. Dollar weakness has played a significant role in contributing to higher commodity prices, while dovish sentiment by central bankers in the US and UK may weigh positively on equities as officials plan to sustain liquidity until economic growth becomes self-sufficient. At the same time, government bond rates remain near recent lows, a sign investors still lack full confidence in the outlook. Ultimately, further weakness in the US dollar, a near certainty in the interim, will continue to bode well for stocks.

FTSE 100                      5,355.50                   +104.09               +1.98%
British stocks climbed nearly two percent as the index remains a higher performer on the year than both the French CAC40 and German DAX. Largely helping the index outperform in recent months has been the considerable weight of commodity related firms, along with recovery in the financial sector as the BoE remains more bearish than its ECB counterpart. Today proved no different as the two sectors outperformed with gains in Basic Materials at 3.22% while Financials climbed 2.81% and Oil & Gas saw a move of 1.75%. Most stocks advanced with 96 of 102 stocks trading higher.

CAC 40                     3,813.17                  +83.81                 +2.25%
French stocks rose for the first time in five days as the index rallied sharply by more than two percent. Affecting the move was PMI data that showed manufacturing expanded quicker than in the previous month. All sectors closed up except for Technology, while Financials rallied 3.13% along with a 2.97% increase in Oil & Gas. All but two stocks closed higher with lender Dexia up the most at 3.94% followed by a 3.81% pickup in automaker Renault. Other large firms leading the index including oil company Total and BNP Paribas, each up more than three percent.

DAX                         5,801.48                  +138.33              +2.44%
German equities closed similarly to French stocks, up the most of the five majors despite PMI growing faster in neighboring France. Gains were noted across all sectors with no firm trading lower. Leading sectors included Basic Materials and Industrials, up more than three percent each while chemical producer BASF led stocks with a move of 4.04%. Ultimately, the index may outperform its neighbor in the coming months as improving trade stands to have a larger benefit on German, where much of the GDP figure is reliant on a trading surplus.

IBEX 35                     11,940.50                   +221.20                +1.89%
Stocks in Spain closed up the least of the five majors as the index remains the strongest of the five majors in 2009, up nearly 30% year-to-date. Leading today was the financial sector, up 2.67%, and a 2.09% move in Basic Materials as commodities rallied. The biggest movers on the session proved to be the three largest firms in the nation as banks Santander and Bilbao rose 3.24% and 2.52%, respectively. Telefonica also noted a gain of more than one percent.

FTSE MIB                        22,956.44                    +444.76                  +1.98%
Italy’s benchmark index closed higher by nearly two percent following four sessions of gains that led to a sharp drop of 3.32% in the index last week. While the move may mark a bottom, further upside will need to be seen with a cross above 24,000 for confidence to really lift. No stock fell today, while Banco Popolare SC gained the most at 5.63%. Italy’s two largest banks, UniCredit and Intesa SanPaolo, boasted gains of 3.4% and 1.45% respectively.

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

Dollar Plunges to Start Week

Euro / US Dollar

The bearish count is no longer valid since the EURUSD has exceeded 1.4935.  What’s more, the rally from 1.4800 is impulsive (5 waves), which suggests that the larger trend does remain up.  1.4950, 1.4920, and 1.4880 are potential short term supports.

British Pound / US Dollar

The GBPUSD has been in a consolidation mode since late May.  Price has traded in a wide 1300 pip range since then in what could be corrective (continuation of strength) or distributive (reversal of strength).  Structurally, movements since 1.7050 appear corrective (3 waves), which would suggest a triangle, flat, or leading diagonal (all patterns favor lower prices from here).  1.6680 and 1.6750 are resistance levels.

Australian Dollar / US Dollar

Having exceeded and reversed from above .9334, the minimum expectations for wave .v of v of C has been met…respect the potential for a double top (which would be confirmed on a drop below .8900), especially when considering divergent momentum readings and patterns of other USD crosses.  More importantly, there are 5 waves down from .9410, confirming that a top is in place, which favors selling rallies.  The 61.8% of the decline from .9410 is being tested.  Price ideally turns over now.

New Zealand Dollar / US Dollar

Since the top at .7640, NZDUSD declines are impulsive (5 waves) and rallies are corrective (3 waves).  The larger trend has turned down and the objective is below .7080 (and probably much lower).  .7405 is potential resistance and price needs to stay below .7530 in order to keep the bearish count on track.

US Dollar / Japanese Yen

The bigger picture pattern is constructive. Either a triangle or complex correction is underway since December 2008.  The next leg should be up towards 101.50 (maybe even above).  One possibility from 88.00 is a leading diagonal as either larger wave A or 1 from 88 to 92.35.  A larger B or 2^nd wave may be complete as a double zigzag from 92.35.  The more time that this correction consumes, the less confidence I have in the count.  Bulls need to see an impulsive rally from current levels.

US Dollar / Canadian Dollar

A double zigzag decline from 1.3068 is considered complete and the pair has carved out a solid 1-2 base (5 up and 3 down) since the October low.  A wave ii low is in place at 1.0415, which places the pair in wave iii higher targeting a break of 1.0875 followed by Fibonacci extensions of 1.1090 and 1.1500.

US Dollar / Swiss Franc

The USDCHF is in the exact same position as the EURUSD (just as the inverse).  The bullish count is no longer valid as price has come under 1.0120.  The triangle count is now favored.  1.0120 is now resistance.

Jamie Saettele publishes Daily Technicals every weekday morning, COT analysis (published Friday evenings), technical analysis of currency crosses on Monday, Wednesday, and Friday (Euro and Yen crosses), and intraday trading strategy as market action dictates at the DailyFX Forum.  He is the author of Sentiment in the Forex Market.  Follow his intraday market commentary and trades at DailyFX Forex Stream.   Send requests to receive his reports via email to jsaettele@dailyfx.com.

Stocks in Asia/Pacific Advance As China Pledges to Supports Domestic Growth

Asia Session Key Developments

• Gold Advances to Fresh Record High
• China’s Zhang Ping Pledges to Support Domestic Demands

The Asian equities market tipped higher on Monday, with the Hang Seng halting the five-day decline as policy makers pledged to support domestic demands, while the ASX 200 0.67% as gold prices pushed to a fresh record high of 1,165.695/oz. The chairman of the National Development and Reform Commission, Zhang Ping, said that the nation will aim to expand domestic demands and pledged to maintain “consistent, stable” policy to encourage a sustainable recovery, and expects the nation to reach its 8% growth forecasts for 2009 as the Organization for Economic Cooperation and Development raises its outlook for the global economy. Meanwhile, the economic docket showed new motor vehicle sales in Australia for the third month as the expansion in monetary and fiscal stimulus continues to work its way through the real economy, and conditions should improve going into the following year as the economy skirts the global recession.

Nikkei 225                          9,497.68

Closed in observance for Labor Thanksgiving Day.

Hang Seng                        22,771.39

Hong Kong shares closed to the upside on Monday, marking its first advance in 5 days as Zhang Ping, the chairman of the National Development and Reform Commission pledged to maintain “consistent, stable” policies to support domestic demands, leading the benchmark equity index to surge 315.55 points (1.41%) and end the trade at 22,771.39 as all 9 components gained on the day. Shares of China Construction Bank Corporation, the nations’ second-largest lender, rallied 4.08% following the announcement, with Industrial & Commercial Bank of China advancing 3.26% as Mr. Ping anticipates China to reach its 8% growth target for 2009. At the same time, Henderson Land Development gained 2.31% as Credit Suisse forecasts office rents to rise 20% in the following year, while Aluminum Corp of China added 1.99% on the back of higher commodity prices.

S&P/ASX 200 Index           4,717.00

Stocks in Australia pushed higher on Monday on the back of higher commodity prices, leading the S&P/ASX 200 to climb 31.20 points (0.67%) and close at 4,717.00, with 9 of its 10 components gaining on the day. Shares of Newcrest Mining, the country’s largest gold producer, rose 3.24% as gold soared to a new record high of 1,164.420, while Rio Tinto Group, the world’s third-biggest mining company, advanced 3.59% amid the London Metal Exchange Index having its largest weekly gain in a month. Meanwhile,  Sims Metal Management plunged 4.10% subsequent to the world’s largest recycler of scrap metal completing a A$400 million share sale, while Qantas Airways, Australia’s biggest airline added 1.12% as the company said it will spend A$4.4 billion over the next two years as it plans to purchase new aircrafts.

Notable Asian Session Event Risk / Economic Releases

S&P 500 Seeing Trendline Support, But Downside Risks Remain

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.  Notice the broadening formation since August.  Broadening patterns almost always signal tops (called ending diagonals in Elliott terminology).  Levels to watch for resistance are 10365 and 10495 (100% extension).

The Dow has traded lower since being slowed by trendline resistance as we have started to see the current upward trending channel begin to widen. We could see a retrace back toward the lower bound before an ultimate test of resistance at 10,581-61.8% Fibo of 13,136-6,469. A break above resistance leaves potential to 11,000.

The S&P is in a similar situation to the Dow.  The count from the March low is the same but the recent surge that propelled the Dow to a new high has yet to do the same for the S&P.  A broadening formation from the August low is evident here as well, which again does warn of a top.  A new high exposes 1110.30 (top of gap from October 2008 in December contract), then 1134 and 1159 (100% extension) in the index.

The S&P 500 slowed ahead of resistance at 1,120- 50.0% Fibo of 1,576- 666 opening the door for a test of trendline support near 1,060. We saw bearish momentum slow at the longer-term trendline at 1,090 which could lend support as well. A Break above the Fibo level exposes 1,150.

The NASDAQ pattern is the same as the S&P pattern in that the index has yet to make a new high.  The more volatile index also broke a support line and dropped below its October low (red line) – something that the other indexes failed to do.  Clearly, the technical situation for bulls is deteriorating.  A new high would expose 2341 (100% extension).

The NASDAQ has started to trade lower after finding resistance at former trendline support opening the door for a test of trendline support near 2,100.

Oil, Metails to Gain With Risky Assets as Equity Index Futures Rise

Commodities – Energy

Oil May Continue to Gain With Risky Assets as Equity Index Futures Rise

Crude Oil (WTI)       $78.48       +$1.01       +1.30%
Broad trends in risk appetite are taking center stage for now with nothing of particular significance on the economic calendar. The US Dollar backed off to start the trading week as stocks surged in thin Asian trading (Tokyo was closed for the Labor Thanksgiving holiday) after building materials maker James Hardie Industries said its full-year profit will be close to the top of the range of analysts’ forecasts at $115 million. Dollar weakness, in turn, has translated into crude strength, with prices pushing above the $78 mark. Broad technical positioning is slightly bearish, with the daily chart showing a falling channel that has confined trading since October. Equity index futures are pointing higher ahead of the opening bell in Europe, hinting crude is likely to continue higher with risky assets for the time being.

Commodities – Metals

Gold, Silver Trade with Risky Assets as Stock Gains Weigh on US Dollar

Gold        $1166.60        +$16.00       +1.39%
Gold prices hit a fresh record high on the back of renewed US Dollar weakness in Asian trading as buoyant stock markets weighed on demand for the safety-correlated greenback. With European equity index futures up over 1% and their US counterparts up 0.5%, more of the same seems likely at least until the US comes online late into the session. Technically, significant resistance lines up at $1177.43, the top of the rising channel that has guided prices higher since late October.

Silver       $18.87       +$0.37       +2.00%
As with gold, the key catalyst for now is the rally in equity markets and the accompanying weakness in the US Dollar. Prices are testing major technical resistance above the upper boundary of a channel that had guided trading since mid-September en-route to the psychologically significant $19.00 level. A sustained break above that opens the door for a run at multi-decade highs below $21.35.

Oil Extends its Pull Back as Risk Aversion Looks to Close the Week

North American Commodity Update

Commodities – Energy

Oil Extends its Pull Back as Risk Aversion Looks to Close the Week

Crude Oil (WTI) -  $76.72  //  -$0.74 //  -0.96%

Crude extended the sharp reversal sparked yesterday; but the follow through into Friday’s close was far more tempered. This is consistent with the bigger pattern of price action for the past five weeks. A very measured, descending trend channel from the mid-October test of $82/barrel is tempering the commodity and is consequentially anchoring it from driving breakouts that run errant of the general stability in underlying risk appetite. For contrast, the US dollar (the primary valuation tool of crude) has pushed itself into congestion just off its 15-month lows. For speculators, today was the December NYMEX crude contract’s last trading day, which likely contributed to the negative price action. Another view on traders interest in the market, the Commitment of Traders report for the week ending November 17th reported net long positions fell 2 percent to 86,348 – not surprising giving the broad congestion. Commercial (a group that includes refiners) positioning rose 1 percent to a net short holding of 112,612 contracts.

For supply-and-demand fundamentals, the ECB announced further measures to tighten policy by raising collateral standards on Asset-Backed Securities backed loans. The central bank said that these securities would only be accepted with two external credit ratings. This is a modest step, but taken with the expiration of unlimited 12-month loans (as well as similar efforts that have been made by other policy authorities the world over); it is a clear trend towards removing stimulus from the market. On a different tack, the Finance Ministry of Germany (Europe’s largest economy) said fourth quarter growth would likely slow from the third quarter. Looking ahead to next week, we will see a number of key macro readings that will weigh on demand expectations. Second round 3Q GDP numbers from the US, UK and German will offer detail on headline figures. Supply-side concerns will be fed by the DoE’s inventory figures. With US refineries in the Gulf of Mexico coming back on line this past week after Hurricane Ida passed, a rebound in stockpiles would naturally be expected.

Commodities – Metals

Gold Rallies into the Weekend to Mark a New Record High Close

Spot Gold  -  $1,151.10  //  $6.50  // 0.57%

A slow recovery in the second half of the US equities session helped leverage a late-day rally for spot gold. While the metal wouldn’t overtake its record, intraday high set this past Wednesday; it would nonetheless mark the highest close on record. The disparity in strength between these two sentiment-based markets (gold produced far more meaningful gains and to record highs) highlights a unique level of demand for the commodity. Activity in the futures markets backs an increased interest in gold. Volume on the active December contract has steadily risen in recent weeks and aggregate open interest is at its highest level since January 2008. This strength is born from multiple uses for the global financial market. As a return-based asset, tempered risk appetite may be working to stall spot’s advance, but its appeal as a safe haven, an inflation hedge and diversification asset all act as a backstop. On the other hand, the COT data for this week was not as convincing. The net speculative position fell one percent to a long 235,697-contract holding. Commercial interest fell 1,238 to a net 281,546 short position.

Spot Silver  -  $18.56  //  $0.03  //  0.16%

Silver traded through another session of high volatility without direction. A fourth session of little day to day movement but a wide range is indicative of a balanced market that will not be able to maintain its equilibrium for long. Risk appetite was offer little help in establishing a direction considering many of the benchmark gauges for the speculative markets were either little moved or in the red. As for the positioning data, the CFTC’s commitment report revealed the speculative, net long positioning rose 6.7 percent to 40,480 contracts – an interest comparison to the gold which reported a drop in bullish interest but a much more impressive drive to new highs.

Discuss gold and oil trading with other traders in the DailyFX Forum

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

European Markets Pare Gains Following Trichet Comments

Europe Session Key Developments

•    Dollar Strength Sends Commodities Lower
•    Central Bank News Afflicts Sentiment

European markets closed lower as comments by ECB President Trichet roiled sentiment. Investors remain cautious on the financial sector as future reforms may limit banks’ profitability. Initially, markets traded higher by approximately one percent with little news guiding the action as liquidity simply flooded in following declines since Tuesday. Ultimately, concerning news of tightening in monetary stimulus, and an ECB decision to tighten collateral against loans, led to selling pressure. Also affecting markets, specifically the FTSE100 and housing, is concern that recent price run-ups are nothing more than temporary response to low supply, with prices expected to fall in the year ahead. Ultimately, equities appeared poised for a strong showing this week following a significant rally on Monday. Since then however, stocks traded mixed prior to declines in the past two days to pare the advance. This may be telling of a top in place for markets, although the pace of advance makes a temporary consolidation seem almost necessary as investors remain clouded in their confidence. Overall, central bank fueled liquidity and a weakening greenback have largely stirred much of the gains in commodities and equities. As banks expect to begin pulling back on emergency lending and eventually raise rates, perhaps in early 2010, investors may hold a cautious stance on what has been an impressive rally in equities this year.

FTSE 100                      5,251.41                   -16.29               -0.31%
British stocks closed lower for a fourth day to end the week down nearly one percent. Largely affecting the move was a decline in commodities that sent miners and oil companies falling, while financial stocks moved lower by six-tenths of a percent as property stocks dropped. While malaise continues in the housing sector, and tighter capital controls for banks will start to be introduced, much of the selling may simply be due to the rapidity of the advance in recent weeks. Previous highs just above the current close may support the index, while any further upside in the US dollar could send commodities, and with it many of the firms trading in the UK, lower.

CAC 40                     3,729.36                  -30.86                 -0.82%
French stocks closed lower by nearly one percent as only three sectors gained while Financials tumbled 1.78%. Several firms with housing exposure saw declines of more than two percent including Societe Generale and lender Dexia. Overall losers today also included Stmicroelectronics, down 3.46% as technology stocks continue to drive lower. Overall the index has failed to set a new high since mid-October, and the weekly loss of 2.01% may mark further difficulties ahead.

DAX                         5,663.15                  -39.03              -0.68%
Similar to French stocks, German equities closed lower this week while failing to set a new high since mid-October. The key difference however is that weakness in the nation amounted to a drop of less than half of one percent while French firms suffer greater losses. Specific action today included losers outnumbering winners by a ratio of more than 2:1, while only two of nine sectors rose. Financials fell the most, down 1.55% on a 3.74% drop in Commerzbank and 2.71% move lower in Deutsche Bank as the ECB begins plans to implement tighter lending standards.

IBEX 35                     11,719.30                   -126.90                -1.07%
Spanish stocks closed lower this week by nearly one percent as nearly all sectors fell while Financials and Telecom dropped more than 1.3% each. Losers outnumbered winners by more than 3:1 while most of the decline can be attributed to greater than 1% losses for Banks Santander and Bilbao, along with Telefonica. Overall the index remains the best performer of the five majors, up more than 27% year-to-date, as the global recovery in the second half stands to benefit latin and south America significantly.

FTSE MIB                        22,511.68                    -311.54                  -1.37%
Italian equities fell the most on the session as the heavily-weighted financial sector took a large hit as the ECB prepares to tighten collateral requirements for lenders. The index fell sharply this week by 3.32% following failure to breach resistance at approximately 23,700. More than two-thirds of stocks closed lower, while phonebook publisher Seat Pagine fell the most at more than seven percent as the company reaffirmed its August projection for the full year. Larger firms affected the trade included declines of more than four percent in automaker Fiat and STMicroelectronics. Major banks also took a hit as UniCredit fell 0.63% while Intesa SanPaolo, Italy’s second-largest lender, dropped 1.93%. Concern in financials remains high and further difficulties will weigh heavier on the FTSE MIB than other European indices.

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

Asian Stocks Tumble to Mark Biggest Losing Streak Since July; BoJ Maintains Cautious Outlook

Asia Session Key Developments

• Bank of Japan Holds Key Rate at 0.10%
• Hong Kong’s Consumer Prices Advance at the Fastest Pace in 9 Months
• Deputy Prime Minister Naoto Kan Sees Risk for Deflation
  

The Asian equities market tumbled lower on Friday for the fourth consecutive day to post the longest losing streak since July, with S&P/ASX 200 shedding 1.33% to lead the decline. The global economic docket showed consumer prices in Hong Kong advanced at the fastest pace in 9 months, with the index climbing at an annual pace of 2.2% in October, while Japanese convenience store sales tumbled 5.5% from a year earlier. Meanwhile, the Bank of Japan held the benchmark interest rate at 0.10% and said that the “economy is picking up mainly due to various policy measures taken at home and abroad,” but noted that the recovery remained weak as households continue to face a weakening labor market paired with lower wage growth. At the same time, a report by the Cabinet Office showed GDP grew at an annualized pace of 4.8% during the last quarter, while prices excluding imports marked the biggest decline in 51 years, with Deputy Prime Minister Naoto Kan said that the economy “is in a mild deflationary phase.”

Nikkei 225                          9,497.68

The Japanese equity markets traded lower for a fourth successive day, with the Nikkei 225 shedding 51.79 points (0.54%) to end the trade at 9,497.68. Consumer Services slumped 1.79% to lead the decline, followed by a 1.26% loss in oil & gas, while financial climbed 1.07% to taper the decline. Shares of T&D Holdings soared 5.73% to mark its largest gain in 6 weeks subsequent to announcing that its first-half profit quadrupled from a year ago, while Japanese Airlines slumped 3.06% as the Jiji Press reported the firm will apply for a government loan over the following week. At the same time, Mitsubishi Rayon Corporation advanced 4.84% after Mitsubishi Chemical Holdings, which gained 9.18% on the day, offered to buy Mitsubishi Rayon for 380 yen a share, while Showa Denko K.K. added 3.40% as the firm will begin to supply liquid electrolyte materials used in car lithium-ion batteries.

Hang Seng                        22,643.16

Hong Kong shares closed lower on Friday, leading the benchmark equity index to shed 187.32 points (0.83%) and end the trade at 22,455.84 as 8 of the 9 components declined on the day. Shares of China Petroleum & Chemical tumbled 2.34% as China Finance Information reported that China will not raise natural gas prices this year, while Cathay Pacific Airways, Asia’s third-most valuable airline fell 1.89% as COO John Slosar said a gauge of average airfares have fallen roughly 20% as competitors continued to slash prices to revive demands. Meanwhile, Industrial & Commercial Bank of China slid 1.46% as the Shanghai Securities News said the central bank may look to increase reserve requirements for banks as financial conditions improve, with PetroChina shedding 1.19% on the back of lower commodity prices.

S&P/ASX 200 Index           4,685.80

Stocks in Australia pared the two day advance, leading the S&P/ASX 200 to tumble 63.40 points (1.33%) and close at 4, 685.80, with all 10 components pushing lower on the day. Shares of BHP Billiton, the world’s largest mining company fell 2.01% as copper prices declined the most in two weeks in New York amid a rise in the U.S. Dollar, while Insurance Australia Group dived 6.89% after having its stock rating downgraded to “underperform” from “neutral” by Macquarie Research. Meanwhile, Virgin Blue Holdings slumped 2.78% as the Australian Financial Review said the firm is actively looking to replace CEO Brett Godfrey, with Woodside Petroleum loosing 2.81% as crude oil has traded lower for the first time in four days.

Notable Asian Session Event Risk / Economic Releases

Dow Trades Heavy After Finding Trendline 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.  Notice the broadening formation since August.  Broadening patterns almost always signal tops (called ending diagonals in Elliott terminology).  Levels to watch for resistance are 10365 and 10495 (100% extension).

The Dow has been slowed by trendline resistance as we have started to see the current upward trending channel begin to widen. We could see a retrace back toward the lower bound before an ultimate test of resistance at 10,581-61.8% Fibo of 13,136-6,469.

The S&P is in a similar situation to the Dow.  The count from the March low is the same but the recent surge that propelled the Dow to a new high has yet to do the same for the S&P.  A broadening formation from the August low is evident here as well, which again does warn of a top.  A new high exposes 1110.30 (top of gap from October 2008 in December contract), then 1134 and 1159 (100% extension) in the index.

The S&P 500 slowed ahead of resistance at 1,120- 50.0% Fibo of 1,576- 666 opening the door for a test of trendline support near 1,060. We saw bearish momentum slow at the longer-term trendline at 1,090 which could lend support as well. A Break above the Fibo level exposes 1,150.

The NASDAQ pattern is the same as the S&P pattern in that the index has yet to make a new high.  The more volatile index also broke a support line and dropped below its October low (red line) – something that the other indexes failed to do.  Clearly, the technical situation for bulls is deteriorating.  A new high would expose 2341 (100% extension).

The NASDAQ has started to trade lower after finding resistance at former trendline support opening the door for a test of trendline support near 2,100.

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