Market Open – Thursday August 2, 2012

Wednesday Wrap-up:

So the Fed came and went without a whimper. The global markets have been in ‘waiting for Godot’ mode for three big events this week. One of them was FOMC meeting on Wednesday. The Fed said that the economy is slowing down and will remain depressed over coming quarters. It also expects the unemployment rate to decline “only slowly”. Despite this it did not take any action to improve the economy. The conventional wisdom is that it is going to wait for some more data.

This was a mild disappointment to the US investors but mostly to ultra bulls. The major indices retreated but the volume was low.

DJIA raced out of the gate but then faltered and traded lower after the first half-hour. The Fed non-announcement did not help and closed the day -0.3%. DJIA has been drifting lower for most of this week. The volume was lower than 10-day average but that is no consolation if the index closes down. Wednesday’s action leaves it just above the recent resistance-turned-support of 12970 levels. DJIA is still in an uptrend since June 4th, though it is at the upper range of the upward sloping trading range and is turning down.

Not surprisingly, S&P 500 is in lock-step with DJIA with similar price action and chart emerging pattern. It too closed down -0.3%.

NASDAQ’s action was somewhat troubling. It closed down -0.7% but it made a wide-range down candle, an almost outside candle day. Unlike, S&P 500 it has not closed above July 19 high.

Dow Transport’s action was even more troubling. It has decoupled from DJIA and S&P500. Whereas Dow and $SPX are making higher high and higher lows, Transports is making a descending triangle. The lack of confirmation by Transport along with Russell 2000 and copper is raising big question mark over the strength and longevity of the move up since June 4th. Both – Transports and Russell 2000 – declined by -2.0%.

$VIX, the volatility indicator, closed in the upper half of the day’s range – almost a doji candle demonstrating a lack of conviction one way or the other.

Markets across the pond closed before the FOMC statement. FTSE 100 closed up by +1.4%, fueled by good earnings of Britain’s blue chip stocks. It is nearing the upper limit of a horizontal channel. DAX closed down by -0.3%. It is also at the upper limit of channel, though its channel is upward sloping and it seems be stalling. CAC-40 closed up by +0.9% and it is continuing its breakout.

Overnight Action:

On Wednesday, S&P future (September) made a low of 1376.75 immediately after the FOMC announcement. The low was tested ate 5:00 PM EDT and then the future have been drifting upward – making higher highs and higher lows on a 30-minute chart. At 6:00 AM EDT, S&P future is up by +4.25, Dow by +41 and NASDAQ by +8.00.


ECB president Mario Draghi made big talks last week which buoyed the markets. Today is day to follow up word with actions and the markets are jittery. Most Asian markets closed down amid ECB skepticism. For a change, Shanghai Composite went along with other regional indices. It closed down -0.57%, Kospi by -0.56% and Hang Seng by -0.66%. Just before its close, Sensex was trading water by -0.1%, though it is closing in the upper half of the day’s range.

Australia’s S&P/ASX200 eked out modest gains. It closed up by +0.16%, advancing for the fifth time in six sessions. Investors liked the strong retail sales for June, which were up due to the compensation package to families for carbon tax.


During the early European trading, the stocks were choppy as the investors wait for the ECB decision, which will come out at 7:45 EDT followed by the press conference at 8:30 EDT (12:30 GMT). Later the stocks moved higher after German daily Sueddeutshe Zeitung reported that ECB and Eurozone’s permanent rescue fund, European Stability Mechanism (ESM), are planning coordinated action to buy Spanish and Italian government bonds. STOXX 600 is up by 0.5%, DAX by +0.68%, FTSE 100 by +0.55%, CAC-40 by +0.55%, Spain’s IBEX 35 by +0.73% and Italy’s FTSE MIB by +0.8%.

Now the ball is in president Draghi’s court as the market is setup for perfection.


30 Year Treasury Bond (ZB) prices fell on Wednesday – yields rose – post FOMC after spiking around the announce time. Since June 4th, 30-yr bonds are trading in a horizontal channel. The move of last few days had brought it the middle of the trading range. A clear direction will perhaps emerge after this week’s important economic events.


Equity markets’ skepticism and uncertainty carried on to the commodities. NYMEX crude is trying to get off the floor after falling hard on July 20th & July 23rd. It is hasn’t made a convincing effort yet. On Thursday, it is trading up by +.03 to 89.21. NatGas is in a short term uptrend but it may be facing some head-winds – profit taking, perhaps. Gold stumbled for the past three days and is back into the symmetrical triangle pattern from which it tried to break out on July 27th. For the uptrend to continue, gold has to go above the high of 1631 made on July 31th.

Copper is still drifting lower casting doubts over the current summer rally in equities.


Dollar index had a good day on Wednesday but it has not yet completed the down move started on July 25th. On Thursday morning it is lower by -0.28 as euro is gaining. EUR/USD is consolidating at 1.2300 levels. It may be making a short and uneven inverse head-&-shoulder pattern. A close above the high of 1.2390 made on July 27th will complete the pattern. The target will be near or above 1.2600.

GBP/USD is taking a breather after falling like a rock since July 30th. USD/JPY is still trading in a small 25 PIP range with no clear signal which way it will go. The current focus is down. USD/CHF action is inverse of USD/JPY.

On Thursday, the resource currencies are maintaining their edge with US dollar. AUD and NZD are near breaking above yesterday’s high with clear sailing over that resistance level for 100+ PIPS.

USD/CAD made a low at same level on Tuesday and Wednesday. It is trading lower for the day so far. A break below yesterday’s close may take it 0.9950 levels.

Key Levels For The Day:

Previous 13,009 1,379 2,940 5,088 5,635 6,772 18.93
Open 13,007 1,379 2,957 5,088 5,635 6,776 18.80
High 13,075 1,385 2,958 5,105 5,713 6,800 19.18
Low 12,951 1,373 2,918 4,974 5,633 6,736 18.20
Close 12,971 1,375 2,920 4,987 5,713 6,754 18.96
Change % (0.3)% (0.3)% (0.7)% (2.0)% 1.4% (0.3)% 0.2%
Change (37.62) (4.00) (19.31) (101.58) 77.54 (17.79) 0.03
Close (vs. MidPoint) Low Low Low Low Hi Low Hi
TR % 1.0% 0.8% 1.4% 2.6% 1.4% 0.9% 5.2%
Resistance 2 13,123 1,390 2,973 5,153 5,766 6,828 19.76
Resistance 1 13,047 1,382 2,946 5,070 5,739 6,791 19.36
Pivot 12,999 1,378 2,932 5,022 5,686 6,763 18.78
Support 1 12,923 1,371 2,906 4,939 5,660 6,727 18.38
Support 2 12,800 1,359 2,865 4,808 5,580 6,663 17.40
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