January 2010

Crude Closes the Week Deep in the Red as Risk Aversion Picks up Steam

North American Commodity Update

Commodities – Energy

Crude Closes the Week Deep in the Red as Risk Aversion Picks up Steam

Crude Oil (LS NYMEX) -  $74.31  //  -$1.77 //  -2.34%

A market-wide drop in risk appetite would keep crude oil in its aggressive decline through the end of this week. From a 15-month high set only a few weeks ago, the commodity has plunged more than 11.5 percent. However, before we treat this as the definitive end of the a bull market that has generally defined direction since the beginning of 2008, we have seen bearish reversals of similar quality two times over the past six months; and both times bigger trend has held its ground. Naturally, traders are asking whether this time is different. Is this a retracement that will turn into a true trend reversal; or will speculative interest and supply-and-demand fundamentals step in to support the cumulative appreciation of the past 12 months? Time offers the only definitive answer to this question; but we can speculate through the conditions that are currently depressing the market. Current momentum is clearly derived from an effort to take profit or otherwise unwind risky positions to avoid a deeper correction. To establish this as a key driver, it is important to note the correlation that oil has to equities and the US dollar today. The benchmark currency actually retraced some of its gains to close the week. As the primary pricing mechanism for the commodity, this should theoretically bolster the value of crude – that is if risk appetite wasn’t overriding the dollar’s influence. The Dow Jones Industrial Average dropped to a more than two-month low into Friday’s close and notched up its worst three-day performance since the beginning of 2009.

Does this predilection towards risk appetite mean oil traders will completely ignore normal fundamentals going forward? No. However, with each meaningful milestone that destabilizes risk appetite, traders will likely respond. In the meantime, the regular dynamics for supply and demand do not look promising. This past week, China made policy announcements that shows they are attempting to cool their economy – the second largest energy consumer in the world. Along the same lines, US President Obama offered proposals that would limit the size of the nation’s largest banks. This may seem unrelated to the commodity market; but restricting the trading arms of the major financial institutions could reduce the market’s depth going forward. Next week, we will see whether advanced 4Q GDP reports from the US and UK can revive expectations for demand to rebalance with supply. Taking note of speculative interests, the CFTC’s Commitment of Traders (COT) report showed net speculative long positions fell 1,288 contracts to 134,381 contracts in the week ending January 19th (a period that notable does not include this week’s most aggressive down days).

Commodities – Metals

Gold Losses on Broader Risk Aversion Curbed by the Dollar’s Pullback

Spot Gold  -  $1,093.80   //  -$0.15 //  -0.01%

Gold is a unique asset in that it has more than one fundamental role in financial markets. The precious metal has its value as a speculative security, a safe haven, a dollar hedge and an inflation hedge. Friday, the multiple roles prevent the commodity from pitching into a sharp decline like many of the market’s other benchmarks. Looking over at the equities market, the US benchmark indexes plunged more than 2 percent through the close; but gold ended the day nearly unchanged. This break is somewhat unusual considering the correlation between these two was so distinct over the past two days when risk aversion was in full swing. However, we can see that there was a far better match up in gold’s price action today to that of the US dollar. This stability may have also opened the door to the metal stepping in as a safe haven asset. When traders are concerned about financial stability and the true value of financial instruments, they often look for protection in the physical asset. Looking at speculative interests from a different angle, the CFTC reported speculative long positions fell 3 percent or 7,873 contracts to 221,469 contracts in the week ending January 19th. Also, the London Bullion Market Association reported trading through December averaged 20.6 million ounces, down from the previous month’s daily 21.5 million average.

Spot Silver  -  $17.04 //  -$0.36 //  -2.07%

In direct contrast to gold, silver was following the risk aversion crowd through Friday’s close. While the day’s losses were not as severe as the previous two sessions, the overall trend cannot be ignored. Where does the divergence between the two metals come from? The more expensive of the two holds the status of a safe haven asset. Silver is not as valuable in that regard. Therefore, speculative positions are unwound, the metal is just another trade in the portfolio that is cut back. According to the CFTC, net long positions in silver through January 19th dropped only 227 contracts to 44,301 contacts. On the other hand, the LBMA reported trading in the commodity averaged 88 million ounces a day in December versus 81 million ounces in November.

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 Equities Collapse for Third Straight Day on Recovery, Banking Concerns

Europe Session Key Developments

•    Financial Sectors Across Europe Under Fire after Obama Commentary
•    British Retail Sales Point Towards Improved Consumption
•    Commodities Continue Slide on Strong Dollar

European stocks retreated to their lowest point in a month following bearish commentary from America, and investment concerns from China. Yesterday, President Obama outlined a plan in which banks would be strictly prohibited from running proprietary trading operations or investing in hedge funds and private equity funds, and today, financial sectors across Western Europe tumbled. Speculation also began to accumulate that China is on the verge of a major rate hike following rapid economic expansion in the fourth quarter, a move to cool inflation and an asset bubble that appears to be forming. Meanwhile, on a day otherwise characterized by light economic data, the Pound traded lower on a strong U.S. Dollar and on Retail Sales for December which, although showed an increased level of consumer spending, also fell short of analysts’ expectations, a sign that credit remains tight for consumers. National benchmark indices fell in all Western European nations, dragging down equity markets to their lowest levels in three months or more.

FTSE 100                      5302.99                   -32.11               -0.60%
Following yesterday’s speech by President Obama calling for limits on risk taking, the British index moved lower on Friday by 32 points, down to 5302.99. The decline capped off the second weekly retreat for the FTSE, which is now down 2.03 percent in 2010. Eight of ten sectors fell, with Financials falling the most, down 1.00 percent. Basic Materials rebounded slightly after a miserable week, up a paltry 0.27 percent. Barclays, ICAP, and London Stock Exchange Group plummeted more than four percent each on Friday in response to President Obama’s regulatory plans. The FTSE remains up 51 percent from last year’s low, though, gains could expected to be trimmed more if central banks tighten stimulus plans too quickly.

CAC 40                     3820.78                   -41.38                 -1.07%
Trading in Paris on Friday resulted in over a one percent drop, dragging the CAC back below 3900 to 3820.78. The drop, which marked the third consecutive decline for the index, helped drag down the index over three percent over the last three days. Eight of ten sectors fell, with Financials and Oil & Gas leading the decline, down 2.58 percent and 1.52 percent, respectively. Air France-KLM Group declined 3.1 percent, following airlines across Europe down, though analysts’ expectations remain high. Credit Agricole slid 2.5 percent, while Societe Generale skid 5.2 percent amid banking regulatory concerns. Gainers on the day included Pierre & Vacances, which jumped 3.4 percent, and Somfy, which added 5.0 percent to its highest level in just fewer than two months.

DAX                         5695.32                    -51.65             -0.90%
German stocks posted their second straight weekly loss, following other European equity markets down amid banking and lending concerns. All nine sectors fell on the German index, with Technology, Consumer Goods, Financials, and Consumer Services, leading the decline, down 1.21 percent, 1.47 percent, 1.66 percent, and 3.60 percent, respectively. As governments around the globe tighten restrictions on the banking industry, Deutsche Bank, Germany’s biggest lender, fell 4.2 percent as Germany announced that they, too, will have plans to ratchet-up regulation sometime in the future. Other losers on the day included Lufthansa, which fell 6.1 percent after Equinet cut its recommendation to “reduce,” while Daimler dropped 1.7 percent after its recommendation was cut to “neutral” from buy at Goldman Sachs.

IBEX 35                     11373.40                   -70.60                 -0.62%
The Spanish index was again deluged with sellers on Friday, as the index dropped 0.62 percent, bringing its total weekly loss to 4.9 percent. The weekly drop was the worst decline the IBEX experienced since March 2009. Nine of ten sectors fell, with Heath Care descending 3.92 percent, the steepest loss on the day. Basic Materials rebounded slight, up 0.31 percent. Banco Popular Espanol skid for a third straight day, down 1.9 percent, as JPMorgan Chase & Co. cut its share-price estimation on Spain’s third-largest bank. Banco Santander fell 1.4 percent, and Bano Bilbao Vizcaya Argentaria slumped 2.3 percent amid the bank regulatory speculation.

S&P/MIB                        22567.81                     -308.65                 -1.35%

Notable Europe Event Risk / Economic Releases

Written by Christopher Vecchio, CFDTrading Research
Please send any comments about this report to Cvecchio@fxcm.com

Dollar Mixed; Euro Rally is Corrective

Euro / US Dollar

Near term, a small 4^th wave correction may be complete.  Additional resistance would be at 14250.  Staying below 14334 keeps the trend pointed lower.  Keep in mind the alternate labeling, which is decidedly more bearish.  Under the alt., the near term advance would be a smaller 2^nd wave and the next drop would be a third of a third, which would probably reach the mid 13000s quickly next week.  An extended fifth wave is also possible.  My point is to refrain from taking profit on a drop to a new low.

British Pound / US Dollar

I wrote yesterday that “there are 5 waves down from 16464 and the rally from this morning’s low should prove corrective.  Resistance should be strong at 16310 (former support).”  The rally did prove corrective and ended this morning.  Risk can be moved to this morning’s high.  A short term target is 15950 although the ultimate objective is below 15700.

Australian Dollar / US Dollar

The dominate pattern remains the decline from just above 9400, which counts well as an a-b-c decline with wave b as a triangle.  This pattern suggests that the larger trend is still up, which is at odds with other USD bullish counts.  One possibility is that the 3 wave decline is wave A of triangle or flat with the succeeding rally as wave B.  This would keep the near term trend pointed lower.

New Zealand Dollar / US Dollar

I wrote yesterday that “I am treating the decline as corrective unless the drop extends into 5 waves (these are the labels that are shown).”  The NZDUSD extended into 5, therefore I am bearish on pullbacks.  There is resistance at 7240.

US Dollar / Japanese Yen

The rally from 8481 is a 3 wave correction rather than the first 3 waves of an impulse.  The decline from 9380 is unfolding in a corrective manner as well.  Favor additional weakness with price below 9189.  The next potential support is 8892.

US Dollar / Canadian Dollar

The USDCAD may be nearing a short term top.  The rally is in 5 waves and the last leg up may be a thrust from a triangle.  Triangles occur in 4^th waves, therefore the rally from the triangle is a 5^th wave.  A setback next week would present a bullish opportunity.

US Dollar / Swiss Franc

The USDCHF has extended its rally from the 61.8% retracement and conditions remain bullish.  10511 is expected to give way to a 3^rd wave, and a soft target is 11026/91.  This is the former 4^th wave extreme / 161.8% extension of wave 1.

Gold

Expect gold’s decline to extend below 1075.  I favor the expanded flat interpretation and staying below 1142 keeps the trend pointed lower.  The decline should accelerate if the above count is correct.

Light Crude

Crude’s rally from 7083 may be complete as an impulse.  Price needs to stay below 7950 in order to keep the bearish count on track.  Notice that the rally from 5832 looks like a diagonal.  Diagonals are often fully retraced…sharply.

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.

Oil, Gold May Correct Higher on Profit-Taking Before Selling Resumes

Commodities – Energy

Oil Extends Losses as Weak Demand Sees Refineries Cut Back Output

Crude Oil (WTI)       $76.36       +$0.28       +0.37%
Oil prices broke lower to take out support at $77.67 despite an unexpected decline in crude inventories as the Department of Energy reported yesterday that weak demand saw US refineries scale back output by a whopping 2.92% last week, the largest decline in three months. Downside barriers are now seen at $75.60 and $74.48, with a break below that exposing the $70.00 figure. A period of consolidation may be ahead into the week-end, underpinned by overnight reassuring comments from Chinese central bank chief Zhou Xiaochuan who reaffirmed that his country will maintain a moderately loose monetary policy. Fears about fading demand from the world’s number-two crude consumer spread yesterday as investors speculated that policymakers may boost efforts to restrict credit flow to prevent the buoyant economy from overheating after growth and inflation figures topped expectations. A scheduled fourth-quarter earnings report from Schlumberger Ltd, an oil services firm, is a wild card and may spark fresh selling on a disappointing outcome.

Commodities – Metals

Gold, Silver Decline May Stall on Profit-Taking into Week-End

Gold       $1095.14       +$1.19        +0.11%
Prices slipped below the $1100 figure to find near-term support at $1090.00 amid a broad selloff in risk-correlated assets, with continued selling set to expose December’s swing low at $1074.50. The near-term correlation between gold and the MSCI World Stock index has advanced to 96.3%, meaning the trajectory of risk appetite remains the primary fundamental driver. Although equities suffered a sharp decline in Asia and appear mixed in early European trade, the US Dollar has edged lower while US stock index futures have advanced. This suggests that traders may see some corrective price action ahead as traders take the relatively tame economic and earnings calendar to book some profits into the end of the trading week.

Silver       $17.43       +$0.03        +0.17%
Silver prices extended losses to break below support at $17.56, the 61.8% retracement of the 12/30 – 01/11 upswing. Near-term support now lines up at $17.24, with a move below this juncture exposing the late-December swing low at $16.73. Silver’s correlation with the MSCI World Stock Index remains at a formidable 92%, suggesting some corrective price action may be ahead with US stock index futures in positive territory ahead of the opening bell on Wall St.

Crude Pushes to a New Monthly Low as Speculative Tides Recede, Inventory Figures Disappoint

North American Commodity Update

Commodities – Energy

Crude Pushes to a New Monthly Low as Speculative Tides Recede, Inventory Figures Disappoint

Crude Oil (LS NYMEX) -  $76.00  //  -$1.74 //  -2.24%

Speculators took another step towards truly reversing the buildup of risk appetite that defined most of 2009.  For crude, a clear move towards risk aversion spelled another sharp decline for the day – the seventh bearish close in the past eight days. Having dropped approximately 9.5 percent from its recent 15-month swing high, traders are now targeting the $75 level that defined both resistance and support over the past six months. Depending on how fundamentals develop going forward, this notable figure could fold under speculators’ efforts to unwind their risky positions or hold should sentiment stabilize. If today’s events are any guide for what to expect, the bearish scenario is the more likely outcome. Adding to China’s efforts to slow the market’s ascent by increasing limits on local lending (leverage), US President Barack Obama proposed regulations that would limit both the size and risk activities of the nation’s banks. These efforts to temper speculative interests are not just developing in China and the US; but considering these are two of the world’s largest financial markets, the impact is obvious. The fallout from the shift towards regulation is strangling speculation that was seeking capital gains. Considering such ‘traders’ were responsible for much of the rise to this point (and the fact that interest income and other forms of regular yield are still anemic), the implications are vast. Should the risk-sensitive Dow enter a bear trend, crude’s losses will only be amplified.

In the face of risk appetite, fundamentals could take much of the wind out of a potential bear trend or perhaps even completely prevent it – that is if the balance for supply-and-demand actually supported the market. Overnight, the fires of demand could have been stoked by the strong fourth quarter GDP report from China. However, the impressive 10.7 percent pace of expansion through 2009 was overshadowed by the recent warnings from policy makers that they would forcibly cool the economy. Perhaps next week’s US and UK growth figures will bolster the outlook for demand. Considering the World Bank yesterday upgraded its global and US GDP forecasts, this is not out of the question. On the other side of the physical market, supply measures offered little buffer to oil’s decline. The Department of Energy reported crude inventories in the week ending January 15th contracted 471,000 barrels. While this did offset forecasts for a 2.45 million barrel increase, it was still a relatively decline when holdings are so far above historical averages. What’s more, gasoline stockpiles ballooned 3.95 million barrels over the same period, suggesting refiners will need less of raw crude to process.

Commodities – Metals

Gold and Silver Follow Risk Aversion to a New Bear Trend

Spot Gold  -  $1,095.65   //  -$15.40 //  -1.39%

While there are different fundamental values in gold, it was clear that only one mattered today: speculative asset. The metal suffered its second consecutive decline – the worst back-to-back loss since early March – as many other risk-sensitive markets pitched lower. Thursday’s decline notably called an end to a rising trend of lows that stretches back to August and was developed on volume not seen since the commodity was ascending to its record highs back in November. Going forward, there is still a considerable level of capital interest priced into the precious metal. Having already retraced more 10 percent from the record highs set last month, those speculators that entered the market late will panic as their profits turn into losses. Eventually, gold may once again take up its role as a safe haven asset; but considering its high expense, that level may be much further down than many expect. Furthermore, the commodity’s relationship to the US dollar will only leverage bearish speculative winds as the currency is one of the favored safe havens. As for its role as an inflation hedge, the threat of price pressures born from cheap rates will take a back seat as growth struggles to establish a hearty pace and policy officials restrain credit and leverage.

Spot Silver  -  $17.46 //  -$0.41  //  -2.31%

Spurred on by trade unwinding and a surging dollar, silver plunged Thursday to push its two-day losses to nearly 8 percent. Should key speculative barometers like the Dow Jones Industrial Average and the US dollar enter the next phase of their respective reversals, the impact on silver will be pronounced. This commodity is already prone to incredible levels of volatility and the correlation between risk appetite and the primary pricing instrument for the metal leverages its fundamental response.

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

U.S. Equities Fall Sharply to Three-Week Lows

U.S. Session Key Developments

•    Commodities Decline For Second Day
•    Initial Jobless Claims Higher Than Expected
•    President Obama Outlines Bank Regulation

U.S. stocks fell for a second consecutive session today, erasing the Dow’s gain for 2010, on concern that heightened government regulation will dampen banking profits and economic growth going forward.  Investors turned bearish on stocks after U.S. President Obama announced his banking reform proposal that would no longer allow banks to run proprietary trading operations.  This announcement came on the heels of last week’s proposal to impose a a bank fee to help recover TARP losses and created more uncertainty in the sector going forward .  Also weighing on the minds of investors today were recent regulations out of China to cool down its rapidly-growing economy.  The Chinese Government recently increased the required reserves ratio for the country’s banks and discussed, along with other Asian central banks, the possibility of raising rates by September.  On the commodities front, crude oil fell victim to the global risk sell-off and fell 2.3 percent to $75.89, its lowest level since December 22.  Gold and silver also declined, losing 1.7 percent and 2.6 percent respectively.  The U.S. Dollar Index, on the other hand, rallied for the fourth consecutive day to 78.42, a level the index has not closed above since September 3.  The other key contributor to investor concern today was a Department of Labor release that showed initial jobless claims rose by 482,000 last week, more than the 440,000 rise expected.  This was yet another example that the U.S. economy is not out of the woods yet, and that high unemployment and a weakened consumer will continue to be a drag on the recovery.

DJIA 30                      10,389.88                   -213.27                -2.01%

The Dow Jones Industrial Average erased its 2010 gains today, falling over 2 percent as 28 of the 30 index stocks fell on the session.  JPMorgan Chase and Bank of America were two of the worst performers on the index, each slumping over 6 percent after President Obama’s proposal for bank regulation.  Overall, the Dow fell to its lowest level since December 12 and experienced its largest daily percentage decline since October 30.

S&P 500                         1,116.48                      -21.56                  -1.89%
The broader S&P 500 fell for a second straight session, led by a 4.8 percent decline in the Basic Materials sector.  Aluminum giant Alcoa fell over 6 percent on weakness in commodity prices, and copper and gold producer Freeport-McMoRan dropped over 8 percent after announcing it will produce less in 2010 than last year.  One bright spot of the index was trade execution firm Knight Capital Group, which rose over 7 percent after reporting that its earnings beat analyst estimates.

NASDAQ                       2,265.70                   -25.55                  -1.12%
The NASDAQ fell over 25 points today as technology stocks, which make up a significant portion of the index, dropped over 1 percent.  In the technology sector, thirteen of the largest fourteen stocks declined, led by Adobe and Microsoft which fell over 1.8 percent each.  The one exception was Google, which gained slightly after reporting fourth-quarter sales.

Written by James Russell, CFDTrading Research
Please send any comments about this report to JRussell@fxcm.com

European Equities’ Precipitous Stumble Erases 2010 Gains

Europe Session Key Developments

•    German and Euro-zone PMI Manufacturing Beats Expectations, Hints of Inflationary Pressures
•    U.K. Money Supply Expands at Slower Rate than Anticipated
•    Commodities Fall on Weaker Demand, Stronger Dollar

European markets continued their fall on Thursday, dropping the second consecutive day to erase this year’s advance. Early in the session, bearish appetite flourished following the Chinese Gross Domestic Product data, which showed 10.7 percent growth for the emerging market. Speculation arose that the output expansion, which exceeded analysts’ expectations, will trigger further interest rate tightening down the road. U.K M4 Money Supply data showed an expansion but less-than-expected, which fueled a Dollar and Euro rally against the Pound. Additionally, U.S. jobless-benefits claims, coupled with speculation, which held to accurate, on President Obama’s plan to reign in risk-taking by banks fueled bearish sentiment worldwide. Following the speech by President Obama, which occurred after the European session closed and suggested that banks would be strictly prohibited from running proprietary trading operations or investing in hedge funds and private equity funds, European market equity futures tumbled anywhere between one and three percent each.

Looking ahead, light economic data is expected to end the week. Midway through the session, investors will be looking at French Business Confidence for January (expected 90.0), as well as British Retail Sales data for December (expected 1.1 percent increase from November, expected 3.0 percent increase from December 2008).

FTSE 100                      5335.10                   -85.70               -1.58%
British stocks fell for the second consecutive day, dropping just over one and one-half percent to erase this year’s gains. Basic Materials and Financials fell the most, down 4.31 percent and 2.72 percent each, after data later in the session showed that American jobless claims increased, a sign that the U.S. unemployment situation may be worsening. With investors speculating on weak consumer demand for the next few months, eight of ten sectors fell on the FTSE, with five sectors posting losses greater than one percent. Anglo American and Kazakhmys, both mining companies, led shares lower amid doubt that high demand for commodities will continue. RBS, Lloyds Banking Group, and Barclays lost more than five percent each ahead of President Obama’s speech on bank regulation. Among the gainers on the day were airline companies EasyJet and British Airways, which posted 5.2 percent and 3.6 percent gains, respectively, amid data beating internal forecasts.

CAC 40                     3862.16                   -66.79                 -1.70%
Trading in Paris netted losses across all sectors, dragging the CAC below 3900 points. The 1.70 percent contraction, led by Basic Materials and Financials, marked the second time this week the index has fallen. Seven of ten sectors lost more than one percent, while four sectors lost more than two percent. Overall, ninety-five percent of all equity securities traded on the French index posted losses on the day. Societe Generale followed banking shares around the world down, ending the day in the red by 4.7 percent. Eiffage, France’s third largest construction company dropped 4 percent after its shares were downgraded to “neutral” at Exane BNP Paribas. Other movers on Thursday included ModeLabs, a French mobile-phone maker, which dropped 11 percent, and Icade, after Societe Generale cut its recommendation on the stocks from “hold” to “sell.”

DAX                         5746.97                    -104.56             -1.79%
German stocks posted the second largest decline across Western Europe on Thursday, down over one hundred points to 5746.97. Basic Materials dropped nearly three percent, while Financials, Technology, Industrials, and Consumer Goods fell by 1.71 percent, 1.90 percent, 1.92 percent, and 1.99 percent, respectively. Financials pushed lower later in the session amid American banking regulation concerns, with Commerzbank leading the losses at 3.8 percent. Deutsche Bank skid 2.5 percent, while Siemens fell 1.7 percent. Overall, all nine sectors posted losses on the day, pushing the DAX down 3.53 percent overall in the new year.

IBEX 35                     11444.00                   -265.00                 -2.26%
Spanish stocks fell the most among the five major European equity markets, down over two and one-quarter percent, a 265 point loss. As the IBEX now sits at 11444.00, it has lost 4.15 percent on the year and sits at its lowest level since November 4. Nine of ten sectors dropped on Thursday, with Consumer Goods posting a meager gain of 0.14 percent. Technology, Basic Materials, and Financials all dropped more than three percent, while seven of ten sectors lost more than one percent overall. The losses mark the second consecutive day of bearish movement for the index. Banco Santander fell the most since May, contracting 4.2 percent. Cementos Portland Valderribas, a unit of the Spanish builder Fomento de Construcciones & Contratas, dropped 2.2 percent, for its fourth loss in five days. Other movers included Gamesa Corporacion Tecnologica, which slumped 3.3 percent after its shares were cut to “hold” from “buy’ at Societe Generale.

S&P/MIB                        22876.46                     -249.56                 -1.08%

Notable Europe Event Risk / Economic Releases

Written by Christopher Vecchio, CFDTrading Research
Please send any comments about this report to Cvecchio@fxcm.com

Dow Threatening Trendline Support, Is A Top in Place?

The Dow has traded sideways / slightly up since the beginning of November.  Trading higher from the sideways consolidation favors additional upside with the next level of resistance being 10828.  Daily oscillator studies warn of a turn however (waning momentum since the summer).  Coming below the support line would be the earliest signal that the trend has reversed but a drop under 9679 is needed in order to break the series of higher lows.

The Dow continues to trade along trend line support and is now looking to target resistance at 11,000, but we saw a brief break below yesterday which could signal a top is forming. Former resistance at 10,333-50.0% Fibo may now serve as support if we see a break below the current trendline.

The S&P is in a similar situation to the Dow in that the index has traded higher following a sideways consolidation.  A measured level at 1159 is potential resistance, which is followed by 1200 (former support).  The S&P has traded below its support line already – watch the underside of the line for resistance.  The line is at 1150 this week and increases 11 points a week (1161 next week).

The S&P 500 like the Dow continues to trade along trendline support. However, we have seen resistance at 1,150 following its break above 1,120- 50.0% Fibo of 1,576- 666. A break above the psychological level would expose 1,200, with a move below trend line support leaving 1,085 as the next barrier.

The NASDAQ has been a beast, already rallying through its 61.8% retracement of the decline from 2862.  The next level of potential resistance is the 100% extension of 1266-1880 / 1727, at 2341.  Like the S&P, the NASDAQ is trading below its former steep support line.  This line is now probable resistance.  The line is at 2392 now and increases 26 points per week (a blow off perhaps?).

The NASDAQ has broken above Fibo resistance at 2,251 which could now serve as support. The tech laden index continues to trade along trendline support which has it on target to test 2,500.

Stocks in Asia/Pacific Mixed for Fifth Day Amid Growth Concerns, China to Tighten Policy Further

Asia Session Key Developments

• Copper Prices Slide the Most Since October
• China’s GDP Growth Accelerates to Fastest Since 2007

Stocks in Asia/Pacific were mixed on the Thursday amid speculation China’s government will step in and normalize policy over the coming months in order to prevent the economy from overheating as economic activity expanded more-than-expected in the fourth-quarter of 2009. China’s growth rate expanded 10.7% during the three-months through December after growing a revised 9.1% in the third quarter amid expectations for a 10.5% rise, while consumer prices jumped at an annual pace of 1.9%% in December to mark the highest reading since November 2008. At the same time, retail sales climbed 17.5% from a year ago, after rising15.8% in November, while industrial production advanced at an annualized 18.5%.  In Australia, new motor vehicles sales rose 3.3% in December, marking the slowest monthly gain within the past four months, while Japan’s leading index advanced to 90.7, with the reading extending its eighth month advance.

Nikkei 225                          10,868.41
The Japanese equity markets halted the three day decline on Thursday, leading the Nikkei 225 to add 130.89 points (1.22%) and close at 10, 688.41. All ten components pushed higher on the day, with telecommunications leading the way, adding 2.01%, which was followed by a 1.93% gain in technology. Shares of Sumitomo Mitsui Financial Group rallied 4.46% as the firm plans to auction new shares to raise as much as 3,020 yen according to a filing made with Japan’s Finance Ministry, while Panasonic gained 3.38% subsequent to the Asahi newspaper reported that the firm will start making batteries for electric cars jointly with Tesla Motors. At the same time, Sony advanced 4.08% to post its highest close since October 2008 amid the company having its 12-month share price estimate raised to 4,000 yen from 2,960 yen at Merrill Lynch, while TDK, the world’s largest maker of magnetic heads pushed 4.79% higher as the company had its share price rating raised from “hold” to “buy” at Citigroup Global Markets Japan.

Hang Seng                        21,286.17

Stocks in Hong Kong slumped on Thursday on fears that China may tighten policy in an effort to temper the risks for an asset bubble, leading the benchmark equity index to decline 423.50 points (1.99%) and close at 20,862.67.  All nine components tumbled lower on the day, with basic materials leading the way, falling 3.94%, which was followed by a 3.79% drop in consumer goods. Shares of Industrial and Commercial Bank of China slumped 2.89% after Reuters said the People’s Bank of China required the firm to increase its reserve ratio, while Aluminum Corporation of China plunged 3.92% following a drop in the London Metal Index. Meanwhile, PetroChina weakened 2.34% on the back of falling energy prices, while Henderson Land Development Co tumbled 4.1% on speculation China will take further steps to temper the rise in lending.

S&P/ASX 200 Index           4,827.20

Stocks in Australia tipped lower on Thursday, leading the S&P/ASX 200 to shed 41.00 points (0.84%) and close at 4,827.20. Nine out of the ten components traded lower on the day with basic materials plunging 2.34%, while telecommunications climbed 1.16% to taper the decline. Shares of BHP Billiton, the world’s largest mining company gave back 1.70% as copper prices slid the most in October, while Santos slipped 1.10% after announcing a 7% drop in fourth-quarter sales. At the same time, Qantas Airways, Australia’s largest airline added 2.06% due to speculation that the company will gain global market shares subsequent to Japan Airlines becoming Asia’s first flagship carrier to file for bankruptcy, while GrainCorp lost 2.77% as the company announced that its CEO Mark Irwin resigned with immediate effect.

Notable Asian Session Event Risk / Economic Releases

Gold to Follow Risky Assets Lower, Oil Threatened by Chinese Lending Cutoff

Commodities – Energy

Oil Correction Threatened by Fear of Chinese Lending Cutoff

Crude Oil (WTI)       $77.44       -$0.30       -0.39%
Technical positioning is little changed from yesterday: prices continue to consolidate in a narrow range, with positive divergence on the RSI oscillator suggesting that a near-term bullish upswing may be ahead. Initial resistance lines up at $79.04. However, any such move is likely to be corrective considering the large Bearish Engulfing pattern on the weekly chart that warns that the overall trend favors the downside. On the economic data front, weekly Jobless Claims figures are expected to print firmly along the trajectory of the downtrend in place since March while the Department of Energy is set to report that crude inventories added another 2.4 million barrels, which could help engineer a bounce. On the other hand, the overnight revelation that Chinese GDP and inflation grew meaningfully faster than expected at the close of 2009 may undermine bullish momentum amid fears that Beijing will boost efforts to restrict lending to prevent the buoyant economy from overheating.

Commodities – Metals

Gold, Silver to Extend Losses as Risk Aversion Continues

Gold       $1106.65       -$4.40       -0.40%
Prices have broken below rising trend line support and overcome the horizontal barrier at $1118, exposing the $1100 figure and later December’s swing low at $1074.50. The correlation between gold and the MSCI World Stock index has leveled off a bit but remains at a very formidable 94.6%, meaning the earnings calendar and its impact on risk sentiment is of primary importance on the fundamental front. US equity index futures slipped into negative territory in early European trade, hinting that the path of least resistance remains to the downside.

Silver       $17.68       -$0.20       -1.12%
As with gold, silver prices have broken sharply lower and are now testing below support at $17.82, the 50% retracement of the 12/30 – 01/11 upswing. Continued selling sees near-term barriers at $17.56 and $17.24. Silver’s correlation with the MSCI World Stock Index has pushed higher to 94.2%, suggesting the hints of risk aversion seen in US equity index futures ahead of the opening bell on Wall St may be pointing to continued bearish momentum in the day ahead.

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