January 2010

Yen Strength to Continue

Euro / US Dollar

As suggested, the EURUSD has come down to 14385 Fibonacci support.  There is also potential support from a short term channel at 14325.  In the event that the decline from 14583 extends into an impulse, we’ll have an opportunity to short next week.

British Pound / US Dollar

The GBPUSD has rallied to a new high for the month, which negates the bearish bias that was held against 16245.  Focus is now on 16415.  The 61.8% retracement of the decline from 16882 is at 16481 and is also potential resistance.  Staying above 16060 keeps the near term trend pointed higher.  As mentioned many times last month, I am looking for short entries at higher prices as price action since May 2008 may be carving out a diamond top.

Australian Dollar / US Dollar

The decline from just above 9400 counts well as an a-b-c decline with wave b as a triangle and the succeeding rally from 8731 has extended into 5 waves.  Price pattern suggests that the larger trend is still up.  Near term, the decline from 9332 did not even extend to the prior 4th wave low so the rally from 9165 may be just a b wave rather than the beginning of the next leg up.  Expect a drop below 9165 next week and test of support at 9100.

New Zealand Dollar / US Dollar

The NZDUSD is in the exact same position as the AUDUSD (5 waves up…anticipating a correction).  Initial support is 7285.

US Dollar / Japanese Yen

Coming under 9079 creates overlapping waves and suggest that the rally from 8481 is a 3 wave correction rather than the first 3 waves of an impulse.  As such, the decline from 9380 is either wave A or 1 of a bearish sequence.  The advance to 9207 serves as either waves B or 2 therefore the decline is expected to extend in wave C or 3.  An initial objective is 8900.

US Dollar / Canadian Dollar

With the USDCAD failing to immediately extend losses below 10250, we must entertain the idea that the decline from the December high is an ending diagonal.  The diagonal would potentially complete the entire decline from 13068.

US Dollar / Swiss Franc

No change: “The USDCHF drop below 10180 negates the 4th wave interpretation.  A more bullish outcome is now possible.  If the rally from 9916 is in 5 waves (5th wave is truncated), then the succeeding decline is a larger 2nd wave that is nearing completion.  Support from the 61.8% retracement has held thus far.  The next potential support is the 78.6% level at 10042.”

Gold

Gold’s rally from 1075 is in 5 waves therefore the larger trend is probably still up (the bearish count would treat the 5 wave rally as wave C of a flat).  Near term, expect additional weakness with support at 1108.

Light Crude

Crude’s rally from 7083 may be complete as an impulse.  Crude just broke last week’s low, which should be respected as a potential reversal signal, especially given the extent of the rally in 2009.  Support is not until 75.10/65.

 

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.

S&P 500 Continues to See Rising Trend Line Support

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 is starting to clear resistance at 10,581-61.8% Fibo of 13,136-6,470 which has us turning our focus to the 61.8% Fibo level of the decline from the all-time high . The Blue chip index looks to be on pace to test 11,000 where we could see formidable resistance from the psychological level.  However, upside potential remains as the Dow has yet top test the pre-Lehman levels which were already pricing in a recession.

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 has traded along trendline support since breaking above resistance at 1,120- 50.0% Fibo of 1,576- 666 to test 1,150. If support holds then look for a break above 1,150 to test 1,200.

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.

Asian Stocks Mixed; Bank of Japan’s Momma Talks Down Risk for Double-Dip Recession

Asia Session Key Developments

• Nikkei 225 Index Hits New 15-Month High
• Hong Kong Home Prices Climb to Highest in 12 Years
• Commodity Prices Tumble Across the Board as Dollar Strengthens

Stocks in Asia/Pacific were mixed on Friday despite the strong earnings report from Intel, which helped to lifted shares of technology stocks. In Hong Kong home prices rose 1.1% for the week ending January 10^th, 2010, climbing to its highest level in almost 12 years, with the report coming after Hong Kong’s Chief Executive told lawmakers that there is no “obvious bubble” in the city’s property market. Meanwhile, in Japan, Bank of Japan’s head of statistics, Kazuo Momma said “the pace of Japan’s economic growth may slow temporarily because of decreasing public works spending,” and adding that while it “makes sense” for the two [the government and the central bank] to work together, the BOJ should decide policy independently.” More importantly, Mr. Kazuo Momma said he saw little risk of a double-dip recession as the expansion in monetary and fiscal policy continues to feed through the real economy. At the same time, Japan’s economic docket showed investors were net sellers of foreign bonds during the week ending January 8^th, 2009, selling 612.6 billion yen in overseas bonds and notes, in addition to selling 50.5 billion yen in overseas short term securities.

Nikkei 225                          10,982.10
The Japanese equity markets pushed higher on Friday for the second straight day amid forecasts from Intel boosting technology companies, leading the Nikkei 225 to gain 74.42 points (0.68%) and close at 10,982.10. Seven out of the ten components rose on the day, with consumer services leading the way, climbing 2.08%, and was followed by a 1.46% advance in financials. Shares of Taiyo Yuden rallied 4.33% as Goldman Sachs Group lifted its outlook on the electronic arts sector from “neutral” to “attractive,” while Mitsubishi Motors soared 7.46% as the automaker announced that it will raise production of it’s i-MiEV electric vehicle by 20% to 8,500 in the fiscal year of 2010. At the same time, Tokyo Electron, the world’s second-largest maker of semiconductor equipment added 2.20% as Daiwa Securities Group raised the company’s stock rating from “neutral” to “outperform,” while Advantest Corp advanced 2.61% after Daiwa Securities raised its rating on the firm to ‘neutral’ from ‘underperform.’

Hang Seng                        21,654.16

Stocks in Hong Kong pushed lower for a second consecutive day to post the first weekly decline in a month, leading the benchmark equity index to shed 62.79 points (0.29%) and close at 21,654.16. Six out of the nine components declined on the day, with industrials falling 1.50%, and was followed by a 1.02% sell off in oil & gas. Shares of Sino Land lost 1.77% as Hong Kong home prices rose to its highest level in 12 years, while PetroChina plunged 1.11% on the back of lower energy prices. Meanwhile, Cnooc gave back 1.13% as sub-zero temperatures freeze almost half of northern China’s Bohai Sea, where Cnooc operates, while Aluminum Corporation of China tipped over 0.92% as metal prices slumped on the day.

S&P/ASX 200 Index           4,898.00

Stocks in Australia traded higher on Friday, leading the S&P/ASX 200 to rise 1.60 points (0.03%) and close at 4,899.60. Four out of the ten components accelerated on the day, with consumer goods leading the way, gathering 0.64%, while oil & gas lost 1.31% to taper the advance. Shares of Commonwealth Bank of Australia gained 2.31% after the firm announced first-half cash profits increased 44% from the previous year, while Woodside Petroleum, Australia’s second-largest oil and gas producer dropped 1.59% as crude oil fell for a fifth day. At the same time, Santos Ltd slipped 1.36% after Bank of America Merrill Lynch lowered its rating on the stock to ‘neutral’ from ‘buy,’ while Karoon Gas extended yesterday’s decline and tumbled 6.25% on the day to mark its biggest drop since October 2008 subsequent to reporting “inconclusive” test results at its main gas field off the northwest coast.

Notable Asian Session Event Risk / Economic Releases

Oil May Rebound as Gold, Silver Extend Losses to End Trading Week

Commodities – Energy

Crude Oil Prices May Correct Higher to End Trading Week

Crude Oil (WTI)       $78.81       -$0.58       -0.73%
Oil prices have drifted to support at $78.48 following yesterday’s weaker-than-expected US retail sales figures, with a break lower opening the door for significant losses aiming below the $76 level. December’s CPI figures may prove supportive, with expectations calling for the annual rate to rise to 2.8%, the highest since October 2008. This coupled with the highest University of Michigan confidence reading in two years may help underpin expectations of recovery in the world’s largest crude-consuming nation, helping to engineer a corrective upswing to end the trading week. Near-term resistance lines up at $80.33.

Commodities – Metals

Gold, Silver May Extend Losses on Risk Sentiment and US CPI Data

Gold       $1135.10       -$7.75       -0.68%
Gold prices appear to be carving out a Head and Shoulders top chart formation, with a break of upward-sloping neckline support (now at $1130.54) acting as confirmation of a medium-term bearish reversal and opening the door for a move into the $1114.45 – 1117.70 region. Catalysts for the bearish scenario seem ample, with a stronger CPI reading likely to boost Fed rate hike expectations while negative readings on US equity index futures hint at lackluster risk appetite, nudging up the US Dollar at the expense of the yellow metal.

Silver       $18.54        -$0.14       -0.72%
Silver continues to consolidate between $18.72 and $18.49, with a break below the range’s lower boundary clearing the path for a decline to rising trend line support at $18.26. As with gold, lackluster risk sentiment and a higher CPI reading may give bears the ammunition necessary for continued downward momentum.

4Q Earnings Season Leaves Investors Guessing Ahead of Releases

With Alcoa posting a $227 million dollar loss, the fourth quarter earnings season has gotten off to a rough start.  However, according to analysts’ forecasts, earnings for the companies in the S&P 500 Index are expected to more than double the levels measured through the end of 2008.  Companies have seen their revenues handicapped by a tepid recovery from the worst recession in modern history. As a reflection of what is considered ‘good’ data in current conditions, government labor data recently reported the unemployment rate held near a 26-year high at 10%,  while net payrolls fell by 85K jobs in December.   Considering consumer spending accounts for an estimated 80 percent of economic activity, the outlook for business income remains challenging. However, considering the marked recovery in the financial markets through the end of the year and expectations of a robust holiday shopping season; there may be more to work with for bulls than underlying fundamentals suggest.  To garner a sense of what the 4Q earnings season may hold, we will draw comparison to the previous quarter and look at analyst expectations for the upcoming numbers.

Third quarter earnings were well ahead of analysts’ expectations, as over eighty percent of S&P companies reported earnings that surprised to the upside.  This was a record high for companies beating estimates according to Bloomberg which has tracked the data back to 1993.  The results were not all positive, however, as most sectors were unable to post year-over-year growth and revenues failed to keep pace with earnings.  The latter was attributable to weak consumer spending and it forced companies to cut costs to maintain an acceptable profit margin.  For perspective, this was the third consecutive quarter of better-than-expected results for the broader market.  However, this can be partially attributed to especially low forecasts founded on concerns related to the weak pace of recovery and anemic consumer spending in the U.S and abroad.

Looking ahead, this round of earnings figures could have a profound effect on market sentiment. Expectations for fourth quarter results are high; but this time around investors will no doubt be more judicious in their assessments of the sector’s health. Ultimately, the source of earnings will be the take away for investors: whether or not companies were able to move beyond the cost-cutting schemes of early 2009 and fill in with a steady revenue stream, as the United States and other countries around the world recommenced growth. Although the markets are likely to remain relatively quiet ahead of next week, volatility should pick up as traders adjust their expectations heading into the dense round of reports. However, depending on how these corporations performed as a whole, lingering cynicism regarding a double-dip recession in 2010 could be amplified or dispelled.

Written by Rab Jafri, James Russell, and Christopher Vecchio, CFDTrading Research

U.S. Equities Rally Despite Weak Economic Data

U.S. Session Key Developments

•    Crude Oil Prices Fall For a Fourth Day, Precious Metals Rise
•    Initial Jobless Claims, Retail Sales Data Disappoint
•    Investors Await Earnings Reports From Intel Today, JPMorgan Tomorrow

U.S. stocks rallied for a second consecutive session today on investor optimism for earnings season and dovish commentary from ECB President Jean Claude Trichet after the central bank held rates at 1.00 percent.  Investors also managed to shrug off a jobless claims report that showed 7000 more claims last week than expected and a retail report that showed sales unexpectedly fell 0.3 percent in December.  On the commodities front, crude oil fell for a fourth day to $79.17 on concern over commodity demand if the economic recovery sputters.  Silver and gold, on the other hand rose over 0.5 percent each to $18.67 and $1145 respectively as the U.S. Dollar Index posted its fifth consecutive decline to 76.776.  Despite the Dollar’s general decline, however, the greenback actually posted a small gain against the Euro and Swiss Franc after Trichet’s comments today.  The ECB President stated that the 1.00% benchmark interest rate remains “appropriate” and the EU continues to face a “bumpy road” and a “great level of uncertainty.”  He furthered his dovish tone throughout the speech and gave a general indication that eased monetary conditions would remain so through the first half of the year.  Overall, Trichet’s comments helped stocks continue to climb, although investors will likely stay cautious of making any big bets in the near-term as earnings are released over the next few weeks.  Alcoa kicked off the season with a disappointing result on Monday, while Intel and JPMorgan will look to impress in their releases today and tomorrow.

DJIA 30                      10,710.55                   +29.78               +0.28%
The Dow Jones Industrial Average rose slightly today as 19 of the 30 Dow stocks posted gains.  Merck was the biggest gainer of the index, adding over 2.7 percent, one day after being upgraded by Credit Suisse to “outperform” from “neutral.”  Other big gainers on the index were financial stocks American Express, Bank of America, and JPMorgan, which each added 1 percent in anticipation of JPMorgan’s earnings announcement tomorrow.

S&P 500                         1,148.46                     +2.78                 +0.24%
The broader S&P 500 rose for a second straight day led by gains in health care stocks and financials.  Health-care stocks rose 0.5 percent as the White House and labor leaders reached an agreement to resolve a dispute over taxing health benefits.  The sector was led by gains in Boston Scientific and United Health, which gained at least 2 percent each during the session.

NASDAQ                       2,316.74                   +8.84               +0.38%
The NASDAQ was the best performing U.S. index today thanks to a strong performance from technology stocks in anticipation of Intel’s earnings release.  Intel, the world’s largest chipmaker, added 2.5 percent after saying profits may have surged to 30 cents a share from 4 cents a year earlier.  This news helped rally other tech stocks including Oracle, Microsoft, and Cisco Systems.

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

European Equities Rebound After ECB Decision and Dovish Trichet Commentary

Europe Session Key Developments

•    ECB Leaves Rate on Hold, Forecasts “Moderate” Growth
•    British Home Retailers Tumble
•    U.S. Federal Reserve Shows Economic Recovery is Broadening

European markets rose on Thursday, following dovish commentary by European Central Bank President Jean-Claude Trichet that an interest rate hike is unlikely to be on the horizon. Citing a projected “moderate pace” of growth for the European Union, the ECB’s Governing Council voted to hold the key interest rate at 1.00 percent, as expected. As policy makers remain trepid to raise rates and thus withdraw the $12 trillion global stimulus effort, asset prices remain poised to rise well into the first half of 2010. Fifteen of the eighteen equity markets across Western Europe gained as the Federal Reserve’s Beige Book report indicated that ten of its twelve districts showed improved economic growth, offsetting worries that a slumping retail and housing sector across Europe will continue to be bogged down much longer. Positive sentiment held strong throughout the trading session, as the German Consumer Price Index for December showed a 0.9 percent increase from the month previous while the Euro-zone Industrial Production gauge for November expanded by 1.0 percent, suggesting that the foundations of an economic turnaround are beginning to accelerate.

Looking ahead, European data looks to slow down as the trading week comes to a close, with only a few notable releases on the docket for Friday. Swiss Producer & Import Prices for December (0.1 percent expected) and the Euro-zone Consumer Price Index for December (0.3 percent expected) are forecasted to continue their rebound, possibly stoking inflation worries after the ECB chose to hold the benchmark rate steady for the time being. Also, the Euro-zone Trade Balance for November is forecasted to fall 7.0 billion Euros from 8.8 billion Euros in October, following an appreciation of the Euro against the Dollar during November.

FTSE 100                      5498.20                   +24.72               +0.45%
The FTSE traded higher for the first time in three days following an American report that the economic recovery is broadening, bringing much needed hop to an embattled British housing sector. Although the index added just less than one-half of one percent, eight of ten sectors posted gains, with Basic Materials surging 1.64 percent despite stumbling commodities later in the session. The mining company Rio Tinto gained 2.2 percent on the day after it announced it increased production of iron ore by 49 percent in the fourth quarter. Associated British Foods jumped 1.1 percent, marking the sixth consecutive day of gains. HMV Group, a British retail company, lost over 8.0 percent, its sharpest drop since December 2008. Other movers on the day were Home Retail Group, which sank 6.2 percent after its CEO said sales growth would be “hard to come by,” while Hays added 4.4 percent after its shares’ rating was raised to “overweight.”

CAC 40                     4015.77                   +14.91                 +0.37%
Trading on the French exchange resulted in the second consecutive day of gains, adding just less than 15 points to 4015.77. Seven of ten sectors gained on Thursday, with Technology leading gains, up 1.68 percent, ahead of American company Intel Corporation’s earnings report. ArcelorMittal, the world’s largest steelmaker, had its rating raised to “outperform” at Exane BNP, sending the shares up 2.5 percent. Europe’s largest retailer Carrefour fell just less than one percent, following the general downturn of retailers across Europe. Other gainers included Michelin & Cie., PSA Peugeot Citroen, and Veolia Environnement, which gained 4.3 percent, 2.1 percent, and 1.6 percent, respectively.

DAX                         5988.88                    +25.74             +0.43%
German stocks gained for the second consecutive day following a better-than-expected preliminary earnings report from SAP. SAP jumped 1.9 percent after the company said that its 2009 revenue and operating margins beat projections. Adding to the rally were comments later in the session by ECB President Trichet suggesting that low rates will remain on hold for an extended period. Overall, nine of ten sectors posted gains, with Consumer Goods and Technology leading the surge, up 1.86 percent and 1.80 percent each. BNW and Daimler, the world’s two largest makers of luxury vehicles, gained approximately two percent. Commerzbank, Germany’s largest lender, led all gainers in the DAX today, adding 2.7 percent.

IBEX 35                     11999.80                   +41.50                 +0.35%
Spanish stocks rose for the first time in six days, adding 41.50 points on Thursday in Madrid. Buoyed by Basic Materials, which gained 1.79 percent, the IBEX pushed up to 11999.80. Eight of ten sectors gained during trading hours, with Utilities and Telecommunications posting the only losses. Banco Espanol de Credito, the retail-banker unit of Banco Santander, added 2.1 percent after it announced that it found no reason to raise any additional capital. Iberpaper Gestion jumped 3.8 percent, its largest move in over a week, as it was rated a “buy” at Banesto Bolsa. Boosted by commodities, Tecnicas Reunidas added 1.8 percent, marking the second straight day of gains for the designer and builder of oil refineries.

S&P/MIB                        23805.99                     +147.59                 +0.62%

Notable Europe Event Risk / Economic Releases

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

Asia/Pacific Shares Mixed; Australian Labor Market Improves Further in December

Asia Session Key Developments

• Chinese Property Prices Rise at the Fastest pace in 18 Months
• Australian Employment Rises Three Times More Than Forecasts
• Japan Machine Orders Unexpectedly Fell in November

Stocks in Asia/Pacific were mixed on Thursday, while the ASX 200 pushing higher subsequent to Australian employment rising more than three times economists’ forecasts. Employment in the $1T economy increased for the fourth straight month as companies added three times more jobs than economists had previously forecasted, with the number of people employed climbing 35,200 in December, while the jobless rate unexpectedly slipped to 5.5% from a revised 5.6% in November. Moreover, Japanese machine orders fell for the second straight month in November, with demands tumbling 11.3% from the previous month, while the Domestic Corporate Goods Price index tipped 0.1% higher in December amid expectations for a flat reading.

Nikkei 225                          10,907.68
The Japanese equity markets pushed higher on Thursday, leading the Nikkei 225 to gain 172.65 points (1.61%) and close at 10,907.68. Nine of the ten components rose on the day, with telecommunications adding 5.29%to lead the advance, while consumer services slid 0.72% to taper the rise. Shares of Japan Airlines jumped 14.29% after slumping 81.08% yesterday amid speculation that the carrier may receive 600 billion yen in bridge loans from the Enterprise Turnaround Initiative Corporation of Japan and the Development Bank of Japan, while Mitsui O.S.K. Lines rallied 7.23% after the Nikkei Newspaper said the firm’s pretax profits for the three-month period through December likely increased six-folds from the previous quarter. At the same time, Softbank soared 8.62% to its highest level since December 2007 as speculation stirs that the company may benefit from its stake in Alibaba Group Holding, which operates Yahoo!, while Mitsubishi Heavy Industries advanced 2.91% after the firm won a contract to build a natural resource-exploring ship from Japan Oil, Gas and Metals National Corp.

Hang Seng                        21,716.95

Stocks in Hong Kong pushed lower for a second consecutive day as property prices in China rose at the fastest pace in 18 months, leading the benchmark equity index to shed 31.65 points (0.15%) and close at 21,716.95. Three out of the nine components traded tumbled on the day, with basic materials falling 3.13% to lead the way, and was followed by a 0.89% decline in oil & gas. Shares China Oversea Land and Investment plunged 2.29% on concerns that China’s government will take additional steps to temper speculation in the housing market, while China Construction bank tipped over 0.97% as the company’s stock rating was downgraded from “strong buy” to “buy” at China Jianyin.  Meanwhile, HSBC Holdings added 0.72% as the company redeemed variable notes due in 2010, while China Shenhua Energy slumped 4.43% as the company is scheduled to issue RNB 2.1 billion in 365-day bills.

S&P/ASX 200 Index           4,898.00

Stocks in Australia traded higher on Wednesday on the back of rising commodity prices, leading the S&P/ASX 200 to gain 29.90 points (0.61%) and close at 4,898.00. Six out of the ten components traded higher on the day, with basic materials leading the way, gaining 1.26%, while oil & gas loss 0.56% to taper the decline. Shares of BHP Billiton, the world’s largest mining company advanced 1.53% as Daiwa Securities raised the company’s rating from “hold” to “outer perform,” while Karoon Gas tumbled 24% as testing results from its Poseidon-2 natural gas well showed up inconclusive. At the same time, WorleyParsons, Australia’s largest engineering company tumbled 1.12% as the company was downgraded from “neutral” to “underperform” at Credit Suisse Group, while Fortescue Metals Group added 3.33% as the company announced that it will share its Cloudbreak rail line in WA’s Pilbara region.

Notable Asian Session Event Risk / Economic Releases

Oil Bias Remains Bearish, Gold and Silver Recover with Risk Appetite

Commodities – Energy

Crude Oil Positioning Little Changed, Bias Remains Bearish

Crude Oil (WTI)       $80.02 +$0.37       +0.46%
Oil prices have been little changed since breaking out of a rising channel that had guided prices since mid-December and slipping below support at $80.33. Near-term support remains at $78.48. The US data docket looks to favor continued bearish momentum as Retail Sales post the smallest gain in 2 months in December, Initial Jobless Claims rise for the second consecutive week. November’s Business Inventory figures present a wild card: expectations call for a monthly increase of 0.3%, the biggest gain in 16 months. The buildup may signal that manufacturers are confident enough to prepare for a robust future recovery in sales, but it could also be seen as indicative of lackluster current demand. Considering the sharp de-stocking that we witnessed through 2009, we lean toward the former interpretation, but how the market will react in the context of the other data on the docket remains uncertain.

Commodities – Metals

Gold, Silver Rebound with Stocks as Risk Correlation Strengthens

Gold       $1143.63       +$5.43       +0.48%
Gold prices bounced from support at a minor rising trend line to recover above the horizontal barrier at $1141.78 on the back of rising stock prices as the metal’s relationship with risk sentiment continued to recover. Indeed, the correlation between the yellow metal and the MSCI World Stock Index is now at 84%. The overall dour tone expected from tomorrow’s US economic data suggests bullish momentum may not last, however. That said, fourth quarter earnings from Fresnillo Plc, a UK operator of silver and gold mines, may prove market-moving. The bulls see the next significant juncture $1150.30, a support-turned-resistance level, while the bears continue to look to rising trend line support (now at $1128.24)

Silver        $18.68       +$0.05       +0.27%
As with gold, silver corrected higher to meet resistance at $18.72, a previous near-term support level, as stocks recovered in Wall St trading (the correlation between silver and global equities has now recovered to 86.7%). Also in line with its more expensive counterpart, the earnings calendar (Fresnillo in particular) as well as the US data docket are the catalyst to watch ahead.

U.S. Equities Rally Back From First Down Day of 2010

U.S. Session Key Developments

•    Crude Oil Sells-Off for Third Consecutive Day, Precious Metals Rise
•    U.S. Posts Record December Budget Deficit of $91.9 Billion
•    Federal Reserve Releases Beige Book

U.S. indices rallied back from their first collective down day of the year as earnings optimism and analyst upgrades boosted investor sentiment.  Leading the way was a strong performance from consumer companies after Kraft revised its earnings estimates upward for the fourth quarter.  Overall, the S&P gained back much of yesterday’s losses and closed just beneath the January high of 1146 set on Monday.  The upward momentum in stocks failed to buoy the crude price, however, as oil dropped to $79.62 per barrel after a Department of Energy announcement that oil and gas inventories rose more than twice what was expected.  Gold and silver prices managed to rise in tandem for a third time in four days as the U.S. dollar weakened due to an increase in risk appetite.  The greenback fell against all of its major crossing pairs except the Yen, and the U.S. Dollar Index fell for a fourth consecutive day to 76.834.  The Beige Book release from the Federal Reserve also had an effect on investor confidence and risk appetite after 10 of the 12 regional Federal Reserve banks said that their economies were improving.  A majority of Fed Presidents saw housing and manufacturing as improving at the end of 2009, while a weak labor market was cited as the biggest potential hurdle going forward.

DJIA 30                      10,680.77                   +53.51               +0.50%
The Dow Jones Industrial Average rallied today as 22 of the 30 Dow stocks posted positive gains.  Aluminum giant Alcoa helped boost the index, gaining 3 percent after posting weak earnings and a massive 11 percent loss yesterday, while Merck added 3.6 percent after being upgraded to “outperform” from “neutral” by Credit Suisse.

S&P 500                         1,145.68                     +9.46                 +0.83%
The broader S&P 500 rose just under 1 percent today as 10 of its 11 sectors had positive days.  Health care posted the biggest gain of 1.3 percent led by rallies in Merck and Pfizer, while financials finished a strong second, gaining over 1 percent while their Chief Executives discussed the near-financial collapse of 2008 on Capital Hill today.

NASDAQ                       2,307.90                     +25.59                +1.12%
The tech-heavy NASDAQ was the best performing U.S. index today as technology stocks gained 1.2 percent.  Chinese search engine Baidu gained over 13 percent on news that Google may close down its offices in the country, while Research in Motion and Cognizant posted gains of 3 percent each.

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

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