The S&P and the Dow rallied hard from their lows on Friday night as the market got a filip from the “constructive” talks from US political leaders on Capitol Hill. Indeed from the very moment the press conference began and it became clear that they are trying to work toward a resolution stocks rallied.
I have been on the bear side of the trade for stocks since the start of earnings season but as it wraps up and the jury is in with a tale of missed earnings and revenues so too might the sell off that accompanied these poor results also be trying to wrap up. I say trying because there is no real evidence that this is the case just Friday’s trade and a feeling that on the dailies that markets have become stretched. Equally, though, a number of people who’s thoughts I respect are suggesting that perhaps it is time for a bounce.
Even though the weekly close was below my 1362 level for the S&P 500 I have to note that in Friday’s trade for the S&P 500 – and many markets – was, in a technical sense, a very bullish day with a lower low and higher high than the previous day and a pretty strong close – technicians call it an outside day and a bullish one. Equally I have been watching apple closely and it too had a big reversal:
There is now a high probability that we can use Friday and Friday’s price action as a tradeable low for a counter trend rally.
So at the close US markets had a good run with the S&P 500 up 0.48% to 1359, the Dow was 0.37% higher and the NASDAQ rose 0.57%. Data out earlier in the day was on the weaker side with Industrial production down 0.4% against the pundits expectations of a rise of 0.2% and Capacity Utilization was also lower – so while the trade this week might be more positive the economy still has its issues – although Hurricane Sandy definitely distorted this data.
In Europe the problems around the conflict in the Middle East and the start of the fiscal cliff negotiations left bourses in the red at the end of the day and before the strong bounce in the US. The FTSE was down 1.27%, the DAX dropped 1.32% and the CAC was 1.21% lower. Madrid was off 1.46% and every other European market that I follow also closed lower. So no doubt they should have a better start to the day this afternoon as they catch up to the US rally.
Crude rallied, continuing its rather volatile daily moves, but it is really just dancing on the spot and has been for most of the last week but with a mild upside bias. Closing at $86.62 for a gain of 1.22% on Friday Nymex crude is just a dollar from breaking out of the recent down trend, at least the trend line anyway.
On precious metals markets gold was largely unchanged at $1712 but silver bounced 1.21% to $32.86 oz.
On Global FX markets the USD managed to rally against the euro even as the stock market rallied back from the lows and it was very strong versus the Yen which is at its weakest level since April this year. I continue to focus on a significant move higher in the USDJPY. The Pound was also stronger as was the Aussie dollar which pulled back from earlier weakness with the rally in stocks.
Lets have a look at some Meta 4 charts from my AVATrade platform.
EUR/USD: The EUR turned lower again Friday and only a push back above the 200 day moving average at 1.2809 would turn the focus back higher for the Euro :
AUD/USD: The AUDUSD bounced nicely from its lows at 1.0288 not really getting anywhere near the 1.0250 level that I thought might have been the case. If the argument for a bounce in equities holds any water then the Aussie dollar should also continue to be supported. An old colleague of mine noted that you could see in the way the AUD was trading just how much support the Aussie continues to have. On the 4 hour charts the Aussie looks like it has the legs to rally perhaps back toward 1.0380ish for a retest of the bottom of the pennant formation that it fell through last week:
Data:In NZ we get PPI data this morning and then the minutes from the BOJ’s last meeting which might be of interest to the USDJPY bulls like myself. Also of interest will be the release of the Japanese Leading and Coincident indexes and then tonight in Europe Jens Weidmann of the Bundesbank speaks and we get Italian Industrial orders and sales before US housing sales data for Existing homes tomorrow morning.
Here is how the markets looked at 7.11 this morning.
Twitter: Greg McKenna.
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