Market Open – Wednesday August 01, 2012

Tuesday’ Action:

$VIX gapped up and maintained an uptrend and closed in the upper half of the day’s range indicating that the volatility increased. Except on Monday, $VIX has been closing in the lower half for the past few days, a sign complacency or lack of volatility in the market.

DJIA made a 3-day candlestick reversal patterns – though it is not a classic pattern as the third day’s low is not below first day’s low. Previous two such patterns saw a decline of at least 500 points. In early July – between 3rd and 6th – DJIA declined from an intraday high of 12961.30 made on July 5th to an intraday low of 12492.25 on July 12th. In middle of July – between 18th and 20th – DJIA declined from a high 12977.57 to a low of 12617.32. In both cases, DJIA maintained higher highs and higher lows. Going by immediate past history, DJIA may retrace few hundred points from the high of 13128.64 made on July 30th.

Other major American indices – S&P 500, NASDAQ, Dow Transport and NYSE Composite also made similar patterns, increasing the chance of a short term retracement.

The markets across the pond in Europe also generally declined on Tuesday. DAX and Swiss SMI held better than others. Unlike other major markets, Russia’s market has not broken above the resistance made on July 19. Unsurprisingly, Spain is showing weakness and may make another lower high.

Overnight Action:

Since Monday, S&P futures (ES) were in a horizontal channel. They broke below the lower limit just before the market closed on Tuesday. The lower limit is also the resistance-turned-support of the high made on July 5th and July 19th. Overnight, futures made a low of 1370 and then turned around and are trading higher. At 6:00 EDT, ES is up by +4.25, YM by +38 and NQ by +10.50.

Asia:

After advancing for the last few days, most Asian stocks retreated on Wednesday. Part of it was profit taking and part was influenced by deteriorating manufacturing data from many countries. Nikkei fell by -0.61%, S&P/ASX200 by -0.15%, Kospi by -0.1% and Taiex by -0.03%. Hang Seng bucked the trend by advancing by +0.1%.

Shanghai Composite continued it walk different from other Asian market. It rose by +0.94%. The day’s action created a large-range outside (almost) candle. If it closes above this level for the week then on weekly time-frame it will make a reversal candle. Daily RSI is rising above 30 after going the oversold territory.

Sensex also had a positive day and it is continuing the reversal that it made on July 26. It is near a resistance created by the gap down on July 12. The country has been gripped by large-scale power grid failure which will definitely hit its GDP growth numbers but the equity market just shrugged it.

Europe:

Bundesbank and its president Jens Weidmann are trying to be the spoil sports in the party started by ECB president Mario Draghi. Early Wednesday the European stocks were still in festivity mood hoping that the central banks will take further steps to support economic recovery. At 9:30 GMT, FTSE was up by +0.54%, DAX by +0.01%, CAC-40 by +0.43% and STOXX 600 by +0.30%.

Bonds:

Bond yields fell on Tuesday though the reversal started on July 25 is not yet over. 30 Year US Treasury (ZB) is making an upward sloping flag – a bearish pattern – on one-hour chart. A break below the low of 1.4908 may take it to 1.4505 levels.

Commodities:

Tuesday was not a good day for commodities. NYMEX crude fell by -1.9%. On daily chart, it is still staying above a short term support level though hasn’t mounted a big charge to take the high of 92.94 made on July 19th. Though NatGas had a down day too it is still maintaining an up-trending posture.

Gold has retraced back to the upper limit line of the symmetrical triangle that it broke above on July 27. If it finds a support before 1600 level then it may resume its upward trend to the measured target above 1700. Silver is making a similar pattern like gold but it is holding on better.

Copper is vacillating in the middle of an emerging symmetrical triangle pattern. Like equities, it is also waiting for central banks’ easing measures to figure out if global economy will resume a good growth rate or will it sputter.

Currencies:

Currencies saw a mixed picture too.

Many important economic reports and events are scheduled for this week including FOMC statement, ECB press conference, BOE official bank rate and US non-farm payroll. All of this is keeping the currency market on wait mode.

Dollar Index declined continuing its short term reversal started on July 25 but it hasn’t broken below the low of July 27th. Wednesday’s action is dollar negative so far.

EUR/USD continues to wait for ECB’s announcement on Thursday. It is trading between 1.2225 and 1.2325 ranges.

UK’s bad manufacturing PMI number on Wednesday is pressuring the cable. GBP/USD is near 1.5631 – coming back to the middle of a symmetrical triangle that it could not break above on July 27th.

USD/JPY is struggling to barely stay above the 78.00 levels. A break below 77.66 – low on June 1st – may take it to the all time low.

Resource currencies are continuing their upward march with respect to US dollar. AUD/USD and NZD/USD are staying above the recent resistance levels that they broke and USD/CAD is staying below the support that it broke.

Key Levels For The Day: