Investments

European Stock Exchanges Position to Reverse Lower

Weekly Strategy

FTSE 100

Long-Term Technical Outlook

There are 2 levels that most likely produce a top.  The first level, 4751, has been reached and is where the rally from 4096 is equal to 61.8% of the 3461-4521 rally.  The next level is 5156, which is where the 2 bull legs would be equal.

Short-Term Technical Outlook

The FTSE is setting up a Rising Wedge chart formation indicative of a bearish reversal ahead. Negative divergence on the RSI oscillator bolsters the downward bias. Near-term support is seen at 4888.90.

DAX

Long-Term Technical Outlook

There are 2 levels that most likely produce a top.  The first level, 5506, has nearly been reached and is where the rally from 4524 is equal to 61.8% of the 3589-5176 rally.  The next level is 6113, which is where the 2 bull legs would be equal.

Short-Term Technical Outlook

As with the FTSE, the German benchmark index is showing a bearish Rising Wedge with negative RSI divergence. A break of support at 55023 opens the door for a move to resistance-turned-support at 54420.

CAC 40

Long-Term Technical Outlook

There are 2 levels that most likely produce a top.  The first level, 3535, has been reached and is where the rally from 2958 is equal to 61.8% of the 2466-3400 rally.  The next level is 3892, which is where the 2 bull legs would be equal.

Short-Term Technical Outlook

Another rising wedge is seen on the CAC 40, again with negative RSI divergence. Near-term support is seen at 3668.40. A break below this will likely see a test of the psychologically significant 3600.00 handle.

IBEX 35

Long-Term Technical Outlook

There are 2 levels that most likely produce a top.  The first level, 1124, has nearly been reached and is where the rally from 925 is equal to 61.8% of the 670-993 rally.  The next level is 1247, which is where the 2 bull legs would be equal.

Short-Term Technical Outlook

Spanish shares fit in with positioning noted on other key exchanges: a Rising Wedge points to a bearish bias, and negative RSI divergence offers confirmation. A break below the wedge bottom at 1141.81 opens the door for a move to the 23.6% Fibonacci retracement level (1128.42).

FTSE MIB

Long-Term Technical Outlook

There are 2 levels that most likely produce a top and neither has been reached.  The first level, 22798, is where the rally from 17626 is equal to 61.8% of the 12332-20702 rally.  The next level is 25996, which is where the 2 bull legs would be equal.

Short-Term Technical Outlook

The FTSE/MIB looks essentially the same as other European benchmarks, with a Rising Wedge and negative RSI divergence clearly in place. A move below the wedge bottom at 22609.38 will aim below the 22500.00 handle.

Investments

Australia Stocks to Send Commodities Plunging, Statistics May Show

When adjusting for a 10-month lag between commodities and Australian equities we find that the movement in the two have a correlation of 0.96. A simple linear regression between the effect of stocks and commodities, with a 10-month lag, yields estimated values which quite accurately mimic much of the action seen from stocks in recent months. To be more specific the equation that we get from our regression model presents itself as:

Commodities (10 months ahead) = 31.0755 + 0.047581 * ASX 200

Figure 2 presents the mentioned estimated values in green, following the actual values in red.

What can we conclude from this regression model?

For one, we could say that the plunge in Australian equities seen over the last year has not been fully priced into commodities. That is, price action on these earthly assets may still have further to go before hitting a solid bottom. According to the model, commodities might not hit a floor for another two months. Should this prove to be true, commodities are likely to surge ahead, possibly in January. A violent swing upward in the price of such goods would be consistent with the upside volatility that had been seen in equities throughout the Spring of 2009.

Note:

The RBA Commodity Price Index does not include energy. Any recent spikes in oil or historically low natural gas prices will not be factored into this model. The Index itself has the following weightings:

Rural Commodities: 29.1%
Beef and Veal: 9.6%
Wool: 8.6%
Sugar: 5.2%

Base Metals: 15.0%
Aluminum: 8.6%
Copper: 2.7%
Nickel: 1.4%

Other Resources: 51.8%
Gold: 16.3%
Coking Coal: 13.8%
Iron Ore: 9.3%

Written by Luis Gil, CFD Analyst

Investments

U.S. Stocks Lose Most in Six Weeks on Fed, Treasury Report

US Session Key Developments

• Federal Reserve and Treasury Says Credit Conditions Worsened
  
• TALF Program to Be Extended Three Months
• Foreign Cash Flows to U.S. Collapsed in June
  

U.S. stocks declined by the largest amount since July 2 after a new Federal Reserve report showed that bank lending contracted in the second quarter. Indeed many had not been prepared for this announcement as surging equities may have led many to perceive that pain-staking conditions in the credit markets had been alleviating. Indeed, the Fed added that it would be extending its emergency TALF program by three months. TALF loans collaterlized with newly issued Asset-Backed Securities (ABS) and older Collaterlized Mortgage-Backed Securities (CMBS) will continue to be issued through the end of March 2010 while those backed by newly issued CMBS will be extended through the end of June 2010. Investors quickly sold shares once it was made clearer by the Fed that further stimulative action would be required of them. If that wasn’t enough to inspire the selling spree, the level of investment driven to the U.S. from abroad collapsed in June. Total Net Treasury International Capital (TIC) shrank $31.2 billion in June, wildly undershooting the consensus estimate of a rise in such flows of $23.0 billion. The unsettling may lead many to believe that the world’s trust in the American bond market may bay dwindling.

DOW 30   9135.34               -186.06                   -2.00%

Dow stocks took a beating today, with the worst of its sectors, Basic Materials, plummeting 4.73%. Alcoa, one of the two sector’s members, led the free-fall when it shed 6.48% on an indication from the Fed that the economy might not be performing as well as many had anticipated.

SPX 500   979.73              -24.36                   -2.43%

Financials were the second-hardest hit sector in the S&P 500 with Wells  Fargo and Bank of America declining 5.16% and 4.77%, respectively. Word that credit tightness in the second quarter had actually grown worse shook investors’ confidence in the banking sector. Implied volatility on the benchmark, as shown by the VIX index, rose to it’s highest level in five weeks. In percentage terms, the VIX, rose by the largest amound since April 20.

NAS 100   1930.84              -54.68                   -2.75%

NASDAQ stocks performed the worst of the three U.S. benchmark equity indices, with Technology shedding 2.81%. Apple, one of the day’s biggest losers, declining 4.26%, lost out after Dell announced it would be devloping a smart phone for China Mobile Ltd.

Written by Luis Gil, CFDTrading Analyst

For questions and comments email lgil@fxcm.com

Investments

Daily Commodities Fundamentals: Commodities Close Lower Entering the Weekend

North American Commodity Update, Last Updated 8/14/2009 3:51 PM EST (GMT = EDT +5:00)

Commodities – Energy

Crude Sold Following a Disappointing Consumer Confidence Report

Crude Oil (WTI)   $67.530                         -$2.990                             -4.24%
Crude Oil future prices plummeted today, ending the week with a 3.5% decline back below the psychological $70-per-barrel level. After a week’s worth of important fundamental data releases including the FOMC rate decision and Bank of England Quarterly Inflation Report, the University of Michigan’s Consumer Confidence report turned out to be the main market mover. While this may seem strange, it is not that surprising when put into context; recent data releases have encouraged investors to re-enter higher yielding assets in hopes of a global economic recovery. Equity markets have rallied, which has translated to a bid up of Crude future prices as speculators predict a short-to-medium term hike in demand. Many believed that the United States would be one of the first countries to successfully escape the prolonged global recession; however, today’s consumer confidence figure revealed that Americans are not willing to take the lead. Consumer confidence was expected to increase from 66.0 to 69.0, but upon release, the report showed that the figure had actually dropped to 63.2. As a result, Crude future prices faced a severe sell-off as investors return towards safer assets and wait for an economic turnaround. Looking towards next week, crude could potentially retest the $70-per-barrel level before giving in to the true, market-moving fundamentals.

Department of Energy Inventories

Commodities – Metals

Stronger Dollar and Bearish Outlook Drive Precious Metals Lower

Gold                   $949.000                      -$7.500                           -0.78%
Gold future prices finished lower to close out the week, again losing as the US dollar strengthened. After a worse-than-expected US Confidence Report, the greenback gained across the board as investors flocked towards the relatively safe dollar and fled from higher-yielding assets (equity markets fell significantly). Recall that Gold and the greenback tend to trade inversely as investors use the metal to hedge against dollar weakness/inflation. Simultaneous to the dollar’s advance, today’s Euro-Zone and US CPI reports revealed that inflation is not likely to be of concern in the near-term. This fact was already suggested in numerous global bank statements during the last two weeks. Though Gold’s correlation with the dollar index is not remarkably high, dollar strength should continue to be an indication for Gold price action. Therefore, any encouraging fundamental releases that heighten risk appetite will likely translate into future price increases as well.

Silver                 $14.675                    -$0.312                           -2.08%
Silver futures could not hold on to yesterday’s gains during a volatile day of trading; the metal lost nearly 2% as investors turned bearish following the University of Michigan’s Consumer Confidence report. Though Silver is considered a precious metal like Gold, it has seen far more drastic price action due to its other application. Because Silver doubles as an industrial input, it is particulary sensitive to any changes in global economic outlook. Despite a better-than-expected US Industrial Production figure (0.5% actual vs. 0.4% expected), investors’ recent bullish forecast was not carried into the weekend. As for next week, expect Silver to follow investor sentiment; only time will tell which direction that will be.

-Written by Jay Steinberg, CFDTrading Research
Questions/Comments about this article? Send them to JSteinberg@fxcm.com

Investments

Daily Commodities Fundamentals: The Week Opened Quietly, But Don’t Expect It to Last

North American Commodity Update, Last Updated 8/10/2009 4:06 PM EST (GMT = EDT +5:00)

Commodities – Energy

Crude Pares Losses to Close Near Even

Crude Oil (WTI)   $70.960                         +$0.030                             +0.04%
Crude Oil future prices traded sideways today during a quiet US trading session. A lack of market-moving fundamental data release forced Crude to track equity markets and retreat amid US dollar strength for the majority of the day. All three major US equity indices closed lower today as investors engaged in some profit-taking following last week’s impressive performance. Crude tends to follow equity markets because of its function as an input price; global economic expansion would likely increase demand for Crude, which has been extremely weak this summer. Week after week, the US Department of Energy’s inventory figures have showed an oversaturated market with not enough demand for the commodity. This week, Crude stockpiles are expected to increase by another one million barrels. Crude prices have also reflected a stronger US dollar, which continued its gains from Friday following a better-than-expected NFP report. Tomorrow, the FOMC will begin its two day Monetary Policy Meeting; speculators believe that the key lending rate will remain at 0.25%, but the committee may hint towards a hike in rates as early as next year. Such a decision would lead to growing confidence in the global economy, potentially contributing to future Crude price increases.

Department of Energy Inventories

Commodities – Metals

Gold Trades Sideways, Silver Loses

Gold                   $948.100                           -$11.400                           -1.19%
Gold future prices fell the most in two weeks during intraday trading as prices tested and broke through the psychological $950-per-ounce level to close down 1.3% at $946. The move was a significant setback to any hopes of a near-term test of $1000, as the break below $950 could spark technical selling until $920-per-ounce. Gold’s decline was largely due to the stronger US dollar as it continues to gain against its major competitors following Friday’s NFP report. Job losses for July were approximately 80K less than expected and the unemployment rate dropped by 0.1% for the first time since April 2008. The U.S. dollar index was up 0.3% as of 3:00 PM EST but investors traded cautiously preceding tomorrow’s FOMC Monetary Policy meeting. The commentary surrounding tomorrow’s meeting will likely be the main market mover, as no tangible changes are expected just yet. Gold could see significant upside if the committee is concerned about future inflation as a result of the economic stimulus plan; Gold is often used as a hedge against dollar weakness and/or inflation.

Silver                 $14.365                           -$0.303                          -2.07%
Silver future prices lost nearly 2% as the US dollar continued to strengthen and investors pull back from their bullish sentiment that closed last week’s trading. Due to a shortage of market-moving fundamental data, mere speculation may be responsible for Silver’s noteworthy decline. An extension from Friday’s dollar strength contributed to the metal’s decline today, especially in anticipation of this week’s upcoming reports. In addition to the FOMC meeting, an array of potentially impactful releases is expected, including Euro-Zone CPI, the UK Unemployment Rate, and the UK’s Quarterly Inflation Report. After this week, we should have a clearer idea of the future direction of commodity prices and the global economy as a whole.

-Written by Jay Steinberg, CFDTrading Research
Questions/Comments about this article? Send them to JSteinberg@fxcm.com

Investments

S&P 500 Breaks 1,000 For First Time Since November

US Session Key Developments

• S&P 500 Breaks and Closes Above 1,000 For First Time Since November
  
• China Manufacturing Activity Hits 12 Month-High
• U.S. Manufacturing Slows at Tighest Rate Since August
• Construction Spending in U.S. Rises for Only Second Month Since September
  

S&P 500 Breaks 1,000 For First Time Since November

Stocks in the S&P 500 managed to break through and close above the psychological 1,000 mark for the first time since November 4, after both domestic and global data releases pointed toward an upcoming economic recovery. Indeed, China’s Purchasing Manufacturing Index roses to 53.3, the second-highest level since May 2009. Wall Street took special notice to the “new orders” portion of this figure, which rose to the highest mark in 14 months. Purchases of new equipment and merchandise from China sparked hope that a rise in consumer demand was being reflected by the data. Similarly, manufacturing activity in the U.S. began to show signs of a recovery. While still remaining below the 50 level – the break-even point at which manufacturing is either expanding or contracting – the U.S. PMI showed that such activity slowed by the tightest pace in 12 months. If these two bits of data were not enough to spark confidence, Construction Spending rose for only the second month since September, sending Alcoa surging 7.14%

Dow 30              9286.56             +114.95                        +1.25%

Industrials took off today after various indicators of manufacturing and building activity showed signs of hope. Basic Materials was the strongest performing sector in the index after Alcoa and Dow Chemical jumped 3.14% and 7.14%, respectively.

SPX 500              1002.63                 +15.15                        +1.53%

The VIX index, a measurement of fear indicated by the volaility on options on the S&P 500, declined by the largest percentage amount since July 22 after the index surged ahead and closed above 1,000 for the first time since November 4. Price action throughout the day opened and remained in postive territory throughout the entire session.

NAS 100             2008.61                +15.15                          +1.53%

NASDAQ closed above 2,000 for the first time since October 1 after macroeconomic data boosted Technology stocks. Google and Apple rose 2.06% and 1.86%, respectively, after the former’s Chief Executive Officer, Eric Schmidt, announced his resignation from the board of Apple.

Investments

Daily Commodities Fundamentals: Commodities Open Week on a High Note

North American Commodity Update, Last Updated 8/3/2009 4:06 PM EST (GMT = EDT +5:00)

Commodities – Energy

Crude Prices Gain due to Chinese Consumption, European PMI Figures

Crude Oil (WTI)   $71.420                         +$1.970                             +2.84%
Crude Oil future prices shot up above $72-per-barrel during intraday trading, starting the new week by gaining an additional 3%. Crude prices begin climbing early on in Asian trading, as new reports emerged that Chinese consumption of Crude, which accounts for nearly 45% of all Asian consumption, had increased. Many analysts expect China to be the first country to successfully escape the global recession, so the country’s improved figure may be perceived as an indicator for near-term global growth. The European PMI figures exceeded expectations today, led by the UK number that reached 50.8. A reading above 50 actually indicates expansion as opposed to contraction; the reading had been below 50 since late last year. The PMI reports heightened risk appetite in the futures market, as any signal of near-term economic expansion will likely increase demand for Crude. However, recall that just last week, US Crude inventories were largely disappointing, leading to a substantial 6.5% decline in Crude future prices. If Wednesday’s new stockpile report reveals heightened demand for Crude, the market could see significant upside.

Department of Energy Inventories

Commodities – Metals

Precious Metals Push Forward Hit Recent Highs

Gold                   $959.300                          +$3.500                           +0.37%
Gold future prices reached a 2-month high today after closing up around $4 to $960. Prices increased marginally by 0.3%, significantly less than the gains realized by Crude and Silver. Widespread dollar weakness was most responsible for Gold’s increase today, as the greenback fell across the board (excluding the Japanese Yen). The Dollar Index appeared to experience a breakout during today’s trading, as numerous currencies (including the commodity-correlated Australian and Canadian dollars) hit new yearly highs. Recall that Gold and the greenback tend to trade inversely as investors use the metal to hedge against dollar weakness. Fundamental data does not seem to be supportive of Gold’s increase of late, as inflation remains subdued and physical demand remains low. Regardless, as long as risk appetite remains, investors could choose to ignore the facts and extend the rally. If they become satisfied with the price increase, supports could falter leading to a significant retracement.

Silver                 $14.250                           +$0.310                            +2.22%
Although prices retraced slightly since reaching 7-week highs during intraday trading, Silver futures traded upwards of $14-per-ounce after adding nearly $0.300. Like Gold, the dollar’s weakness contributed to Silver’s gain, but other factors played in that led to the metal’s significantly more notable price increase (about 2.5% compared to Gold’s 0.3%). In addition to serving as a precious metal, Silver also possesses an industrial application that makes it more sensitive to positive industrial reports. As mentioned, the European PMI figures exceeded expectations and heightened risk appetite. The US ISM Manufacturing report also came in better-than-expected, which further advanced Silver future prices. Tomorrow may be another volatile day for commodities; The RBA’s rate decision is due overnight, along with Swiss CPI. At 8:30 AM EST, the US Personal Income and Personal Expenditure reports could be market-moving.

-Written by Jay Steinberg, CFDTrading Research
Questions/Comments about this article? Send them to JSteinberg@fxcm.com

Investments

Daily Commodities Fundamentals: Broader Commodity Market Retreats Amid CFTC Speculation and Falling Risk Appetite

North American Commodity Update, Last Updated 7/28/2009 4:00 PM EST (GMT = EDT +5:00)

Commodities – Energy

Crude Prices Fall As CFTC Hearings Begin

Crude Oil (WTI)   $67.230                         -$1.080                             -1.58%
Crude Oil future prices dropped significantly today, falling nearly 2.5% during intraday before paring some of its losses. Crude prices started off the day slightly higher only to begin a steady descent following the US Consumer Confidence report, which revealed worse-than-expected results (46.6 actual vs. 49.0 expected). Continued unemployment increases seem to be the primary reason for the disappointing confidence figure; just last week, Fed Chairman Bernanke said that the unemployment rate could increase for a few more years. European equity indices fell lower today, while the US indices appear to be following suit. Poor earnings from both Office Depot and US Steel Corporation discouraged investors even after the S&P Case Shiller Index improved for the first month in three years. However, while all of the above was market moving, the most influential price driver in the broader commodity market today was the beginning of the CFTC hearings regarding speculation restriction. Commodities fell across the board as investors fear that CFTC Chairman will attempt to impose strict position limits in energy markets. The results of the hearings will likely weigh heavily on Crude future prices.

Upcoming Department of Energy Inventories

Commodities – Metals

Precious Metals Decline Near 2% on CFTCSpeculation and Dollar Strength

Gold                   $939.600                           -$16.700                           -1.75%
Gold future prices retreated back below the psychological $950-per-ounce level today as part of a broad commodity pullback today. Investors are selling out of Gold and taking a “wait and see” approach as the CFTC hearings push forward. The results of the CFTC meetings this week will likely be the main driver behind Gold future prices in addition to risk appetite/aversion. The US dollar outperformed the Euro, Pound, and Franc today, but lost to the ultra-safe Japanese Yen and impressive Australian dollar. Recall that Gold and the greenback tend to trade inversely as investors use the metal to hedge against dollar weakness/inflation. Tomorrow’s German CPI report will likely be a market mover for Gold future prices.

Silver                 $13.725                    -$0.265                          -1.89%
After breaking above the $14-per-ounce level yesterday, Silver followed the other commodities downward today, losing approximately 2% during intraday trading. Like Gold, tomorrow’s CPI report will move Silver future prices; however, the US Durable Goods Orders figure will serve as a leading indicator for future industrial production. Because durable goods are expected to last more than three years, an increase in orders will signal heightened optimism in the marketplace and potential growth. Tomorrow should be an interesting day for Silver, as the fundamental data reports will be measured against any news emerging from the CFTC hearings.

-Written by Jay Steinberg, CFDTrading Research
Questions/Comments about this article? Send them to JSteinberg@fxcm.com

Investments

Stocks Finish Green After Home Sales Data Sparks Optimism

US Session Key Developments

• New Home Sales Stronger Than Expected In June
  
• Centex Rallies 9.1% on Home Data
  

Stocks Finish Green After Home Sales Data Sparks Optimism

Stocks managed to finish the day ahead after spending most of the day in negative territory, allowing the Dow to add to it’s largest two-week rally since 2000. Positive economics data, however, helped prevent equities from slipping. Indeed New Home Sales in June rose by 11.0% after economists forecast the figure to rise by only 3.0%. The latest figures came after May’s upwardly revised sales figure increased 2.4%. Signs of a bottoming housing market could not have been clearer after today’s release – and investors reacted. Centex led homebuilders today, surging ahead 9.1% after the data release.

Dow 30              9108.51             +15.27                        +0.17%

A mixed day on the Dow saw only four of the nine sectors in the index finish in the green. The best performing one, Basic Materials, jumped 1.46% after Alcoa bulldozed ahead as options on the stock pointed toward a buying signal.

SPX 500              982.18                 +2.92                        +0.30%

The VIX (fear gauge) declined today rose substantially, by 1.19 points to 24.28. The 5.2% increase in the level of volatility implied on the S&P 500 came despite a strong performance by Financials. Indeed the sector performed the strongest, by 1.49%.

NAS 100             1967.89                +1.93                          +0.10%

NASDAQ had a mostly solid day, with only Technology and Consumer Goods finishing down. The former declined as small-cap stocks took major hits after implied volatility rose.

Investments

Dow Breaks 9000 After G7 Country Says Its Recession Will End This Quarter

US Session Key Developments

• Bank of Canada Says Country Recession to End This Quarter
  
• June Existing Home Sales Strongest Since February
  

Dow Breaks 9000 As G7 Country Says Its Recession Will End This Quarter

Wall Street pulled off one of the most stunning days in its history after the Dow Jones Industrial Average broke the 9000 mark for the first time since the beginning of September. Sentiment flourish after the central bank of Canada, a G7 country, said that its own recession would end this quarter. Word that at least one of the global economic leaders would be getting through this crisis in a quicker-than-expected manner served investors well. June existing home sales surged ahead, growing 3.6% when estimates called for the figure to rise by only 1.5%.

Dow 30              9069.29             +188.03                        +2.12%

The Dow finished the day slightly ahead prior to a surge in activity that sent the blue-chip index to a high of 9096.27. As such, only three stocks finished in the read. McDonald’s sent the Consumer Services sector down hill after it reported earnings that matched that of expectations.

SPX 500              976.29                 +22.22                        +2.33%

The VIX (fear gauge) declined today for the fifth of six days, declining by only 0.03 points to 23.43. Basic Materials gained 3.03% with Dow and DuPont surging ahead after DuPont’s CFO stated that Chinese demand would continue to drive growth for the company.

NAS 100             1973.60                +47.22                          +2.45%

Every sector in the NASDAQ finished in the green with Telecommunications and Oil/Gas adding more than 4.1% to their numbers. Technology finished ahead 1.83%, but may falter tomorrow on Microsoft’s post-session earnings report. The Redmond, Washington-based company posted earnings that were shy of Wall Street estimates.

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