Futures and FX Report 18/09/2012

US Markets

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

Stocks took a breather overnight after the recent sizable rally. The S&P 500 slid 0.3 percent to 1,461.19 and the Dow Jones Industrial Average dropped 40.27 points, or 0.3 percent, to 13,553.1. I thought stocks held up very well despite the sharp falls in Crude Oil and Gold to a lesser extent.

In yesterday’s report I wrote:

“Fridays trading looked to mark short term exhaustion with resistance at 1475 to 1480. However, the trend is clearly up and there is genuine strength behind this move, thus traders could continue to look for dips into the uptrend. 1450 should offer strong support and is the target for any pullback.”

I don’t see much reason to change this outlook for now. Certainly price has had a strong run up and testing the top end of the trend channel with several other markets testing major levels. However, given the strong upward trend and recent breakout, the higher probability trade remains buying into supports. The key support zone I am looking at tonight is 1455 to 1450 and this could offer a good risk/reward entry. Only breakdowns below 1440 and the previous breakout zone would put this in jeopardy. The target for any bounce is a retest of the 1475 spike high for now.

S&P500 Daily:

Potential bearish reversal candle at the upward trendline. However, the breakout above 1420 is a sign of a new kick off trend higher thus traders should look for continued pullbacks into the trend as long as this level holds.

S&P500 Daily November 2010:

Here is an example of what happened in the S&P500 when the market broke out above its previous highs. Obviously no two moves are ever alike but my point here is to show the importance of following price in the direction of the breakout. 

Emini S&P500 60mins:

This is the short trend and support zones I am looking at.

S&P500 Emini Key Levels:

Support Levels: 1455/1450, 1410

Resistance Levels: 1470/1475, 1500

Europe

European stocks retreated overnight, led lower by losses for mining and telecom sectors. 

Shares in steelmaker SSAB tanked after a profit warning, and this weighed on other players in the sector such as Salzgitter off 4.7% and ThyssenKrupp down 4.5%. In France, steel company ArcelorMittal slid 4%, weighing on the CAC 40 index, which dropped 0.8% to 3,553.69. Oil group Total slipped 1%. Heavyweight miners were also on the decline, as most metals prices dropped. Anglo American PLC gave up 2.3%, Rio Tinto PLC lost 2%, and BHP Billiton PLC fell 1.2%.

From a technical standpoint, The Eurostoxx does appear overextended on the Daily chart and is struggling at the key 2600 level. On the short term timeframe I see a potential wedge like pattern with strong support coming in at 2550 to 2560 and this could offer a low risk entry for traders into the uptrend. Breakdowns of this open up a deeper move into 2500.

Eurostoxx Daily:

This is the Daily resistance zone I am looking at

Eurostoxx 15mins:

Price is beginning to form a wedge type pattern with momentum waning. However, until the low end of this wedge breaks, traders could continue to buy into the uptrend. Key support comes in at 2550/60 with breakdowns opening up a move into 2500.

FX Majors  
The Australian Dollar was weaker than anticipated overnight and has traded into key support at 1.0420/1.043 as per the charts below. This could be a formidable zone of support and a low risk entry for traders looking to join this uptrend. Only a strong breakdown through this area would put my bullish AUD scenario in jeopardy: http://fpmarkets.blogspot.com.au/2012/09/where-to-next-for-battler.html. Interestingly, AUDJPY has tested and also bounced off key support at 82.00 and this acts as confirming evidence. 

My short term concern remains the EURO. This currency is now testing key supports and showing signs of exhaustion. Breakdowns through 1.3080 open up a deeper pullback into 1.30.

AUDUSD Daily:

This is the bigger picture triangle pattern I am looking at. Price tested and failed at key resistance on the first test. 

AUDUSD 60mins:

Price has now pulled back into great support and the previous breakout area. This could offer a low risk entry for traders to join this uptrend, targeting 1.052 and then as high as 1.06. 

AUDJPY 60mins:

Breakout and retest of strong support. These are my favourite trading patterns from a risk reward perspective. A nice bullish reversal candle out of 82.00. Any breakdowns below 81.80 invalidate this trade.

NZDUSD Daily:

Strong breakout above the downward sloping trendline which is a sign of genuine strength. This pullback offers a low risk entry into this new uptrend. 

Commodities

Gold 60mins:

Last night’s pullback offers a great entry into the uptrend. Traders should continue to focus on buying dips into the uptrend until we see a clear topping pattern.

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