Tuesday Roundup:

Tuesday saw global stock market add to their recent gains. Investors treated the news emanating from Europe to be either benign or favorable. Germany’s government and Bundesbank hinted that ECB’s plan to buy bonds will not be a problem. This was enough for the European markets to continue to believe that ECB will come to the rescue of the troubled sovereigns.

Same was the case with economic reports. RBA kept the interest unchanged. Analysts expect the South Korean central bank may cut rate later in the week. New Zealand’s PM said that RBNZ has more room for easing. Britain’s m/m manufacturing and industrial production were better than forecast. Canadian Ivey PMI and m/m building permits were also better. On the other hand, Italian m/m industrial production, US m/m consumer credit and Australian m/m home loans were worse than expected.

DJIA maintained its upward attitude. It made a three month – both intraday and at close. In the process it negated Monday shooting star as there was no confirmation of that pattern’s bearish intent. DJIA is nearing the high for 2012, which should pose a strong resistance and DJIA would need a catalyst to go over it. The summer rally has been going on for close nine weeks. Historically, summer rally is the weakest of all seasonal rallies. It is also approaching the upper limit of an upward sloping channel. So it is ripe for a rest or pullback – probably near the 2012 high give-or-take few tens of points.

S&P 500 is also matching DJIA in the price action. It closed above a psychological level of 1400. In the process it broke above the downtrend line touching April and May high. Unlike DJIA, S&P 500 has to first overcome the resistance of May high before it can challenge 2012 high. Going by its immediate past history of retreating from the upper bound of its upward sloping channel, S&P 500 may take a rest near April high of 1422, which also may come near the upper limit.

NASDAQ had been behind the curve – compared to DJIA and SPX – for the past few days. On July 27th, DJIA and S&P 500 made new two-months highs. NASDAQ did not follow. On Tuesday, it compensated for its sloppiness. It gapped up above 3000 and stayed up. In the process it filled up the down gap that it created on May 3rd and May 4th. It has broken above the downtrend line touching April and May high and has a clear path to them. Tuesday’s price action tells that it may take the market leadership position.

Dow Transportation Average refuses to join the party and that is a bit disconcerting. Without DJT, it is difficult to generate too much confidence in the market for long. Its underperformance since late last year is casting doubts over the rally started in October. It needs to make a higher high than 2011 soon to confirm the move by DJIA. However, in the short term, DJIA and other indices are moving higher without DJT, thank you very much.

Russell 2000 seems to like the idea of joining the party. It broke above the upper limit of a symmetrical triangle. However, its chart pattern is lagging DJIA, S&P 500 and NASDAQ. It had to travel a lot higher to make two-three month highs.

Overnight Action:

S&P 500 future, ES, has been in a downtrend since it made a three-month high mid-day New York time. The test of the upward move will be if the support of 1387.25 – created by a double bottom on hourly time frame on August 6th – is held. In early New York morning, September contract were trading down by -4.25 at 1397.00. YM were down by -37 and NQ by -4.75.

After significant gains of past few days, some profit taking is a healthy sign. But some other downward pressure is also coming from headline news.

Asia:

Asian markets rose on Wednesday and the resource sector was the leader as the reflation or risk-on trade continues.

Nikkei 225 gapped up and rose by +0.88%. However, it hit the ceiling of 200-Day SMA and ended up making a doji candle, closing in the lower half of the day’s range. It is at the lower end of July 7th and July 10th gap down. Together this forms a significant resistance. Japan’s PM may be getting ready to dissolve the parliament and order new election to gain support of doubling of consumption rate to 10%.

Hang Seng slid by -0.04% and Sensex was almost unchanged but Kospi rose by +0.87, Taiex by +0.33% and S&P/ASX 200 by +0.49%.

Shanghai Composite was up by +0.2% as the market is waiting for CPI and PPI numbers to come out tomorrow.

Europe:

Europe reported some disappointing earnings. S&P downgraded Greece and Spain and Italy are facing maturity crunch. ECB’s bid to lower Spanish and Italian yields may prompt them to sell more short-term notes, which will increase the debt that needs to be refinanced in the coming years.

In early European session, FTSE 100 is down by -0.45%, DAX by -0.35%, CAC-40 by -0.58%, Ibex by -1.6%, FTSE MIB by -0.6% and STOXX 600 by -0.2%.

Bonds:

US 30-year Treasury bond continues their journey towards the lower limit of a horizontal channel. In the process it has broken below the 50-Day SMA for the first time since April 9th.

Commodities:

NYMEX crude is still on track to reach the target of the double bottom made in early August. That target also coincides with the target of ABCD pattern and 61.8% retracement of the March-June decline, give and take few cents.

 

Early Tuesday morning, the reflation or risk-on trade is taking a rest and most commodities are showing it. NYMEX crude is down by -0.65, gold by -3.4, silver by -0.28 and copper by -2.5. Their respective chart patterns are also in synch. Gold and copper are consolidating in the middle of a symmetrical triangle.

 

 

Currencies:

Different asset market are highly correlated and affected by the global events similarly – with few exceptions – in the short run. In the long run each market is affected by the specific fundamentals and other relationship for that market.

Tuesday morning, forex market is also taking a breather from recent risk-on trades. Dollar basket is up by +0.16 and EUR/USD is down by -35 PIPs. Cable on the other hand is up by +39 PIP post BOE inflation report. USD/JPY is down by -27 PIPs, Aussie and Loonie are almost unchanged, Kiwi is down by -15 PIPs and Swissy is up by +27 PIPs.

Chart wise, the currency pairs are maintaining their current posture with little change.

Despite being slightly up on Tuesday, dollar basket continues to feel the downward pressure to test the lows of 81.56 made on June 29th. It closed below the 50-day SMA for the first time in three months.

Not surprisingly, EUR/USD, which trades opposite of dollar basket as it is the largest part of the basket, is trying to go above the 50-day SMA for the first time in three months. Its breakout of the inverse head-&-shoulder pattern is still working with an upside target near 1.2600. A close below the right shoulder low of 1.2134 will negate the pattern.

Despite rising after the downgrading of IK’s GDP growth rate, GBP/USD is still trading in the middle of a symmetrical triangle.

USD/JPY is trading in an upward sloping bearish flag. A break below the lower bound may take it to all time low near 75.50. A break on the upside will be a failure of the pattern and positive for dollar.

Swissy has a pattern similar to that of dollar basket and is being pulled down to the June 29th support of 0.9463.

Aussie may be making a short term topping pattern as a confluence of few resistance levels. It has retraced 78.6% of March-to-May decline. It is also near the high of March 19th which preceded a fresh down leg. The third resistance is the psychological level of 1.0600 that the pair touched yesterday.

 

NZD/USD is similarly placed too. Its resistances are coming from 78.6% retracement, high made on April 30th and the psychological level of 0.8200.

USD/CAD is continuing its rendezvous with 78.6% retracement of the May-to-June rise. It is very tightly hugging the lower channel line to the downside.

 

Key Levels For The Day:

	$INDU	$SPX	$COMPQ	$TRAN	$FTSE	$DAX	$VIX
Previous	13,118	1,394	2,990	5,082	5,809	6,919	15.95
Open	13,119	1,394	3,003	5,082	5,809	6,909	15.55
High	13,216	1,407	3,029	5,125	5,841	6,979	16.03
Low	13,118	1,394	3,002	5,082	5,785	6,903	15.48
Close	13,169	1,401	3,016	5,092	5,841	6,968	15.99
Change %	0.4%	0.5%	0.9%	0.2%	0.6%	0.7%	0.3%
Change	51.09	7.12	25.95	10.10	32.47	49.23	0.04
Close (vs. MidPoint)	Hi	Hi	Hi	Low	Hi	Hi	Hi
TR %	0.8%	0.9%	1.3%	0.9%	1.0%	1.1%	3.4%
Resistance 2	13,265	1,414	3,042	5,143	5,879	7,026	16.38
Resistance 1	13,217	1,408	3,029	5,118	5,860	6,997	16.19
Pivot	13,168	1,401	3,016	5,100	5,822	6,950	15.83
Support 1	13,119	1,395	3,002	5,074	5,804	6,921	15.64
Support 2	13,022	1,382	2,976	5,031	5,748	6,844	15.09