technical analysis

European Stocks Correct Higher, Bias Remains Bearish

WEEKLY STRATEGY

FTSE 100

Long-term Technical Outlook

The FTSE is testing channel support and a break below would strongly suggest that the advance from the 2009 low is complete. The rally is in 5 waves and is therefore probably just the first wave of a larger correction (b wave underway now). Initial support is 4955.

Short-Term Technical Outlook

The FTSE has found near-term support at 5316.79, the 50% Fibonacci retracement of the downswing from the swing high in mid-January. Near-term resistance remains at 5383.72, the 61.8% Fib reinforced by support-turned-resistance at the bottom of a previously broken rising channel. Negative RSI divergence argues for a bearish bias. A break lower exposes the 38.2% mark at 5249.86.

DAX

Long-term Technical Outlook

The DAX is in the same position as the FTSE. The index is testing channel support now and dropping below would suggest that the rally from the 2009 low is complete as an A wave. Initial support is 5159.

Short-Term Technical Outlook

German shares broke down below the lower boundary of a rising channel that had been guiding prices higher since the beginning of the month, with prices now stalling above the 38.2% Fibonacci retracement of that rally at 55702. Continued selling will target 55260, the 61.8% Fib level.

CAC 40

Long-term Technical Outlook

The CAC 40 has dropped below trend line support and a large B wave may be underway now towards 3398. Favor the downside against the January high.

Short-Term Technical Outlook

The French benchmark index found support at the bottom of a rising channel that has been guiding the move higher since the beginning of the month, a level reinforced by the 38.2% Fibonacci retracement level at 3697.72. A push lower will target the 50% Fib at 3668.73, while near-term resistance is found at the channel’s mid-line (now at 3757.56).

IBEX 35

Long-term Technical Outlook

After reversing in January, the IBEX has declined in impulsive fashion. Additionally, RSI divergence on the weekly suggests that the top is important. Favor the downside. The next support is 993.

Short-Term Technical Outlook

The IBEX corrected slightly higher to meet near-term resistance at 1025.14, the 23.6% Fibonacci retracement of the latest down leg. A break above this boundary exposes the 38.2% Fib at 1035.11, while near-term support is marked by the last swing low at 1009.01.

S&P/MIB

Long-term Technical Outlook

The FTSE/MIB reversed from the 38.2% retracement of the decline from the 2007 high and has fallen beneath channel support. The drop below channel support indicates that the path of least resistance is lower. The next level of support is 20702.

Short-Term Technical Outlook

Italy’s benchmark index has retraced a bit higher after breaking out of a rising channel that had framed the upswing from the lows set earlier this month. Near term resistance stands at 21349.62, the 38.2% Fibonacci retracement of the 02/08-02/22 rally, and reinforced by the channel’s lower boundary. Near-term support lines up at 21180.81, the 50% Fib.

technical analysis

European Stocks to Extend Decline as Prices Clear Key Support

WEEKLY STRATEGY

FTSE 100

Long-term Technical Outlook

The FTSE is testing channel support and a break below would strongly suggest that the advance from the 2009 low is complete. The rally is in 5 waves and is therefore probably just the first wave of a larger correction (b wave underway now). Initial support is 4955.

Short-Term Technical Outlook

The FTSE has put in an Evening Star candlestick formation below resistance at 5383.72, the 61.8% Fibonacci retracement of the downswing from the swing high in mid-January reinforced by support-turned-resistance at the bottom of a previously broken rising channel. A break below the 50% Fib at 5316.79 exposes the 38.2% mark at 5249.86.

DAX

Long-term Technical Outlook

The DAX is in the same position as the FTSE. The index is testing channel support now and dropping below would suggest that the rally from the 2009 low is complete as an A wave. Initial support is 5159.

Short-Term Technical Outlook

German shares down below the lower boundary of a rising channel that had been guiding prices higher since the beginning of the month, with prices now working negotiating the 38.2% Fibonacci retracement of that rally at 56144. Continued selling will target 55702, the 50% Fib level.

CAC 40

Long-term Technical Outlook

The CAC 40 has dropped below trend line support and a large B wave may be underway now towards 3398. Favor the downside against the January high.

Short-Term Technical Outlook

The French benchmark index has dropped toward support at the bottom of a rising channel that has been guiding the move higher since the beginning of the month. This juncture (now at 3682.82) is reinforced by the 23.6% Fibonacci retracement of the 01/11-02/08 decline, with a break lower opening the door for considerable downside to target the 3600.00 figure.

IBEX 35

Long-term Technical Outlook

After reversing in January, the IBEX has declined in impulsive fashion. Additionally, RSI divergence on the weekly suggests that the top is important. Favor the downside. The next support is 993.

Short-Term Technical Outlook

The IBEX has followed up a large Bearish Engulfing candlestick formation with a move below support at a rising trend line set from the swing low set earlier this month. Initial support now stands at 1023.09, the 23.6% Fibonacci retracement of the 02/03-02/05 downswing.

S&P/MIB

Long-term Technical Outlook

The FTSE/MIB reversed from the 38.2% retracement of the decline from the 2007 high and has fallen beneath channel support. The drop below channel support indicates that the path of least resistance is lower. The next level of support is 20702.

Short-Term Technical Outlook

The IBEX has followed up a large Bearish Engulfing candlestick formation with a move below support at a rising trend line set from the swing low set earlier this month. Initial support now stands at 1023.09, the 23.6% Fibonacci retracement of the 02/03-02/05 downswing.

technical analysis

European Stocks Vulnerable as Prices Approach Resistance

WEEKLY STRATEGY

FTSE 100

Long-term Technical Outlook

The FTSE is testing channel support and a break below would strongly suggest that the advance from the 2009 low is complete. The rally is in 5 waves and is therefore probably just the first wave of a larger correction (b wave underway now). Initial support is 4955.

Short-Term Technical Outlook

The FTSE is approaching a critical upside barrier at 5383.72, the 61.8% Fibonacci retracement of the downswing from the swing high in mid-January, a level reinforced by support-turned-resistance at the bottom of a previously broken rising channel. Relative strength studies area heading into overbought territory, hinting that some manner of pullback may materialize in the near term. Initial support is seen at 5316.79, the 50% Fib.

DAX

Long-term Technical Outlook

The DAX is in the same position as the FTSE. The index is testing channel support now and dropping below would suggest that the rally from the 2009 low is complete as an A wave. Initial support is 5159.

Short-Term Technical Outlook

German are approaching key resistance at 57400, the top a near-term rising channel and the previous swing top from earlier this month. Negative RSI divergence suggests a move lower is likely from here, targeting the channel bottom at 56012.

CAC 40

Long-term Technical Outlook

The CAC 40 has dropped below trend line support and a large B wave may be underway now towards 3398. Favor the downside against the January high.

Short-Term Technical Outlook

The French benchmark index has pushed through resistance at 3764.00, the 76.4% Fibonacci retracement of the decline from February’s swing high, but negative RSI divergence suggests below falling trend line resistance bodes ill for continued bullish momentum. Initial support lines up at 3722.33, the 61.8% Fib.

IBEX 35

Long-term Technical Outlook

After reversing in January, the IBEX has declined in impulsive fashion. Additionally, RSI divergence on the weekly suggests that the top is important. Favor the downside. The next support is 993.

Short-Term Technical Outlook

The IBEX is approaching resistance at 1071.62, the 61.8% Fibonacci retracement of the down move from early February. Negative RSI divergence argues for a reversal lower at this juncture, with the initial downside barrier at the 50% Fib (1056.63).

S&P/MIB

Long-term Technical Outlook

The FTSE/MIB reversed from the 38.2% retracement of the decline from the 2007 high and has fallen beneath channel support. The drop below channel support indicates that the path of least resistance is lower. The next level of support is 20702.

Short-Term Technical Outlook

Italian issues has overcome resistance at the 61.8% Fibonacci retracement of the down move from this month’s swing high (21724.43), but a formidable barrier lines up nearby at the top of a rising channel formation. If bullish momentum persists, the next relevant boundary lines up at 22021.84, the 76.4% Fib retracement. Alternatively, a turn lower sees initial support at the 50% Fib level (21484.05).

technical analysis

Oil Stalls at $82, Metals Push Higher Ahead of Fed Minutes

Commodities – Energy

Crude Looks to Fed Minutes as Catalyst Ahead of Critical $82 Level

Crude Oil (WTI)        $81.82       +$0.50       +0.06%
Oil prices have paused ahead of major resistance below the $82 level, hinting that a double top may be in the works. Minutes from the last meeting of the US Federal Reserve headline the economic calendar, with traders looking for validation of the recent upgrade to the priced –in US yield outlook after December’s economic data took a decisive turn for the better. This stands to boost prices amid hopes of a speedier recovery for the world’s largest crude consumer, but a downward correction in the near-term may still be possible if traders perceive that their view of the US central bank’s time-table for raising rates has become rosier than is reasonable over recent weeks, with a downswing seeing initial support at $81.06.

Commodities – Metals

Gold Takes Out Key Resistance, Silver Tests Above $18

Gold       $1129.58       +$11.58       +1.04%
Gold prices looks to have taken out resistance at the top of a rising channel set from the lows in late December, with prices now aiming to challenge $1141.88. The metal retains a significant inverse correlation with the outlook for US monetary policy for the coming year (as expressed by the spread between Dec’2010 and Mar’2010 fed funds futures), so the release of the minutes from the last Federal Reserve meeting may prove to set off significant volatility.

Silver        $17.99       +$0.20       +1.12%
Silver prices have continued to soar, taking out support-turned-resistance at $17.79 and now targeting the $18.35 level. As with gold, a significant inverse correlation with the 2010 fed funds futures spread will mean that today’s Fed minutes release will be very closely watched.

technical analysis

Oil May Retreat as Metals Extend Gains on Softer US Data

Commodities – Energy

Oil May Retrace Lower from Resistance at $82 on Home Sales Data

Crude Oil (WTI)       $81.43       -$0.08       -0.10%
Oil prices are testing major resistance at a potential double top ahead of the $82 level. The US economic docket offers mixed bag of catalysts. November’s Factory Orders are expected to have gained 0.5%, marking the third consecutive monthly increase (albeit the smallest one over the same period). Meanwhile, Pending Home Sales are set to drop -2.0%, the first decline since January 2009. On balance, this seems to be the more significant catalyst considering the US construction sector is the world’s single largest crude consumer, with lackluster sales hinting at slower building and pointing to a softer demand outlook. This may engineer a downward correction in the near-term, with initial support seen at $81.06.

Commodities – Metals

Gold, Silver May Extend Rebound on Softer US Data

Gold       $1121.40       +$0.20       +0.02%
Gold prices have pushed above falling trend line resistance set from early December. The way higher has been guided by a rising channel, with prices now squarely at resistance market by the formation’s upper boundary. The metal retains a significant inverse correlation with the outlook for US monetary policy for the coming year (as expressed by the spread between Dec’2010 and Mar’2010 fed funds futures), which means that a bullish breakout may be ahead as US Pending Home Sales decline. Such an outcome will see the next layer of resistance at $1141.88.

Silver       $17.58       +$0.01       +0.04%
Prices have broken above resistance at the upper boundary of a falling channel established from early December, exposing support-turned-resistance at $17.79. As with gold, a significant inverse correlation with the 2010 fed funds futures spread will mean that US Pending Home Sales figures offer the bulls the steam they need to push ahead in the near-term.

technical analysis

Oil Poised to Advance, Metals Threatened on US ISM Data

Commodities – Energy

Oil to Extend Gains on US ISM, Cold Weather, Belarus Disruption

Crude Oil (WTI)       $80.62       +$1.26       +1.59%
Oil prices have continued to edge higher, tightly hugging the upper boundary of a broken rising channel set from December’s swing low below the $70 level. From here, the bulls look poised to test resistance in the $80.33 – $81.06 congestion region. Fundamental catalysts for further gains are plentiful. The Financial Times has reported that a spat between Russia and Belarus over oil prices has seen the former country stop crude shipments to its smaller neighbor. The FT has said that flows to Europe have been unaffected for now, but the total implications from the disruption remain unclear. Forecasts calling for below-average temperatures in the US are also supportive, boosting heating fuel demand in the world’s largest oil-consuming market. Finally, the outlook for US economic recovery looks to be firming as a Credit Suisse gauge tracking the market’s priced-in interest rate expectations rose to the highest since October to show traders now expect the US Federal Reserve to add 108 basis points to borrowing costs over the next 12 months. Offering further help in this regard, the US ISM Manufacturing PMI figure is set to rise to 54.1 in December, showing the industrial sector expanded at the fastest pace since April 2006.

Commodities – Metals

Gold, Silver Advance But US ISM Data May Stall Rebound

Gold       $1110.75       +$13.43       +1.22%
Gold have broken above the upper boundary of a falling channel that had guided prices lower for much of December. Near-term resistance lines up at $1114.45 from here. The metal retains a strong inverse correlation with the outlook for US monetary policy (as expressed by the spread between Dec’2010 and Mar’2010 fed funds futures), which hints that tomorrow’s release of December’s ISM figure may prove to be a hurdle for continued bullish momentum.

Silver       $17.14       +$0.25       +1.45%
Prices have extended a rebound from support at the bottom of a falling channel established earlier this month, moving back above the $17.00 handle. As with gold, a significant inverse correlation with the 2010 fed funds futures spread will mean that US ISM figures may check the bulls in the near-term.

technical analysis

Most European Stocks Pause to Consolidate, DAX Breaks Lower

WEEKLY STRATEGY

FTSE 100

Long-term Technical Outlook

The FTSE remains constructive until a drop below 4955. Potential channel resistance is not until 5483 today. The structure of the rally is bearish, taking the form of a correction (3 waves). What’s more, wave c is equal to wave a in percentage terms.

Short-Term Technical Outlook

The FTSE has broken above falling trend line resistance but the bulls have met some push-back ahead of the 5450.00 level. Initial support is seen at 5386.55, the 23.6% Fibonacci retracement level, while the latest swing high at 5445.17 marks near-term resistance.

DAX

Long-term Technical Outlook

The DAX has found support from a support line extended from the March and July lows. A short term former support line may act as resistance at the current level. A continuation of the bear trend would be signaled on a drop below 5313. In the event of a new high, the 6000-6110 zone is resistance.

Short-Term Technical Outlook

German shares broken below rising trend line support set from December’s swing low. Initial support is seen at 59387, the 23.6% Fibonacci retracement level.

CAC 40

Long-term Technical Outlook

The CAC 40 reached its 100% extension at 3892 and reversed sharply, eventually falling beneath the October low. A larger turn would be signaled on a drop below 3550. Trading above the October high would shift focus to 4000 and then channel resistance.

Short-Term Technical Outlook

The French benchmark index has overcome triple top resistance near 3868.16 and prices have now taken a breather to consolidate below the swing high at 3976.92. Near-term support is seen at 3933.85, the 23.6% Fibonacci retracement level.

IBEX 35

Long-term Technical Outlook

TThe IBEX reversed at January 2008 low of 1194. Also, the index broke beneath the October low (red line) and trendline support. The rally from 1118 raises the possibility that the break was false however. Trading to a new high would expose a measured level at 1247. Under 1118 signals that the larger decline has resumed.

Short-Term Technical Outlook

Spanish shares were rejected lower from resistance at the intersection of the 1203.22-1210.26 congestion area and the upper boundary of a rising channel that has guided trading for most of December. Initial support has been found at the channel’s mid-line, now at 1193.63.

S&P/MIB

Long-term Technical Outlook

The FTSE/MIB broke beneath its support line for several days as well as its 50 day SMA. The moving average may be resistance now. The rally from March is in 3 waves and the recent reversal occurred following what appears to be completion of an ending diagonal. This is bearish evidence so I am looking for the decline to continue.

Short-Term Technical Outlook

Italy’s FTSE/MIB index looks somewhat similar to its UK counterpart: prices have taken out falling trend line resistance but the rally has paused ahead of the 23500.00 level. Initial support is seen at 23217.16, the 23.6% Fibonacci retracement level.

technical analysis

Oil Advancing Toward $80, Gold and Silver Find Support

Commodities – Energy

Oil Continues to Grind Higher, $80 Close Ahead

Crude Oil (WTI)       $79.58       +$0.30       +0.38%
Oil prices continued higher after taking out resistance at $79.04 and are now on pace to move in for a test of the psychologically significant barrier at the $80 level. Weekly US jobless claims figures top the economic calendar, with an expected increase this time around offering the possibility of a corrective pullback ahead of the New Year holiday.

Commodities – Metals

Gold, Silver May Extend Rebound on US Jobless Claims Data

Gold       $1098.03       +$5.13       +0.47%
Gold prices are little changed heading into the final day of trade of trade before the New Year holiday, with prices recovering a bit to position for a re-test of the psychologically significant $1100 handle. The metal retains a strong inverse correlation with the outlook for US monetary policy (as expressed by the spread between Dec’2010 and Mar’2010 fed funds futures), which has recently forced losses on steadily improving US data. This relationship may start to offer prices a bit of support as weekly US jobless claims data shows a narrow increase.

Silver       $16.93       +$0.12       +0.71%
Prices found a bit of support at the bottom of a falling channel established earlier this month and have moved up towards a re-rest of the $17.00 handle on the upside. As with gold, a significant inverse correlation with the 2010 fed funds futures spread will mean that US jobless claims figures are the top fundamental catalyst to watch into the week-end.

technical analysis

Oil May Stumble as Gold Finds Support on US PMI Data

Commodities – Energy

Oil Prices May Stumble on Chicago PMI, Inventory Data

Crude Oil (WTI)       $78.96       +$0.09       +0.11%
Oil prices look to have taken out resistance at $79.04, though the break is rather shallow and the grind higher to test the psychologically significant barrier at $80 may be a slow one. Expectations of a decline in December’s Chicago PMI may also complicate the push higher, forcing a pullback (albeit a shallow one) in the recent surge of upbeat sentiment about the US economic recovery. A relatively small decline in the Department of Energy’s weekly crude inventory gauge may also prove to be a hurdle.

Commodities – Metals

Gold, Silver May Find Support in Disappointing US Data

Gold       $1092.25       -$4.59       -0.42%
Gold has continued to inch lower after testing resistance at the top of a falling channel that has guided spot rates lower for most of the current month. Continued bearish momentum targets support at $1082.48. The metal retains a strong inverse correlation with the outlook for US monetary policy (as expressed by the spread between Dec’2010 and Mar’2010 fed funds futures), forcing losses on steadily improving US data. This relationship may start to offer prices a bit of support with Chicago PMI set to decline for the first in three months in December.

Silver       $17.00       -$0.09        -0.56%
Prices have moved aggressively lower and are set to test the bottom of a falling channel established earlier this month (now at $16.85). As with gold, a significant inverse correlation with the 2010 fed funds futures spread hints that a bit of support may be seen at this juncture in the near term as Chicago PMI figures cross the wires.

technical analysis

Oil, Metals to Continue to Diverge on US Economic Data

Commodities – Energy

Oil May Push to $80 as US Economic Data Continues to Improve

Crude Oil (WTI)       $78.96       +$0.19       +0.24%
Oil is testing the $79 level after breaking out of a rising channel that had guided prices higher from the swing bottom below $70 set earlier this month. Continued bullish momentum will target the psychologically significant $80 level. The bulls may once again find their catalysts in improving US economic data, with tomorrow’s calendar set to bring the sixth consecutive monthly increase in the S&P/Case-Shiller Home Price Index as well as a three-month high in Consumer Confidence. Both releases stand to support continued gains, boosting the outlook for economic recovery of the world’s largest crude consumer.

Commodities – Metals

Gold, Silver May Extend Losses on US Rates Outlook

Gold       $1104.38       -$2.93       -0.26%
Gold has drifted lower after testing resistance at the top of a falling channel that has guided spot rates lower for most of the current month as US data has boosted Fed rate hike expectations. Indeed, the metal retains a strong inverse correlation with the outlook for US monetary policy (as expressed by the spread between Dec’2010 and Mar’2010 fed funds futures), with that link now at a formidable 93%. This threatens further weakness as data showing improvements in house prices and consumer confidence prepares to cross the wires in US trading hours.

Silver       $17.45       -$0.07       -0.40%
Positioning is strikingly similar to gold, with prices bouncing lower from resistance at the top of a falling channel established from early December. Also in line with its more expensive counterpart, a significant inverse correlation with the 2010 fed funds futures spread hints that further weakness is ahead if US data retains an upbeat tone as expected.

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