Friday Wrap-Up:
Finally, after two big disappointing events, the third mega event of the week brought smiles on the faces of bulls. On Wednesday Federal Reserve decided to do nothing to address the sluggish growth. On Thursday, ECB said that it may do something but did not say when. So the markets were generally in a bad mood. Friday’s non-farm payroll numbers beat the consensus forecasts handily, which was enough for the North American markets to gallop out of the gate and they never retreated much for the rest of the day.
On Friday, DJIA made a WRB candle. It erased all of the losses for August and then gained some. It has retraced 78.6% of the fall from intra-day high of May 1st to the intra-day low of 12.035.09 made on June 4th. The ascending move is in an upward sloping channel, within which DJIA is consistently making higher highs and higher lows since early June. This a positive sign for bulls. The next resistance is the 2012 high, which is also at the 89.0% retracement of the financial crisis fall.
S&P500 is also making a chart pattern similar to DJIA. It is at the resistance level of the high made on July 30 and a downtrend line touching the high of April 2nd and May 1st. If S&P closes above this resistance level then the next one is at 1415.
The price action of NASDAQ is not as convincing but Friday’s move improved its bullishness. On daily time frame, NASDAQ is just breaking above a symmetrical triangle and if it closes above the July high of 2976 then chance of it testing the May and April highs increase.
Dow Jones Transportation Average is giving still more cause of concerns to the bulls. Though it rose on Friday, is still declined for the sixth week in a row. It hasn’t confirmed the DJIA making a higher high in 2012. DJT hasn’t yet closed above 2011 high. So the Dow Theory hasn’t given a green light to the rally started in the October of 2011.
$VIX fell by -11.0%, indicating a reduction in market anxiety.
Overnight Action:
After jumping off the block on Friday, S&P500 have been trading in a short horizontal channel. The September contract is within a 4 point range since 11:00 AM on Friday. Early Monday New York morning, YM is up by +13, ES by +2.75 and NQ by +11.75.
Asia:
Across the board, Asian markets cheered the positive surprise of US payroll numbers. Another positive factor was hints from Chinese central banks that it will preemptively adjust monetary policy to counter weakening economic indicators. HSBC says that South Korean central bank is more likely to follow up on it unexpected rate cut in July by another rate cut later this week.
Last week after declining for six weeks in a row, Shanghai Composite had a positive close. If it closes higher this week then it will complete a 3-candle reversal pattern. If it closes above 2260.84 – the high made in the week of July 23- then it will be an even stronger reversal. Last week, Shanghai Composite also completed the measured move down of the uneven double top made by the highs of the week of February 27 and April 30. The highs were separated by about 1.0%, hence not a classic pattern.
Japan’s Nikkei 225, is trying to get off a short term bottoming pattern. During the week of November 21, 2011, it closed below the low of the week of March 14, 2011. In June and July 2011, Nikkei tried to test the lows of last November. Both times it mad a higher lows – a positive for the index. If it closes above the intermediate high of 9136 then chance of it reaching near 10000 levels increase.
Hang Seng is continuing uptrend started in early June. It is at the 50% retracement of the decline from February high to June low. April low is acting as a resistance so is the psychological number – 20000.
In May 2012, S&P/ASX 200 broke below the uptrend line touching of lows made in August 2011 and October 2011. Last week’s action brought it above that uptrend line but uptrend will be only reinstated if the index closes above April high of 4448. Unlike North American indices, the high made by Sydney market in 2012 is lower than the 2011 high, which was lower than 2010 high. Even DAX, FTSE 200, STOXX 600 and Kospi made high in 2011 higher than 2010, though, they haven’t done so in 2012.
Australian economy is dependent upon its resource rich companies and is influenced by the demand in China and other emerging markets. S&P/ASX 200 is a good proxy for global demand. Underperformance of S&P/ASX 200 as compared to North American and some developed markets shows that global demand for resources is under pressure. A close above the 2011 high of 4977 will reassert the ascendancy of emerging markets.
Overnight, Nikkei rose by +2.0% – its best since June 11 – Hang Seng climbed by +1.7%, Kospi by +2.0%, Shanghai Composite by +1.0%, Taiex by +0.95%, S&P/ASX 200 by +1.2% and Sensex by +1.3%.
Europe:
On Monday, European stocks added to their big gains made on Friday. $DAX is not at the 89% retracement level of 2012 decline from March high to June low. Like DJIA and S&P500, DAX is moving within an upward sloping channel.
On Friday, FTSE 100 convincingly broke out an uneven inverse head-&-shoulders pattern. The measured move will bring it up near 6000 levels, which is also the March high resistance level.
Equity markets of Spain and Italy were also rejuvenated by Friday’s report and re-interpretation of ECB President Mario Draghi’s speech, which increased the prospects of a positive action by ECB. However, unlike market indices of Britain, Germany, France, Switzerland and Euro STOXX 600, Spain and Italy still haven’t emerged out of the July funk. Same is the case with Russia, which is also feeling the drag due to crude’s slow zigzag move.
Early Monday morning, FTSE 100 is up by +0.14%, DAX by +0.60%, CAC-40 by +0.46%, Ibex by +0.2%, FTSE MIB by +0.8% and STOXX 600 by +0.2%.
Bonds:
US 30 year Treasury bond (ZB) is trading in the middle of a horizontal channel. It has a greater chance of testing the lower bound near 1.47 than the upper bound near 1.53.
Commodities:
NYMEX crude made a large up move on Friday. In the process it completed a short term double-bottom pattern. The potential target is near 95.
NatGas on the other hand is moving down. Last week it made a bearish engulfing pattern on weekly time frame. It recently completed an inverse head-&-shoulder pattern in late June. The move down may test the neck line at 2.74. If the neckline test holds then the potential target of the pattern is near 3.60.
Last week, gold retraced back into a symmetrical triangle from which it had a false or premature break out. It is again moving towards the upper bound. A break above the upper bound at around 1630 will increase the chance of gold reaching 1700. On the other hand, on weekly time frame, gold is making a descending triangle, which is a bearish pattern.
Silver is making a similar pattern on weekly time frame, though unlike gold it is closer to the lower bound and is in danger of breaking below.
Dr. Copper still hasn’t made up its mind. It is back in a horizontal channel between 4.00 and 3.00, within which it traded for the most part in 2006 to 2008 with a short trip below 3.00 in early 2007. During 2008 and 2009 it fell below this band before re-entering in late 2009. Since then it has traded within this range with one trip above 4.00 in early 2011.
Currencies:
On July 26th, dollar basket broke below the uptrend line started in early May. Since then it retested the broken line. Now the next even is the test of July low of 81.50.
EUR/USD is trying to consolidate it breakout above the resistance level last week. In the process, it made an un-even inverse head-&-shoulder pattern. If the pair is able to defend this break out then the potential target of the pattern is near 1.2600. Presently it is at 61.8% retracement of the post-EU summit decline from 1.2694 to 1.2042.
The non-farm payroll report reignited the risk-on trade but in early North American Monday morning, the risk-on trade is consolidating. It is being reflected in the currency market with some exceptions. AUD/USD, NZD/USD and USD/CAD are trading within a small band. AUD/JPY is feeling a slight downward pressure so are USD/JPY and GBP/USD.
Key Levels For The Day:
| $INDU | $SPX | $COMPQ | $TRAN | $FTSE | $DAX | $VIX | |
| Previous | 12,879 | 1,365 | 2,910 | 4,984 | 5,662 | 6,607 | 17.57 |
| Open | 12,885 | 1,365 | 2,951 | 4,988 | 5,662 | 6,626 | 16.05 |
| High | 13,133 | 1,394 | 2,977 | 5,115 | 5,794 | 6,877 | 16.45 |
| Low | 12,885 | 1,365 | 2,946 | 4,988 | 5,662 | 6,621 | 15.64 |
| Close | 13,096 | 1,391 | 2,968 | 5,086 | 5,787 | 6,866 | 15.64 |
| Change % | 1.7% | 1.9% | 2.0% | 2.0% | 2.2% | 3.9% | (11.0)% |
| Change | 217.29 | 25.99 | 58.13 | 102.16 | 124.98 | 258.58 | (1.93) |
| Close (vs. MidPoint) | Hi | Hi | Hi | Hi | Hi | Hi | Low |
| TR % | 2.0% | 2.2% | 2.3% | 2.6% | 2.3% | 4.1% | 11.0% |
| Resistance 2 | 13,286 | 1,413 | 2,995 | 5,190 | 5,880 | 7,043 | 16.72 |
| Resistance 1 | 13,191 | 1,402 | 2,982 | 5,138 | 5,833 | 6,954 | 16.18 |
| Pivot | 13,038 | 1,384 | 2,964 | 5,063 | 5,748 | 6,788 | 15.91 |
| Support 1 | 12,943 | 1,373 | 2,950 | 5,011 | 5,702 | 6,699 | 15.37 |
| Support 2 | 12,695 | 1,344 | 2,918 | 4,885 | 5,570 | 6,444 | 14.56 |
