By Chris Becker
US stocks pulled the reins on the sleigh of the Christmas stock market rally as the Republicans began their first round of votes for their dubious tax plan overnight. The USD stumbled against Euro as a result while 10 and 30 year Treasuries continued their selloff, with the former’s yield now back above the “critical” 2.4% level. Commodities remain firm with oil pushing slightly higher in anticipation of a forthcoming inventory report while gold and copper were steady.
Recapping action in Asia yesterday where in mainland China the Shanghai Composite bounced back from its poor Monday start, lifting almost 1% to be just shy of critical key support at the 3300 point level. This is anchoring price action as resistance now but the tide is slowly turning in the bulls favour. While I’m still watching the daily lows for signs of a breakdown here, the upside breakout point needs to be a solid close above the high moving average at 3020 or so:
Japanese stocks were down slightly as the Yen firmed, the Nikkei 225 off a fraction, or 0.15% to 22868 points, still unable to close above overhead resistance at 23000 points. Support remains firm here above the previous daily low at the 22200 mark, but resistance at 23000 proper is the key level to beat this somewhat bearish rising wedge pattern:
The ASX200 continues to push higher with all the bears wiped aside, up 0.5% or 33 points to 6071 as the banks continue to lead the way. BHP and RIO both helped with both iron ore majors up 1% or more. SPI futures have slump on US dip overnight, so I’m watching the 6000 point level for signs of support strength intraday:
On to Europe, where the previous good start to the week has been thwarted with the German DAX losing 0.7% as the Euro surged overnight. This takes it back to the high moving average on the daily chart after previously making a run at nominal overhead resistance at the 13300 point level. Not quite a breakout yet:
US stocks didn’t make new highs again! This is kind of newsworthy, but really a 0.3% dip on the S&P500 as we head into the Xmas trading session is not that important. I mentioned yesterday that momentum had overreached giving the usual sign of an upcoming retracement to the mean trend, but support should hold here at the 2680 level on the four hourly or 2670 on the daily chart:
On to currencies where the Euro surprised by bursting out above the moving average band on the four hourly chart after being somewhat directionless. Last night it pushed through the 1.18 handle and ATR resistance/last week’s high to be at 1.1840 against USD which will provide further headwinds for European stocks;
Conversely, Yen brokedown against USD overnight with the USDJPY pair shooting out of the gates and up to but not through the 113 handle. Although longer term rice remains stuck between the pincers of the weekly uptrend and downtrend lines, this new lift is suggesting a move higher to 113.50 or so if their are any delays on the GOP Tax bill front. A good tailwind for Japanese stocks today:
The Aussie dollar remains elevated against USD as this consolidation phase has not yet turned into a corrective one, with firm support at the mid 76s with a series of higher lows as price tries again to get back above the 76.70 level. That’s the area to watch going forward for an upside breakout:
Oil prices came back slightly overnight but still nothing to get excited about with the WTI contract still remaining above daily ATR support and just above the $57USD per barrel level. ATR support at $55.50 is firm with a series of higher lows supporting a potential breakout soon:
And to gold which seems to be running out of puff from its long swing play from the over-corrected downside, hovering around the $1262USD per ounce level overnight. This is close to former support, now firm resistance at the $1265 level which if it can’t get back above soon, the next weekly support level is at $1200-1215, so watch out below:
Glossary of Acronyms and Technical Analysis Terms:
ATR: Average True Range – measures the degree of price volatility averaged over a time period
ATR Support/Resistance: a ratcheting mechanism that follows price below/above a trend, that if breached shows above average volatility
CCI: Commodity Channel Index: a momentum reading that calculates current price away from the statistical mean or “typical” price to indicate overbought (far above the mean) or oversold (far below the mean)
Low/High Moving Average: rolling mean of prices in this case, the low and high for the day/hour which creates a band around the actual price movement
FOMC: Federal Open Market Committee, monthly meeting of Federal Reserve regarding monetary policy (setting interest rates)
BOJ/Abenomics: Bank of Japan, economic policy/direction enacted by PM Shinzo Abe
DOE: US Department of Energy
Uncle Point: or stop loss point, a level at which you’ve clearly been wrong on your position, so cry uncle and get out!