November 2009

Oil Finally Marks a Critical Break but Risk Aversion will have to Step up for a Bearish Trend

North American Commodity Update

Commodities – Energy

Oil Finally Marks a Critical Break but Risk Aversion will have to Step up for a Bearish Trend

Crude Oil (WTI) -  $76.35  //  -$0.59 //  -0.77%

Though it wasn’t the catalyst for a trend reversal that it could have been, oil looks to have marked a clean breakout from a near month-long wedge formation in Friday’s close below $76.75. The hesitancy on follow through is a reflection of two contrasting forces: supply-and-demand fundamentals that maintain the theoretical value of the commodity and speculative interests that actually set price. Saudi Arabia’s Oil Minister Ali al-Naimi alluded to this confliction in a speech he gave in the early Asian session. He said that volatility and price extremes are a consequence of a lack in regulation on commodity exchanges, which diminishes the role of fundamentals in price action. Measuring speculators interests, the CFTC reported open interest for crude from Index Funds (more often than not a vehicle for speculation). According to the report, interest grew to 464,000 contracts through the September 30th period from 430,000 in the second quarter and 448,000 in the first. The regular, weekly Commitment of Traders  report showed some level of moderation, however, showed some level of moderation from extremes. Net non-commercial interest fell back from its 20 month high for a second week by 15,772 contracts to 88,045. At the same time, net commercial positions ticked up for the first time in five weeks from its more than 2 year extreme short bearing.

Speculative interest in crude aligns itself closely to the underlying influence of broader risk appetite. Investor optimism has more or less stalled in the past few weeks and this is perhaps the only reason that this vital commodity has been able to developed a bearish bias (though it is mild). In the absence of a bid for capital gains, we are left with a massive overhang of excess supply that would likely drag futures prices much lower. On Thursday, The Department of Energy reported US crude inventories rose 1.762 million barrels to a level that is 7.5 percent above the average for the period. Today, the EIA reported natural gas inventories rose 25 billion cubic feet in the week through November 6th to its highest level on records (going back to 1993). For this energy product, inventories typically start to tumble starting the second or third week of November on season demand; so we whether demand can soak up the excess. Though considering the DoE’s data showing fuel consumption was at a June low and the unexpected drop in the US University of Michigan confidence gauge (a reasonably accurate measure of consumer spending); the bearish fundamental pressure will remain.

Commodities – Metals

A Rebound in Sentiment Offers an Amplified Reversal for Gold

Spot Gold  -  $1,116.70  //  $12.90  //  1.17%

An article in the Daily Telegraph published earlier this week quoted Barrick Gold (the world’s largest producer of the precious metal) President Aaron Regent as suggesting global production has been on the decline since the beginning of this decade. This is a long-term, bullish pressure for a commodity that is already running at record highs. However, the highs that gold has recently forged are almost solely the influence of speculation rather than any real supply/demand imbalance. The market received a boast through Friday’s session from a rebound in risk appetite that was measured in equities and currencies and which subsequently allowed the spot market to almost completely retrace its losses from the previous day. In the fray of today’s rally, aggregate volume and open interest on the active futures contract hit its highest level since October 15th. Offering some moderation to speculative interests, non-commercial interest according to COT edged back for a fourth consecutive week to 238,060 – though it is still very close to its recent record high. As for its anti-dollar and inflation hedge roles, the dollar was off significantly for the session and iShares TIPS fund ended the session relatively unchanged after a volatility session.

Spot Silver  -  $17.39  //  $0.17  //  0.99%

Silver tentatively broke range support early Friday; but the bullish pressure that built up through the US trading hours would help the commodity to close near its session highs. However, it is notable that despite the strong bullish updraft, both aggregate volume and open interest eased off from the previous few session. Here, we can see speculative interests are far more tempered than that of its dearer counterpart. Though non-commercial interest behind gold has fallen four consecutive weeks, they were very modest contractions. In contrast, the same group has seen its net long position drop 21 percent in the past three weeks (though the speculative specific filings actually rose to a 15-month high, net 20,792 long contract position).

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

Stocks End Week Higher amid Weakness in Greenback

U.S. Session Key Developments

•    Dollar Weakness Lifts Stocks
•    Lower Confidence Fails to Dent Markets

US equities close near session highs following weakness in the greenback and commodities, while event releases provided mixed signals for the future. Early in the morning, data on trade showed a larger deficit as imports surged 5.8% while exports improved nearly three percent. The figure shows a recovery in demand, while much of that included a pickup in oil demand. Imports of crude rose by nearly one million barrels per day, accounting for more than $2B increase to the deficit. Also on the docket was the University of Michigan Confidence. The index was expected to see little change to the upside, but surprised lower to 66.0 from 70.6 in the initial November reading. Clearly investors saw little impact in such fundamentals while earnings data also should not have provided much incentive either. Retailer J.C. Penny reported a large 78% drop in third-quarter earnings as well as issuing sales guidance for a larger-than-expected decline in revenue. Another retailer, Abercrombie & Fitch, meanwhile reported better earnings than analysts were looking for, while sales dropped 22%. Ultimately, dollar weakness fueled today’s move as the greenback gave up gains across all majors, including more than one percent declines on the New Zealand and Australian currencies. Further depreciation would fuel further upside in stocks as US multi-national firms become more competitive with foreign rivals. At the same time, the dollar correlation to equities remains a considerable risk factor and upcoming events including a speech by Fed Chairman Bernanke, and the release of advance retail sales, could define the near-term move.

DJIA 30                      10,270.47                   +73.00               +0.72%
The Dow closed higher by nearly three-quarters of a percent while remaining below the 2009 high set on Wednesday. The index has now closed up for the second week in a row while the year-to-date gain improved to more than 17% on the back of strength across nearly all sectors. Ultimately most stocks saw minor gains while Disney led, up 4.78% following strong earnings.

S&P 500                    1093.48                   +6.24                 +0.57%
Similarly to the Dow, the broader S&P500 index closed higher by more than half-of-one percent with gains in all sectors except for Telecom and Financials. Weakness in the sector was led by banks, including losses in the five largest banks that ranged as high as 1.91% shed on Wells Fargo.

NASDAQ                         2,167.88                    +18.86             +0.88%
The tech-heavy NASDAQ closed higher by nearly one percent to outperform its peers as all sectors advanced along with more than 64% of the 2777 stocks tracked. Of the 15 largest firms on the composite, only one closed lower as optimism spread throughout equities. Leading the index point move was a minor 0.92% gain in Microsoft and a similar 1.22% rise in Apple shares.

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

European Stocks Edge Higher Following Volatile Session

Europe Session Key Developments

• Commodities Lower amid Greenback Decline
• Growth and Earnings Improve

European stocks closed slightly higher following a volatile session as commodities moved lower while fundamental data failed to meet analyst estimates. The main driver on the session was expected to be the third-quarter GDP results for the Euro-Zone, which posted slightly below expectations. Ultimately other drivers carried the trade as commodities moved lower while earnings results from major firms failed to solidify sentiment in one direction or another. While equity markets closed up two to four percent this week, the bulk of the move came early in the week while cautious optimism lingered in recent sessions. Today proved no different as traders gauge whether new highs will be set in the near-term. Activity in the US showed a clear breakout to new highs, but that move has also pared back slightly as concerns remain a factor. Data on confidence in the world’s largest economy echoed that notion as consumers felt less sure of the outlook on growth, an outcome that may hinder recovery in sales. Overall, markets have seen considerable gains since the start of November and sidelined liquidity may have indeed filled the void created by the late October sell-off. At the same time, caution should be high as equities remain off recent peaks, while further cracks in confidence and other measures could bode poorly for the months ahead. As central banks begin to pull back on emergency actions, including the ECB’s planned final loan auction in December, it will be important to see whether the market fills the gap on its own and whether lending growth will resume.

FTSE 100              5,296.38          +19.88                 +0.38%
British stocks ended the session higher by more than three-tenths of a percent as caution continued with minimal moves for the sector and most stocks. Only the Utilities sector gained more than one percent. Liberty International rose the most at nearly four percent followed by British Land up 2.79% following a report that showed commercial property recovering at a fast pace in the past month. Most stocks rose while over a third of the 102 member index declined. Ultimately the index has gained in seven of the past eight sessions of trading but has shown considerable volatility in recent days following a large rise on Monday. While the FTSE has closed at a fresh high for the year, it remains below recent intra-day highs.

CAC 40                3,806.01               -2.06                  -0.05%
Stocks in France closed lower with Oil & Gas leading with a drop of 1.86% while only Consumer Services posted a gain of more than one percentage point. Ultimately leaving the mood sour were third-quarter GDP figures which showed slight growth in the quarter at half of what analysts had expected. Despite this, the economy did in fact continue to grow, and economic recovery bodes well for improving weakness in trade. The CAC40 has rallied more than seven percent off its recent bottom, but failure to set a new high leaves investors uneasy.

DAX                       5,686.83              +22.87               +0.40%
German equities rose the most of the five majors as nearly all sectors advanced, with the exception of utilities, as German GDP rose in the third quarter by seven-tenths of a percent. While the figure proved slightly lower than analyst estimates, the economy is starting to recover and recent revisions to growth projections as trade increases will likely to continue benefiting multi-national firms. Most stocks posted small gains with only one firm rising more than two percent while Commerzbank and Volkswagen fell the most at 2.58% and 1.85% respectively

IBEX 35                  11,867.00            +32.50                 +0.27%
Spanish stocks climbed more than a quarter of a percent as seven of nine sectors advanced while gains proved limited to moves of just over two percent in either direction. Ultimately more than 60% of the 35 stocks tracked posted in the green while the index closed at its highest in weeks, despite not establishing a new intra-day high. Spain’s economy contracted 0.3% in the third quarter, while neighboring Italy, Germany and France all posted growth. While this should translate into apparent weakness in the region, stock prices remain strong as many of the nation’s top firms depend on revenue in Latin America and across the Atlantic.

FTSE MIB               23,284.20              +74.73               +0.32%
Italian stocks closed higher amid growth in the Italian economy for the first time in six quarters. Ultimately, the heavily financial weighted index has rallied to close nearly seven percent above its recent lows. At the same time, the intra-day high set on Wednesday at just below 23,400 marks the key 61.8% retracement of the drop in October. Overall, traders remain concerned whether economic recovery will continue with the rapidity seen in the third quarter as government efforts to aid in growth are starting to stall out. Spending remains weak while job losses continue to mount, adding to lending pressure.

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

British Pound Holding Support Line

Euro / US Dollar

The bearish count remains on track and the next supports are 1.4775 and 1.4735.  Until the EURUSD trades below 1.4625, the uptrend remains intact (channel support).  A higher 5th wave would probably finish in the 1.5280/1.5330 area (1.5280 is former support and 1.5330 is a measured objective).  Near term, coming under 1.4820 could complete 5 waves down from 1.5053.  However, I don’t want to get cute with short term counts when much larger potential moves exist (a break below 1.4820 could signal an extended 3rd wave for example).  Staying below 1.5020 keeps the bearish count valid.

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.  1.6710 is short term resistance.  At this point, I do not see a clear trade although it should be noted that shorting does not look wise as long as the support line is intact.

Australian Dollar / US Dollar

Yesterday’s outside bearish reversal warrants attention following a 12 month high.  The next AUDUSD objective would be .9680 (where wave .v = wave .i).  This level intersects channel resistance on November 25.  Keep in mind that the rally above .9335 satisfies minimum expectations for wave .v.  .9205/45 is potential support and coming under .9125 would be bearish (suggestive of a top).

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 2nd 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 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 2nd 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 / 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).  1.0200 and 1.0250 are short term resistance levels.

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.  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.

Asian Stocks Tumble on Friday as Earnings Disappoint, Hang Seng Bucks Trend to Post Second Weekly Advance

Asia Session Key Developments

• Japan’s Consumer Confidence Stalls in October
• Hong Kong GDP Disappoints

The Asian stock market pushed lower on Friday on the back of global growth concerns paired with the slump in commodity prices. Industrial outputs in Japan rose 2.1% in September amid an initial forecast for 1.4% rise, while the capacity utilization rate grew 1.6% from the previous month versus forecasts for an increase of 2.3%. Moreover, Japanese consumer confidence stalled in October, with the headline reading holding flat at 40.5 for the second month as subdued wage growth paired with the downturn in the labor market discouraged household sentiment, and the data suggests domestic growth in the world’s second-largest economy may remain subdued going into the following year as wages pressures continue to deteriorate. Meanwhile, economic activity in Hong Kong expanded 0.4% in the third quarter amid expectations for a 1.9% rise, while the annual rate of growth contracted 2.4% from the previous year versus forecasts for a 1.4% drop in GDP.

Nikkei 225                          9,770.31

The Japanese equity markets traded lower for a second successive day, with the Nikkei 225 shedding 34.18 points (0.35%) to end the day at 9,770.31. Health care pushed 1.19% lower to lead the decline, followed by a 1.115 fall in oil & gas, while telecommunications rose 1.25% to taper the sell-off. Shares of Nippon Sheet Glass tumbled 8.24% after the company posted a first-half net loss of 26.2 billion yen, with GS Yuasa Corp declining 1.35% as the firm posted a 24% drop in sales. At the same time, Japan Airlines fell 0.9.% as the firm withdrew its earnings forecast after reporting a JPY 131.2B loss for the first-half, while Mitsui Chemicals declined 2.78% as the company reaffirmed it will sell new shares to raise as much as JPY 64.3B.

Hang Seng                        22,553.63

Hong Kong shares pushed higher on Friday to mark its second weekly gain, leading the benchmark equity index to climb 156.06 points (0.70%) and end the trade at 22,553.63 as 6 of its 9 components advanced on the day. Shares of Industrial & Commercial Bank of China and the Bank of China climbed 1.95% and 3.21% respectively as ICBC’s Chairman Jiang Jianqing does not see a risk of a bubble in China’s economy, while HSBC Holdings, Europe’s biggest bank advanced 1.78% as the company plans to sell its London headquarters building to South Korea’s National Pension Service for $1.3 billion (£800 million). Moreover, Cosco Pacific slipped 0.71% as Nomura Securities said the stock could be removed from the Hang Seng following the review, while PetroChina slipped 1.29% on the back of lower oil prices.

S&P/ASX 200 Index           4,706.40

Stocks in Australia traded lower on Friday following weak overseas leads and profit-taking among investors to mark its biggest slide in 9 trading days, leading the S&P/ASX 200 to fall 41.50 points (0.87%) and close at 4,706.40, with 7 of the 10 components trading lower on the day. Shares of Newcrest Mining and Sino Gold Mining plunged 2.84% and 2.08% respectively as gold prices fell back from its record highs in London, while Paladin Energy shed 2.60% as the uranium producer reported a loss of $20 million during the three-months through September from $5.1M in the previous year. Meanwhile, Westfield Group, the world’s largest owner of shopping malls dropped 1.20% as JP Morgan downgraded the company’s stock from “overweight” “neutral,” while BHP Billiton and Rio Tinto slipped 1.37% and 0.46% respectively on the back of lower commodity prices.

Notable Asian Session Event Risk / Economic Releases

Oil Plunges as Risk Appetite Ebbs and Inventories Rise

North American Commodity Update

Commodities – Energy

Oil Plunges as Risk Appetite Ebbs and Inventories Rise

Crude Oil (WTI) -  $76.94  //  -$2.34 //  -2.95%

Crude was already on the decline before the Department of Energy released its weekly inventory numbers; but the cumulative effect of an increase in stockpiles,  pullback in risk appetite and rally in the US dollar was the worst daily performance for the commodity since October 30th. In turn, today’s bearish drive only further develops a wedge formation four weeks in the making. It would be fitting – but not altogether surprising – if a break from this pattern coincided with a definitive change of trend for risk appetite. However, keeping tabs on underlying sentiment trend; the Dow Jones Industrial Average’s decline today was from new highs for the year and the US dollar (the indisputable safe haven currency) was recovering from 15-month lows set just yesterday.

If (or when) a true bearish reversal develops, there will be more than enough fundamental support for the bearish crowd to facilitate a correction. Supply concerns were exacerbated by today’s US Department of Energy inventory numbers. According to the report, crude stockpiles rose 1.762 million barrels through the week ending on November 6th while gasoline stores advance 2.46 million barrels. This puts reserves of oil and gas up 7.5 percent and 7.3 percent from same period a year ago. At the same time, imports rose 6.5 percent to 8.66 million barrels per day. The true concern for oil traders and producers going forward, however, is demand. According to the DoE’s assessment, fuel consumption is down 4.3 percent to 18.3 million barrels per day – the lowest since June. This has led US refineries to reduce capacity to 79.9 percent to the lowest levels since September of last year when Hurricane’s Ike and Gustav disrupted business. Now the problems are far more fundamental and lasting.

Commodities – Metals

Gold’s Efforts at Pushing Record Highs Amplifies its Correction

Spot Gold  -  $1,103.80  //  -$13.60  //  -1.22%

Despite hitting a fresh record high of $1,123.38 in the Asian session, spot gold would end Thursday with its biggest daily loss since the false bearish trend reversal back on October 26th. When looking for the source of this unfavorable change in the winds, it was not difficult to identify risk appetite’s role. Losses for equities, bond yields and the broader commodity complex gained traction through the US hours. For its own part, the precious metal would suffer a more aggressive decline than most of its counterparts thanks to its proximity to record highs and the volatility that has held through its steady rally through the past two weeks. As for its other roles (aside from speculative asset), playing the alternative to the US currency, the dollar embarked on its largest rally in months. And, as an inflation hedge, the iShares TIPS index retreated from the 13 month high set yesterday with its biggest intraday decline in nearly six weeks. Nonetheless, speculators are holding firm with aggregate open interest in the futures market still at its highest levels since June of 2008.

Spot Silver  -  $17.22  //  -$0.39  //  -2.22%

Though silver and gold hold different levels of correlation to risk trends; when there is a severe shift in the underlying driver, both will respond with comparable reactions. For the less expensive commodity, the selling pressure wouldn’t break any trends or measure support levels. Nonetheless, the consistent chop of the past seven active sessions has already eroded confidence in reviving bullish convictions. Open interest was already falling back from the near 15-month high set at the beginning of the week. We will have to look at Friday’s COT numbers to further bear out speculators’ interests in the market.

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

U.S. Equities Take A Hit On Fundamental Concerns, Energy Stocks

U.S. Session Key Developments

•    Commodities Fall as Dollar Finds Strength
•    Financials and Energy Stocks Lead S&P Index Lower

US equities fell from its thirteen-month high today on fundamental concerns and falling energy prices.  The Dow reached the 10,300 mark for after Hewlett-Packard’s takeover of 3Com and positive jobs data, but the index was unable to hold this level.  Later in the morning, the Department of Energy announced that growth in oil stockpiles was larger-than-expected, subsequently sending energy stocks and the broad equities market lower.  Crude oil fell nearly 3 percent to $76.94 as the U.S. dollar found strength and appreciated against the euro by its largest amount since August 7.  Investors also showed concern over valuations today as the S&P 500 traded close to 22 times reported earnings, its highest since 2002.  There is also concern over the strength of the subsidized U.S. economy.  Initial jobless claims and continuing claims both fell at lower rates last week than prior, however the double-digit employment rate still looms large over the economic recovery.  Moving forward, it appears that this liquidity induced bull market may have more room to run.  Federal Reserve voting members have remained very dovish in their comments this week and do not seem prepared to exit their current policies even with the federal deficit hitting a record high in October.

DJIA 30                      10,197.47                   -93.79               -0.91%
The Dow Jones Industrial Average fell just under 1 percent today as every index component fell with the exception of health care.  In addition to weak energy stocks, the financial shares showed a sharp decline as Bank of America Corp. and JPMorgan Chase & Co. dropped 2.3 percent each.  Part of this decline was due to a decision by the Fed to prohibit banks from charging overdraft fees on automated teller machines or debit cards, unless agreed upon by the customer.  One of the only bright spots of the index was Wal-Mart Stores Inc. which rose 0.5 percent after posting third-quarter profits that beat analyst estimates.

S&P 500                    1,087.24                   -11.27                 -1.03%
The S&P was the worst performer of U.S. equity measures as 39 of the 40 oil and gas companies on the index slid as crude prices dropped.  Oil and gas companies fell over 2 percent on the index as a whole, while the financial sector was the next weakest performer as it dropped over 1.8 percent.

NASDAQ                         2,149.02                    -17.88             -0.83%
The tech heavy Nasdaq fell today as technology stocks slipped 0.57 percent.  Applied Material fell over 3 percent during trading, while Research in Motion and Cisco Systems dropped over 2 percent on the day.

Asian Stocks Halt Four-Day Rally as China’s Premier Jiabao Sees ‘Slow and Bumpy’ Recovery Ahead

Asia Session Key Developments

• Australian Employers Hire 24,500 Employees; Unemployment Rate Remains at 5.8%
• Japan’s Domestic Goods Price Index Falls for the First Time in 4 Months

The Asian stock market pushed lower on Thursday after rising for four consecutive days as China’s Premier Wen Jiabao stated the global economy faces a “slow and bumpy” recovery. Meanwhile, the Australian labor market unexpectedly improved for the second consecutive month in October, with the economy adding 24.5K jobs from the previous month, and the data reinforces an improved outlook for future growth as the nation skirts the global recession. At the same time, consumer inflation expectations slipped to an annualized rate of 3.2% in November from 3.5% in the month prior, and the slump in price growth may lead the Reserve Bank of Australia to hold a neutral policy stance going forward as the outlook for the world economy remains uncertain. Moreover, price pressures in Japan weakened more than expected in October, with the Domestic Corporate Goods Price index falling for the first time in 4 months, while the annualized rate tumbled 6.7% from the previous year amid expectations for a 6.0% drop.

Nikkei 225                          9,804.49

The Japanese equity markets traded lower for the first time in five days, with the Nikkei 225 shedding 67.19 points (0.68%) to end the day at 9,804.49. Consumer Services pushed 1.26% lower to lead the decline, followed by a 0.95% drop in basic materials, while oil & gas climbed 0.47% to taper the sell-off. Shares of Nippon Yusen K.K. slumped 3.98% to its lowest level since February 1986 as the firm plans to issue new sales to raise as much JPY 142B in capital, while Alps Electronics slumped 9.30% as the firm its full-year net loss projection to JPY 9B from JPY8B. At the same time, CSK Holdings jumped 13.68% as the firm posted a lower-than-expected operating loss for the first-half of the year, while Chiyoda Corp advanced 3.65% as Morgan Stanley announced it will add the stock to the MSCI Japan index.

Hang Seng                        22,397.57

Hong Kong shares tumbled on Thursday, dragging the benchmark equity index from a 15-month high to plummet 229.64 points (1.01%) and end the trade at 22,397.57 as 8 of its 9 components traded lower on the day. Shares of Citic Pacific Limited, an arm of China’s largest state-owned investment company soared 9.09% as the company signed sales accords to sell approximately 2/3rds of the iron ore from its $4 billion Australian project to Chinese mills, while China Unicom Hong Kong slid 2.72% as China Cablecom publicized its pact with China Unicom Unit.  At the same time, Wharf holdings plunged 3.67% as Premier Wen Jiabao held a cautious outlook for the global economy, while Foxconn International Holdings gained 2.54% as its parent company plans to invest more than $390M in mainland China.

S&P/ASX 200 Index           4,747.90

Stocks in Australia traded lower on Thursday amid growth concerns, leading the S&P/ASX 200 to fall 9.10 points (0.19%) and close at 4,747.90, with 6 of the 10 components trading lower on the day. Shares of BlueScope Steel, Australia’s largest steelmaker plunged 4.62% after reaffirming that the company expects to announce a “small” first-half net loss following the appreciation in the Aussie Dollar paired with declining prices, while BHP Billiton and Rio Tinto added 1.15% and 1.81% respectively as Credit Suisse raised its price targets for the firms. Moreover, AWB advanced 2.94% as the Australian Financial Review said the firm may sell its Geneva unit to Gavilon Group, while Newcrest Mining gained 0.71% as gold prices rose to a record high of $1,119.10 during the New York trade.

Notable Asian Session Event Risk / Economic Releases

Dow May Lose Ground After Running Into 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 tested resistance at 10,326 the 50.0% Fibo retracement of the 14,198-6,543 decline, before giving back some of its gains.  The level may provide formidable resistance and leading 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.

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 failed to break above 1,100 as the psychological level may become formidable resistance. A move above may not get much further with the 50.0% Fibo level at 1,120 as the next barrier. The broader index appears poised for a retrace backed toward trendline support near 1,060.

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 march higher after finding trendline support and is now looking to test the yearly high of 2,190. However, we are seeing resistance from 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.

Oil Looks to Jobless Claims, Earnings. Gold Outlook Darkens

Commodities – Energy

Oil Looks to US Jobless Claims, Retailers’ Earnings Reports to Set Direction

Crude Oil (WTI)       $78.89       -$0.39       -0.49%
Crude continues to consolidate in the upper portion of the now-familiar $76.82-80.46 range, with near-term support seen at $78.28. The fundamental landscape offers plenty of catalysts. US jobless claims are set to decline once more, offering hope of stabilization in the world’s largest oil-consuming nation. Meanwhile, third-quarter earnings reports from Dow Jones component and bargain retailing leader Wal-Mart Inc as well as Kohl Corp, a middle-income department store operator, will help guide attitudes about the health of the world’s largest consumer base and amid fears that the recovery of recent months cannot be sustained after stimulus measures are withdrawn. To that effect, the outcome of these reports is likely to be instrumental in shaping the trajectory of risk appetite and with them the path of crude prices as well.

Commodities – Metals

Gold Technical Outlook Darkens Further, Silver Diverging

Gold       $1116.20       -$1.21       -0.11%
Yesterday, we wrote that “gold prices look positioned to reverse lower from record highs, with technical positioning revealing a Rising Wedge bearish reversal chart formation bolstered by negative divergence on the RSI momentum gauge.” While we do not have confirmation of a breakout yet, the current downturn seems to hint that we are heading towards validating the Wedge scenario. A push lower initially targets $1097.72. As with oil, the fundamental factors in play are US labor market figures and retailers’ earnings reports.

Silver       $17.52       -$0.08        -0.45%
Silver continues to consolidate, oscillating between $17.25 and $17.77. Indeed, prices seem to be behaving rather more like oil and the US Dollar Index (both showing consolidation patterns) than its more expensive counterpart, which has continued to take out record highs over recent days. Silver is clearly a less-fashionable investment vehicle for the inflation-hedging crowd that has pushed the gold higher on expectations that central banks’ extraordinarily easy policy stance will create runaway price growth. However, the ‘great re-inflation’ story is fundamentally rooted in a weakening US Dollar hypothesis, so if gold prices reflect that worldview than the Dollar Index should look more like the inverse of that than silver. Oil, too, should fall in line with the yellow metal considering its current highly speculative status. Interestingly, this means that silver positioning could be suggesting that gold has run beyond the scope of its fundamental foundation.

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