November 2009

U.S. Equities Advance to 13-Month High After Mixed Session

U.S. Session Key Developments

•    Wal-Mart and Exxon Shares Gain As Buffett Buys
•    Commodities Slighter Higher Despite Dollar Strength

U.S. equities managed to shake off a poor showing in Asian and European equities as the Dow and S&P closed at thirteen-month highs.  This was a third consecutive gain for U.S. stocks as increasing commodity prices helped boost commodity producers and offset weak economic data.  Industrial production gained 0.1 percent, less than 0.4% expected and 0.6% the month prior, while the NAHB Housing Market Index failed to rise above 17 as expected.  This data drove down U.S. equities early in the day, but Fed comments that reiterated low rates for an extended period helped drive stocks back into positive territory.  Rising commodity prices also helped spur the rally as Freeport-McMoRan Copper & Gold Inc. added 1 percent to $85.36 as copper rose on speculation that demand will remain robust in China.  Commodities rallied nearly 1 percent as a group on the S&P as prices rose despite dollar strength- a positive sign for demand going forward.  Wal-Mart Stores and Exxon Mobil gained at least 0.8 percent each after Warren Buffett disclosed buying their shares, giving Berkshire Hathaway stakes in 11 of the Dow’s 30 companies.  Overall, the S&P 500 is still 13 percent away from its level on September 12, 2008- the last trading session before Lehman Brothers filed for bankruptcy.

DJIA 30                      10,437.42                   +30.46               +0.29%
The Dow rallied to a 13-month high as investors continue to pour money into dollar-denominated stocks and commodities.  Each Dow sector gained on the session with the exception of consumer services which shed 0.5 percent.  Home Depot was the laggard of this group, falling 3.5 percent after it announced forecasted earnings that were lower than expectations.  Leading the Dow’s upward charge was the Basic Materials sector as Alcoa and Du Pont each gained over 1 percent on the session.

S&P 500                          1,110.32                   +1.02                 +0.09%
The broader S&P500 index closed slightly higher, led by nearly a 1 percent gain from producers of raw materials.  Massey Energy led the sector with over a 5 percent gain, while Alcoa and the US Steel Corp posted significant gains on speculation that demand for metals will remain strong going forward.  Telecommunications stocks were the second-best performer of the index, led by Sprint which added 5.7 percent after it said yesterday that it paid off $1 billion of debt to clean up its balance sheet.

NASDAQ                        2,203.78                    +5.93             +0.27%
The tech-heavy NASDAQ closed higher as technology stocks on a whole gained just over 0.5 percent.  DirecTV gained over 2 percent on the session, while Microsoft and Qualcomm added over a percent each.

Written by James Russell, CFD Trading Research

Oil Rally Stalls ahead of Inventory Numbers at the Border of a Prominent Trend Channel

North American Commodity Update

Commodities – Energy

Oil Rally Stalls ahead of Inventory Numbers at the Border of a Prominent Trend Channel

Crude Oil (WTI) -  $79.15  //  $0.25 //  0.33%

Following up on yesterday’s aggressive rally, crude would carve a comparatively tight range Tuesday and ultimately stumble in its budding effort to revive a clear bull trend. Finding stability in general risk appetite played more than a small role in reining the commodities rally hopes in.  Investors’ convictions have dried up from yesterday without speculative forces further fueled by strong macro indicators (like Japanese GDP and US retail sales proffered yesterday). However, the market’s bias is still clearly pointing North over the long-term. Sentiment can feed the push to new highs for gold and equities; but crude (like the dollar) may prove more difficult to push to the next leg of its primary trend for the year. The fundamental resistance to this rally has proven itself a meaningful equalizer to risk-derived trends. Feeding the supply/demand debate, the few announcements to cross the wires this morning would offer a mixed view of the glut still burdening the market. Nigerian Oil Minister Rilwanu Lukman was reported to say that the current price of crude was “not bad” and he suspected OPEC wouldn’t “tamper too much” with production numbers. For his own country, Lukman said he expected Nigeria would make up for lost production over the next 6 to 12 months. Another member of OPEC, Iraq, released its own production numbers for the month of November. From September output dropped 10 percent to 2.25 million barrels and 6.3 percent from the same period a year ago.

Looking ahead to the coming 24 hours, the energy block will have a more distinct bead on fundamental activity with inventory numbers. This afternoon, the industry-based American Petroleum Institute (API) will release its weekly change in stockpiles for crude, gasoline and distillate fuels. There is little consensus for this group’s round of numbers; but last week’s figures offered a 1.217 million barrel increase in oil and 1.403 million increase in gas that undershot the more market-moving Department of Energy numbers. Wednesday’s DoE figures for the period ending November 13th are expected predicted to show a significant moderation in inventory growth – helped partially by Hurricane Ida which idled an estimated 43 percent of production in the Gulf of Mexico on the 10th as the storm made landfall. The Bloomberg consensus is calling for a 505,000-barrel increase in crude stores (after the previous week’s 1.762 million barrel increase), a 50,000-barrel drop in gasoline, and 800,000-barrel contraction in distillate fuels.

Commodities – Metals

The Rally behind Gold and Silver is Tempered but the Bullish Trend Remains

Spot Gold  -  $1,393.80  //  $0.60  //  0.05%

Gold’s record-breaking rally at the open of the week was stalled by a wave of market-wide profit taking today which, for the metal, was further facilitated by the dollar’s subsequent rebound. Maintaining the bullish trend on this commodity and other high-yielding assets is growing progressively more difficult. A steady stream of capital bidding into gold will have to come from somewhere; but the options are limited. Speculative interest has been among the most prolific; but investors are becoming more selective in their positions as market momentum slows and considering there is no yield income to be had from gold specifically. Central bank demand is considered by speculators to be the next potential driver for gold (a conclusion given credibility after the Indian central bank’s deal with the IMF). However, using an asset frequented by speculators and prone to substantial volatility has limited appeal for diversifying reserves. On the other time,  supply seems to be slowly filling the gap with demand. South Africa, one of the world’s largest producers of gold, reported production of the precious metal fell 2.9 percent year-over-year through the third quarter to 1.74 million ounces.

Spot Silver  -  $18.41  //  $0.02  //  0.11%

Silver clawed its way back from a steady descent through the first half of the day (spot was down as much as 1.7 percent at one point). Inevitably, the commodity ended the day slightly in the green on the day to establish a new 16-month high. This rebound would come with the moderation in the retracement of yesterday’s sharp advance in risk appetite. However, in comparison, few other securities (equities, the US dollar, etc) reported as significant a revival in bullish interest as this particular metal. Looking at underlying interest, aggregate open interest is still hovering near its highest levels since July of 2008 and the five-week average of volume on the active futures contract continues to rise towards its highest levels in over 14 months.

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

Stocks in Asia/Pacific Retreat on Global Growth Concerns, RBA Limits Scope for Another Rate Hike

Asia Session Key Developments

• Japan 3Q Home Loans Expand at Faster Pace
• Reserve Bank of Australia Holds Neutral Outlook for Policy
• Hong Kong Unemployment Rate Weakens for Second Month

The Asian stock market pushed lower on Tuesday as Fed Chairman Ben Bernanke held a cautious outlook for global growth, while Japan’s Finance Minister Hirohisa Fujii said that the world’s second largest economy remains in a severe state as job losses intensify. Meanwhile, housing loans in Japan increased at an annual rate of 0.8% in the third quarter after rising 0.4% during the previous three-month period, while service-based activity unexpectedly weakened in September, with the Tertiary index slipping 0.5% after rising 0.3% in August. At the same time, the Reserve Bank of Australia meeting minutes said the outlook for future policy remains an “open question” and said that board members “were conscious of balancing risks” as  the $1T skirts the global recession. Moreover, the central bank said that “business and consumer confidence could prove fragile” as the government stimulus begins to taper off, and went onto say that the appreciation in the Australian dollar is likely to “constrain output and dampen inflationary pressure” as global trade conditions remain far from favorable.

Nikkei 225                          9,729.93

The Japanese equity market traded lower on Tuesday, with the Nikkei 225 shedding 61.25 points (0.63%) to end the day at 9,729.93. Telecommunications plunged 2.88% to lead the decline, followed by a 1.39% loss in basic materials, while utilities advanced 1.15% to taper the fall. Shares of Canon climbed 2.97% as the company agreed to buy Oce NV for 730 million euros in cash to expand its printer operations and help the company expand market share, while Konica Minolta tumbled 5.32% as Mizuho Securities lowered its rating on the stock to ‘neutral’ from ‘outperform.’ At the same time, Fuji Heavy Industries advanced 2.02% as auto sales increased 10% during January to October from the previous year, while NEC shed 3.69% as the firm plans to sell new shares at a 3-5% discount from the current market price.

Hang Seng                        22,914.15

Hong Kong shares closed lower on Tuesday even as the unemployment rate fell for a second consecutive month in October, leading the benchmark equity index to fall 29.83 points (0.13%) and end the trade at 22,914.15 as 6 of its 9 components declined on the day. Shares of HSBC Holdings, Europe’s largest bank by market value, climbed 0.93% as the bank plans to hire 200 people in Hong Kong for its credit-care, mortgages, insurance and phone-banking operation, while Hong Kong Electric Holdings shed 0.71% as the firm, along with its affiliate Cheung Kong Infrastructure, plans to raise its stake in U.K’s Northern Gas. Meanwhile, Citic Pacific Limited pushed 0.45% higher as HSBC announced a new target price of HK$22.50/share, while Sino Land shed 2.90% as the U.S. Federal Reserve held a cautious outlook for the global recovery.

S&P/ASX 200 Index           4,729.40

Stocks in Australia tumbled on Tuesday on the back of lower commodity prices, leading the S&P/ASX 200 to fall 25.80 points (0.54%) and close at 4,729.40, with 6 of the 10 components trading lower. Shares of Paladin Energy climbed 2.79% as Cameco Corporation, which plans to double its annual uranium consumption, will consider acquiring mining assets and creating joint ventures with customers in Asia, while AXA Asia Pacific Holdings plummeted 2.50% as AMP CEO Craig Dunn saw little prospects for a higher bid to take over the firm.  Meanwhile, Platinum Asset Management dived 2.62% as global equities tumbled overnight, while BHP Billiton and Rio Tinto advanced 1.00% and 0.71% respectively as copper prices jumped to a 13-month high during the New York trade.

Notable Asian Session Event Risk / Economic Releases

Dow Breaks Above Resistance But Is A Top Nearing?

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 broke above resistance at 10,326 the 50.0% Fibo retracement of the 14,198-6,469 decline, which leaves upside potential to 11,000. The next level of resistance is 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 broke above psychological resistance at 1,100 leaving 1,120- 50.0% Fibo of 1,576- 666 as the next barrier.

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 set a fresh yearly high breaking above resistance at former trendline support. Given the fact that the Dow and S&P 500 have pushed through their resistance levels we could see the tech laden look to test Fibo resistance ahead.  If weakness returns then look for a test of trendline support near 2,100.

Oil Surges Through Monday’s Session as Risk Appetite, Macro Data Spark Buying

North American Commodity Update

Commodities – Energy

Oil Surges through Monday’s Session as Risk Appetite, Macro Data Spark Buying

Crude Oil (WTI) – $78.80  //  $2.45  //  3.21%

Under most circumstances, fundamentals are just not influential enough to trounce speculative interests when it comes to crude (or most other markets for that matter). Despite closing at a fresh monthly low this past Friday, bulls would quickly recover through Monday’s session on a strong macro data while further exercising its appeal as a trader’s instrument. While there were a few drivers that could be highlighted for driving crude higher through the day; the most influential factor was the taste for risk that evolved as we moved from one session to the next. Equities were off to a mixed start in the Asian session; but by the active European trading hours, momentum was building behind the bullish crowd. The broader commodity complex followed a similar direction; but the pace was arguably far more aggressive for the physical goods. Adding to the mix, suffering for its role as a safe haven, a weak US dollar would further bolster the value of crude. The 20-day moving average (one month) for aggregate open interest has been eased since the market peaked last month around $82.

For more rudimentary, fundamental factors; there was finally a round of news that would look to counteract the pervasive bearish pressure measured in bloated inventories. The growth outlook for both the US and Japan (the world’s first and second largest economies) was brightened by key indicators released in the morning sessions of their respective market hours. The Cabinet Office reported 4.8 percent annualized growth through the second quarter – far outpacing the 2.9 percent pace economists had expected. Carrying less weight, but nonetheless a notable driver in itself, the US Commerce Department reported retail sales for the month of October grew a greater-than-expected 1.4 percent (though there are questions as to how much of this strength can be attributed to discretionary spending). Switching from demand to supply side fundamentals, OPEC President Jose Botelho de Vasconcelos said the oligarchy was still debating production levels for its December meeting. He said that the range of $75 to $80 was “a good price” and the economy could “recovery” at that level. However, more pressing for production projections, he went on to suggest that the available inventory in the market would last for 62 days – much higher than the 52 to 53 days that he would consider normal.

Commodities – Metals

Gold Surges to a Record High as Speculative Interests Move on Momentum, Dollar and Inflation Hedge

Spot Gold – $1,138.40   //  $19.70  //   1.76%

While the dollar was edging into 15-month lows and equities were climbing to new highs yearly highs; gold was the indisputable leader for the day. Despite pushing record highs, the commodity would still produce its sharpest rally (on a net basis) since November 3rd and one of the most impressive days this year. There was little doubt that this strength found its roots in speculation. As a key alternative for the greenback outside of the FX market, the commodity has proven itself a high-profile destination for a market that is growing more comfortable with risk and demanding for return. The better-than-expected US consumer spending report released in the early US session further leveraged its role as an inflation hedge. The iShares TIPS fund jumped to a 14-month high 105.40. Neither of these bullish facets could carry the metal without the full support of speculative interests however. Momentum is helping to fuel the market’s run to untested highs. The 20-day average of aggregate volume on the active NYMEX contract rose to a 13-month high of 160,000 contracts while the same average for open interest hit a 21-month high 508,000 contracts. In response to today’s sharp rally, the CBOE Gold volatility index jumped 2.5 percentage points to 24.55 percent.

Spot Silver – $18.34  //   $0.91  //  5.19%

Where gold found considerable strength in yet another push to record highs; spot silver would produce a far more impressive advance that was charged with breaking a month worth of congestion. Clearing the closely watched $18.00/10 level in an astounding five-plus percent rally, the commodity is now testing prices not seen since mid-July of last year. Perhaps degrading the significant price movement today however, the London Bullion Market Association reported silver trades dropped 11 percent to a daily average of 101.1 million ounces through October. Considering the highs it is currently pushing, turnover will likely be heavier through November.

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

Stocks Start Week Stronger on Global Optimism While US Sales Rise

U.S. Session Key Developments

•    Asia/Europe Contributes to Risk Appetite
•    Commodities Higher as Dollar Falls

US equities closed off session highs but still managed moves of more than one percent as global risk appetite spread from Asia and Europe with follow through in the US as advance retail sales rose more than expected. Early on, dollar weakness played into the trading theme with commodities rising as members of the Asia Pacific Economic Cooperation group pledged to maintain stimulus, while Japanese GDP grew faster than expected in the third quarter. Further boosting sentiment were US sales at 8:30am, which helped to limit potential fallout from a lower reading in empire manufacturing for the New York region. Other factors on the day included automaker General Motors reporting a $1.15B loss while citing improvements and making plans to begin repaying government loans starting in December. As the day dragged on, investors cautiously braced for a speech by Fed Chairman Bernanke at the Economic Club of New York. The FOMC head gave no subtle hint of change in policy action for the near-term, while continuing to re-iterate loose monetary policy for an “extended period.” Meanwhile, comments by Dallas Fed President Richard Fisher included a warning that GDP in Q3 may see a lower revision. Ultimately, stocks showed little reaction to either Fed speech as gains held firm for much of the day. A small sell-off occurred in the final hour, but stocks managed to hang on to new highs for the year. Looking at the overall situation, it seems dollar weakness continues to play a major role in market movements, as US competitiveness increases and higher commodities benefit raw material producers. Also of note, towards the close of trading, investors heard from Meredith Whitney on CNBC, who spoke stoically on her bearish tone on financials and markets as a whole. While her views have often seen considerable reaction from traders in recent months, the comments today appeared to be dismissed with skepticism. So long as the Federal Reserve continues to maintain its dovish tone on monetary policy, despite purportedly claiming to favor a strong dollar, further weakness appears imminent for the greenback and consequently equity gains could continue forward.

DJIA 30                      10,406.96                   +136.49               +1.33%
The Dow rallied to a fresh high following a gain of more than one percent to take its year-to-date advance to 18.58%. The index saw gains across all sectors with Basic Materials and Industrials up more than two percent. Aluminum producer Alcoa advanced more than three percent as metals climbed, while Boeing led industrial firms as the plane maker expects the first flight of its heavily-delayed 787 “Dreamliner” by the end of 2009.

S&P 500                    1,109.30                   +15.82                 +1.45%
The broader S&P500 index closed higher with the best gain of the five majors as all sectors advanced along with more than 90% of stocks. Basic Materials and Oil & Gas led the session, up more than two percent as commodity priced raced higher on dollar weakness. Major firms moving the index included greater than two percent gains in Exxon Mobil and General Electric.

NASDAQ                         2,197.85                    +29.97             +1.38%
The tech-heavy NASDAQ closed higher with a considerable gain to extend its year-to-date performance to nearly 40%. The index saw gains in nearly three-fourths of stocks while a small 1.07% rise in Technology led the index point advance. Major firms leading the advance included Oracle and Intel, both up more than two percent, while seven of the ten largest firms posted gains.

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

European Markets Rally Higher as Global Risk Appetite Continues

Europe Session Key Developments

•    Commodities Rally on Asian News; Dollar Weakness
•    Low Inflation Keeps Rate Speculation Subdued

Following Friday’s volatile session, European stocks raced higher with renewed vigor following developments in Asia and dollar weakness as risk appetite surged. Commodities rallied in response with gold trading at a fresh high above $1130 per ounce while oil climbed more than three percent off a one month low. News in Asia set the tone of trading as the Asia-Pacific Economic Cooperation followed the G20 is stating its intent to keep stimulus is place until recovery is assured. Also adding to optimism was a GDP report in Japan that showed third-quarter growth at the fastest pace since Q1 2004. Indicators closer to home had minimal effect as England’s Rightmove house price index posted a decline in November, while Euro-Zone CPI indicated inflation remains of minimal threat to policymakers. Ultimately, the atmosphere for trading remains a bright one and markets are likely to continue to rise should dollar weakness continue and indicators at least post some degree of improvement. While expectations for the following year are rising significant, traders will have to gauge in the months ahead how well the market takes over when central bankers start to pare back on emergency actions.

FTSE 100                      5,382.67                   +86.29               +1.63%
British stocks extended their recent drive to a fresh high as the index now remains up more than 21% year-to-date. The move today is the largest since mid-October and marks a clear break higher from a recent resistance at approximately 5,300. Leading the move today was the Basic Materials sector, up nearly five percent on strength in commodities. As the FTSE has a large proportion of raw material producers, further dollar weakness appears set to help the index outperform relative to other European indices.

CAC 40                     3,863.16                  +57.15                 +1.50%
Stocks in France closed near the highs of the day as gains were noted across nearly all sectors. Leading the move was a 3.08% rise in Basic Materials with steelmaker ArcelorMittal up more than four percent as commodities moved higher. Ultimately 39 of 40 companies saw their shares rise, as risk appetite spread across all equities. While the index remains below its recent October top at 3892.36, momentum seems to indicate that could change in the coming days.

DAX                         5,804.82                  +117.99              +2.07%
German stocks moved sharply higher to lead European markets with a gain of more than two percent. Overall the index remains in line with those of France and the UK, up more than 20% year-to-date while having not reached a new high yet. Improving trade bodes well for Germany, and is evident in the Baltic Dry Index, a measure of shipping costs for commodities, having nearly doubled since a recent bottom in late-September. Major movers today included steelmaker ThyssenKrupp, up 4.45% as it sells its Safeway scaffolding unit. Other leaders included automakers Daimler and BMW, up 4.4% and 3.36% respectively.

IBEX 35                     11,986.90                   +119.90                +1.01%
Spanish stocks climbed the least of the five majors as the low weighted Basic Materials sector rose in-line with others in Europe up more than three percent. Ultimately, the index closed today at a new 2009 high, having briefly touched above the 12,000 level for the first time since August 2008. The IBEX35 remains the leader among the five majors, with a year-to-date gain of more than thirty percent.

FTSE MIB                        23,620.44                    +336.24                  +1.44%
Italian stocks rose more than one percent with gains across most firms as the index rose to the highest level since mid-October. Ultimately, recovery in the financial sector remains vital as stocks in the industry are the single largest component of the FTSE MIB. Overall, the index has narrowed its contraction to less than four percent from its October highs. The sharp rise today may indicate a further break higher to come, although it remains to be seen whether previous resistance at approximately 23,700 is broken quickly.

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

Dollar Continues to Weaken; Euro Threatening Highs….Again

Euro / US Dollar

Until the EURUSD trades below 1.4625, the uptrend remains intact (channel support).  A higher 5^th wave would probably finish in the 1.5280/1.5330 area (1.5280 is former support and 1.5330 is a measured objective).  Even if the decline from 1.5066 is not impulsive, I would still expect consolidation at lower levels in what is probably a triangle (see alternate labels).

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).  A support line drawn off of the 10/13 and 11/3 lows has held and bulls are in control with price above there.  1.6625/70 is potential support.

Australian Dollar / US Dollar

The next AUDUSD objective would be .9680 (where wave .v = wave .i).  This level intersects channel resistance on November 25.  .9275/.9305 is potential short term support.

New Zealand Dollar / US Dollar

NZDUSD price pattern is bearish against .7640.  The decline from .7640 is impulsive and the rally from under .7100 is unfolding as a correction with wave b as a triangle.  In the event of additional strength, .7500/20 is resistance.

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 is underway from 92.35.  That correction may be complete at the ‘panic low’ that occurred two Sunday evenings ago.  Still, the USDJPY has traded sideways since then so one must consider the possibility of a triangle since 89.17.  88.70 is potential support on a drop below 89.17.

US Dollar / Canadian Dollar

The USDCAD rally from 1.0200 is best counted as 3 waves unless one allows for a truncated 5^th wave.  The USDCAD turned up from just below the 61.8% of the advance from 1.0200.  Above 1.0600 would be bullish.

US Dollar / Swiss Franc

The USDCHF is in the exact same position as the EURUSD (just as the inverse).  The bullish count remains valid against the low (1.0030) (Friday morning spike would be a truncation).

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.

Dow Looking To Re-Test Fibo 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 is looking to re-test resistance at 10,326 the 50.0% Fibo retracement of the 14,198-6,543 decline, a second hold could lead to a retrace back toward support. 10,000 could be a level that holds as we see former congestion at the psychological level, but another test of the rising trendline can’t be ruled out. A break above exposes potential to 10,495.

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 remain held in check by psychological resistance at 1,100 which may signal pending weakness. The broader index appears poised for a retrace backed toward trendline support near 1,060. A move above may not get much further with the 50.0% Fibo level at 1,120 as the next barrier.

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 continues to find resistance at former trendline support and given the fact that the Dow and S&P 500 are at major resistance levels we could see the tech laden index also susceptible to a retracement.  If weakness returns then look for a test of trendline support near 2,100. A break higher leaves potential for a test of the yearly high of 2,190.

Asian Stocks Advance as Policy Makers See Improved Growth Prospects, Japan’s 3Q GDP Tops Forecast

Asia Session Key Developments

• Japan’s GDP Expands at the Fastest Pace in More Than Two Years
• BoJ Says Low Rates in U.S. Could Threaten the Global Recovery
• Gold Hits New Record High of $1,131.32

The Asian stock market pushed higher on Monday as policy makers pledged to maintain stimulus measure to support the recovery, China’s Ministry of Commerce held an improved outlook for future growth and expects household spending to become an “important engine” for growth going forward. Meanwhile, economic activity in Japan expanded 1.2% in the third quarter amid expectations for a 0.7% rise, with the annualized rate of growth increasing 4.8% from the previous year to mark the biggest increase since 2007, led by a 1.6% rise in capital spending. At the same time, Bank of Japan Governor Masaaki Shirakawa said that record-low interest rates in the U.S. could lead emerging economies to “overheat and experience financial turmoil” as the Fed pledges to maintain borrowing costs at 0.25% for an extended period of time, while the chairman of the China Banking Regulatory Commission said Liu Mingkang said the depreciation in the dollar could stoke “new, real and insurmountable risks to the recovery of the global economy” as it continues to inflate asset prices.

Nikkei 225                          9,791.18

The Japanese equity market traded higher on Monday, with the Nikkei 225 climbing 20.87 points (0.21%) to end the day at 9,791.18. Consumer Services pushed 3.31% higher to lead the advance, followed by a 1.24% gain in utilities, while oil & gas tumbled 1.98% to taper the rally. Shares of Mitsui Chemicals plunged 13.21% to mark its largest drop since October 2008 as the company stated that it will raise as much as 64.3 billion yen in a sale of new shares, while Marui Group rallied 6.92% as Nomura Holdings raised its rating on the firm to “neutral” from “reduce.” Meanwhile, Toshiba Corporation retreated 5.15% as the company plans to scale back production of flat-panel televisions amid falling prices, while Sumitomo Mitsui Financial Group tumbled 5.9% as second quarter profits failed to meet market expectations.

Hang Seng                        22,553.63

Hong Kong shares closed at a 15-month high, leading the benchmark equity index to climb 390.35 points (1.73%) and end the trade at 22,943.98 as 8 of its 9 components advanced on the day. Shares of Industrial & Commercial Bank of China, the nation’s biggest lender climbed 2.35% as Goldman Sachs raised its share-price forecast for the stock by 16%, while China Construction Bank gained 3.65% as Goldman increases the share-price estimate for the firm by 15%. Moreover, Petrochina added 1.31% amid rising commodity prices, while HSBC advanced 2.64% as the bank agreed to sell its headquarters in London to South Korea’s National Pension Service for $1.29B.

S&P/ASX 200 Index           4,755.20

Stocks in Australia advanced on Monday on the back of rising commodity prices, leading the S&P/ASX 200 to climb 48.80 points (1.04%) and close at 4,755.20, with 8 of the 10 components trading higher. Shares of BHP Billiton, the world’s largest mining company gained 2.79% as the Australian Financial Review said Canada’s First Quantum Minerals may bid for the firm’s Ravensthrope nickel operation in West Australia, while Newcrest Mining rallied 2.40% as gold prices advanced 1.1% amid speculation that the greenback would extend its decline. At the same time, AWB rose 3.25% as the company stated it has added 90 additional grain wagons to more than double its rail wagon fleet, while AXA Asia Pacific Holdings soared 3.99% as the Age newspaper reported the firm’s Asia unit may receive a higher takeover bid from AMP later this week after rejecting the initial offer.

Notable Asian Session Event Risk / Economic Releases

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