Futures and FX Report 22/08/2012

US Markets

My observations below should be viewed as general advice and may not be right for you. 

We finally saw some good intraday movement overnight in US Indices but unfortunately for the Bulls, it was in the wrong direction. Equities got off to a strong start with the S&P500 touching a 4 year high but all gains were quickly reversed and the market trended lower for the rest of the session closing just off its lows. The DOW underperformed and finished lower by 0.5% while the S&P500 shed 0.4%. Total volume was also better than we have seen of late but still some way below average. 

I find this price action in the US markets very interesting given the strong resistance zones. Indeed, I put up a post on our new FP Markets blogsite yesterday pre-open detailing a number of Double Top areas across markets. Please find this post here: http://fpmarkets.blogspot.com.au/2012/08/double-tops.html. Yesterday’s closing candle in the S&P500 was bearish and a potential “reversal” candle. No doubt it is too early to start calling a top of any sort and the short term trend remains up. However, the first signs of potential distribution were shown overnight. 

Once again it is important to stress the waning momentum, breadth and volume figures just as price is “testing” these key levels. Last night, NYSE advancing issues surged on open making a high of 2200 but reversed strongly to close at 1309. The number of new highs and underlying advancing issues is declining despite price moving higher.

30/06/12:           2729 advancing issues (close)

14/07/12:           2579 advancing issues

17/08/12:           2552 advancing issues

22/08/12:           1309 advancing issues.

So despite the S&P500 making higher highs recently, and even a 4 year high briefly last night, the number of advancing issues continues to decline. This is not a sign of a strong underlying trend. Below I show a simple chart of NYSE 52 new week highs which aptly reflects this.The non-confirmations across asset classes remain with markets such as the Hang Seng, Copper and the Australian Dollar all struggling at these levels and well off their previous highs. To me, this is not indicative of a healthy trend.

The simple point to make is that it is tough to fight a rising market until the price action confirms. Markets can trend higher and for longer than most people can deem imaginable. Last night was merely one session of distribution and far too early to confirm a more meaningful turn. Aggressive traders may use last night high as a stop point to initiate shorts. The key marker for me remains 1395 and only breaks of this level would confirm a pullback and possible new move lower.

S&P500 Daily:

The S&P500 tested its previous highs last night and failed with a potential reversal candle. This needs follow through to confirm.

Emini S&P500 60mins:

Yesterday I stated that I was looking for a potential breakout to test the 1420/1425 zone and subsequent failure. This played out to a tee overnight.

NYSE 52 Week highs:

As can be seen here, the number of issues making new 52 week highs continues to decline despite the market making higher highs. This is called “divergence”. In fact, the peak reading was registered on 03/07/2012 at 244. Last night NYSE 52 week highs closed at 154. This is not encouraging as less stocks are making new highs.

S&P500 Emini Key Levels:

Support Levels: 1395/1390, 1350

Resistance Levels: 1415/1420, 1450

Europe

European shares also initially rose on Tuesday, with banks and mining firms posting broad gains on growing hopes the European Central Bank will take new steps to address the euro-zone debt crisis and on hints that further monetary stimulus may be forthcoming in China. However, some of these gains were given back as US markets drifted lower.

Miners ranked among the biggest beneficiaries of the positive sentiment after a report from Chinese state-run Xinhua news agency's Economic Information Daily that Beijing was planning new economic stimulus for the second half of the year.  In London, shares of Rio Tinto PLC rose 2.1%, BHP Billiton added 1.5% and Anglo American PLC picked up 3.6%.

The CAC 40 index closed 0.9% higher at 3,513.28. Among German stocks, Deutsche Bank added 5.1% and Commerzbank rose 3.9%, as the DAX 30 index moved 0.8% higher to 7,089.32.


From a technical standpoint, this zone remains a huge zone of resistance as shown in the Eurostoxx Daily chart below. A strong move back below DAX 7000 and EUROSTOXX 2400 would signal a potential reversal and end to this uptrend. For now, the short term trend remains up.

Eurostoxx Daily:

This is a clear resistance zone at 2500. If the markets were to reverse here, a potential Head and Shoulder topping pattern could be playing out.

Eurostoxx 15mins:

The key support level remains 2450 in the short term. There was a potential Double top pattern yesterday at 2495 but only a break below the 2450 level would open up increased momentum to the downside.  

FX Majors

The Australian dollar rose strongly yesterday out of the $1.04 support zone to $1.0486 in New York after minutes showed the central bank saw domestic economic growth overshadowing a “fragile” global outlook at its Aug. 7policy meeting. The Aussie gained against most of its major peers as the Reserve Bank of Australia made no mention of intervening to curb the currency’s strength, which has persisted despite a decline in the terms of trade. 

There was also a strong move in EUR overnight above the key $1.24 technical level to a high of $1.248 on speculation that talks between European leaders this week will lead to stronger measures to counter the regions debt crisis. It also looks like a number of buy stops were triggered above this level. 

From a technical standpoint, AUD has struggled at the formidable resistance zone shown on the Daily chart at $1.06. There have been consecutive Daily reversal candles out of this level which shows that price is failing to push higher. The market appears to be transitioning from uptrend into a new short term downtrend but this takes time. I have been showing a potential short term topping pattern on the 60min chart and a break below1.04/1.044 short term support level would be needed to confirm this.However, EURUSD actually broke out of the base pattern pattern I have been highlighting of late. If this run continues, I imagine this will be positive for risk assets. Mixed signals indeed.

AUDUSD Daily:
Price failed at this key resistance zone. There is now a key test of the upward sloping trendline in the short term.

AUDUSD 15mins:
Possible short term Head and Shoulders or topping pattern is forming. This will be triggered on a break of 1.040.

EURUSD 60mins:

A potential short term base pattern that was triggered above 1.24 overnight. This should provide a good risk/reward setup for breakout traders. Any move back below 1.24 would invalidate this and signal a failed breakout.

Commodities

There was an interesting move in Gold and Silver overnight that I think needs highlighting today. Is Gold suddenly waking up on fears of a new pullback in risk assets?

Gold Daily:

Gold remains in a short term trading range but is now testing the upper boundaries. There are major catalysts coming up with the FOMC minutes tonight and FED meeting come the end of the month. 

Gold December 60mins:

Price is now testing the upper end of this consolidation pattern and this could be a very interesting breakout trade indeed if we see further momentum.

Contact:
Austin Mitchum. Senior Market Analyst

First Prudential Markets

Email: a.mitchum@fpmarkets.com.au
Office: +61 2 8252 6800 Ext 120
Mobile: +61 0431547026