Some pundits reckon that Ben Bernanke would be happy with the performance of the stock market relative to the talk of taper but I’m not convinced he would be as I remain of the view that like we heard from the BIS recently there is a growing concern among central bankers of the risk of bubbles. So while I’m guessing the last thing the Fed Chairman wants is a stock market crash, I’m not sure he and his colleagues are as committed to goosing stocks higher as they were in the past.
This is particularly the case given that US bonds have pushed so much higher. Sure the 10 year last night in the US rallied 10 points but it is still at 2.64% but that is a huge rise from where they were just two short months ago and this fact alone puts pressure on the housing and other sectors of the US economy.
But at the close the Dow finished up 0.59%, the Nasdaq rose 0.16% and the S&P 500 was 0.50% higher. Alcoa issued its earnings report after the bell and managed to beat downgraded expectations by a penny. This is really important because the negative guidance has been so intense it may not actually take too many, or too much, positive surprise to kick things higher in the very short term. This is a critical period for the market.
I noted yesterday we’d get to test the overhead resistance this week in US stocks and it’s one down and one to go in the S&P 500 as you can see in the chart below.
1638.42 is the trendline resistance and level to watch tonight and in coming days.
In Europe it was a good day as Friday’s weakness reversed in light of the US strength Friday and then again overnight. The FTSE closed up 1.17%, DAX 2.09%, the CAC was up 1.87% while stocks in Madrid and Milan rose 1.902% and 1.71% respectively.
On FX markets the USD lost a little ground against the euro but in truth the sell off to 1.28 low yesterday from the high above 1.34 has been fairly relentless since mid June and some sort of retracement before it heads lower is always expected. And as you can see in the chart below the support was right on an old trend line and then last night’s high around 1.2882 was equally and old trend line.
Based on my usual trading system if euro can get through 1.2890 and 1.2915 it might run toward 1.30 but resistance is expected to be fairly solid around that level.
Sterling was also a little higher and if it can take out last night’s high at 1.4966 it could run to 1.5060 but just like euro resistance overhead looks solid for the moment. The yen just can’t get back above the up trend line (or should I say USDJPY can’t) which suggests that the overall retracement of USDJPY may not yet be over. Personally I think USDJPY is going to settle into a wide range for a while and we are just looking for the top again – probably 94-104 is the range I’m expecting.
Closer to home the Aussie dollar also caught a lift with the US dollar’s weakness rallying to 0.9145 which is right on a little hourly resistance line. I went short this morning at 42 with a stop at 56 looking for a sell off back toward 91.00/05 at some stage today. On a slightly longer daily time frame overall though if the Aussie can have another positive day to build on the gains from Friday’s close tonight then a bigger rally might be in the offing perhaps even targeting 0.9227 and then 0.9300. But remember the NAB Business Survey is out today and already yesterday’s ANZ job ads told us what we already new about the slowing economy so I am still overall looking for lower levels in time.
Gold made a low of $1207 yesterday before USD weakness saw some buyers in the market pushing the yellow metal back up $30 oz. Gold range over the last few weeks has been $1178-$1268 oz and while it has been very oversold on both daily and weekly charts support at $1150 and $1180 needs to hold otherwise gold will simply get more oversold. But the clear support zone does give levels to trade off.
Crude was barely unchanged at $103 bbl, silver was up 1.60%, Gold 1.81%, Dr Copper up 1.02% to $3.11 lb and corn, wheat and soybeans rose 1.02%, 0.61% and 1.34% respectively.
Data
Today sees the release of Electronic Retail Sales in New Zealand, Money Supply and Machine Tool Orders in Japan, CPI in China and the most important data out turn in Australia in the NAB Business Survey. In the UK we see industrial production data and the trade balance as well as the NFIB business optimism index.
Twitter: Greg McKenna