Monday Roundup:
Global markets continued their upward march started by the encouraging US payroll report on Monday. North American stocks closed off their best levels of the day and the volume was lower – 75% of Friday’s level for DJIA.
US indices raced out of the gate at the 9:30 AM open and then plateaued at their 10:00 AM levels before sliding down in the last hour to close in the lower half of the day’s range. In the process most made alarming candlestick formations. DJIA closed up by +21.34 after going up by as much as +91. S&P500 closed up by +3.24 from an intraday high of +8.64. NASDAQ did better it closed up by +22 after going up to +32.34. Dow Transport was the worst offender. It went up by +36.56 intraday but then closed down by -3.95.
On daily chart, DJIA is made shooting-star candle stick formation. It is a bearish pattern, which requires confirmation from subsequent day’s price action. A confirmation means downside follow through candle. It could be gap-down, large down candle or a declining day with higher volume. The confirmation should come with 1-3 days. If the confirmation does not come then the shooting-star means that prices are facing resistance or are consolidating.
Going by DJIA’s immediate past chart patterns a close below Monday’s close will initiate few days decline. Previous four similar patterns were followed by a decline between 350-550 points. However, all of the previous patterns faced a resistance made by either a prior high of an upward channel bound. Monday’s action is not facing any similar resistance. If there is no significant follow through then DJIA may test the high of May – 13338.
S&P500 is showing a similar pattern, though it is facing a resistance made by the downtrend line touching the highs of April and May. If S&P500 is able to close above this downtrend line then it has a good chance of testing May and then April highs – 1415 and 1422 respectively.
The price action for NASDAQ was better as it closed in the upper half of the day’s range. But it is trying to overcome the high of July. If it remains above the July high of 2988 then it has a higher chance of testing the May high of 3085.
Dow Transportation Average continues to send alarming signal. Its lack of confirmation of DJIA’s upward move is casting doubts over the current rally. It needs to close convincingly above 5300 level – the June high – to give extra confidence to the bulls. As mentioned in recent market outlooks, DJT is in the process of making a descending triangle. Such chart patterns have a bearish bias. A close above 5200 or the upper bound – a descending line – will make it a failed pattern, which will be a significant bullish event. On the other hand a close below 4900 or the lower bound – a horizontal line – will put extra pressure on rest of the market to follow through it to the downside.
For what it is worth, $VIX made a harami candle – the day’s body was within previous day’s body- or an inside bar. This just confirms the indecision on the part of the market.
Overnight Action:
After rising sharply on Monday and then plateauing mid-day, US futures declined in the North American afternoon and then remained in narrow trading range till very early European morning. The plateau was between 1395 and 1392 range for the September contract. The late North American afternoon decline took it to a low of 1387. After staying within a 3-4 point band, ES made a run up to test the high of 1395 before drifting downward in the European morning session.
In the early North American morning, US futures are in the green but the trend has not resumed and the market seems to be consolidating. The default direction is upward but conviction is not very strong. ES is up by +2.00, YM by +14 and NQ by +11.25.
Asia:
Asian stocks rose on Tuesday on optimism that ECB will soon start buying Spanish and Italian bonds. ECB’s plan got a boost when Chancellor Merkel endorsed it.
Shanghai Composite continued its reversal on August 1st after sinking to the lowest point since March 2009. It is has climbed above 20-day SMA, which has acted as a good resistance level for the current sharp downturn since May. The coming resistance levels are 2300, which is high made on July 19th, and 2350, the high made on July 3rd and the 38.2% retracement of the May-to-August decline.
Nikkei 225 is in the process of making a low probability ABCD pattern with an upside target near 9100.
Hang Seng is breaking above the resistance level of 20000. It is also making an ABCD pattern with an upside target near 20500.
Kospi is near an important resistance – June high of 1908. A close above will break a sequence of lower high and lower high indicating a change to short term uptrend.
S&P/ASX 200 is making a similar pattern as that of DJIA and S&P500. Since June, it is making a higher highs and higher lows. If it clears the hurdle of 4300 level then the next resistance is the 2012 high of 4448. In 2012, Australian index hasn’t closed below the low of November 2011 but has closed above the high of October 2011. If it closes above the 2012 high then it will be a confirmation of the continuation of the uptrend started after the bottom was made in August 2011.
India’s Sensex is trying to clear the resistance of July high. The next resistance is the 2012 high of 18524. If it closes above that level then it will be a confirmation of the uptrend as Sensex has stayed above the December low after making a high above October 2011 high.
Europe:
Tuesday is seeing European continue adding to their recent gains. DAX is breaking above the three month high. The chance of it testing 2012 high of 7194 is higher than testing the July low of 6324.
FTSE 100 is in the process of overcoming May high of 5820. A close above that level will increase the chance of it reaching near 6000 – measured move out of an uneven inverse head-&-shoulder pattern.
CAC-40 is making a similar pattern as that by S&P/ASX 200 and Sensex. It is moving upward to test the 2012 high of 3600. A convincing close above that level will confirm the continuation of uptrend started after September 2011 bottom.
Spanish market have been whacked a lot due to the increased borrowing cost for it government. It is in the process of making a double bottom. If it closed above the July high of 7178 then the measured target will be near 8300.
Italy’s FTSE MIB is also similarly placed. The immediate resistance levels are the July and May highs of 14500 and 15000 respectively.
Bonds:
Usually a rising stock market takes away the money from the bond markets and vice-versa. The current price action of the 30-year US Treasury bond confirms this. It continues to drift downward the lower bound of a horizontal pattern, which is shaping to be a topping pattern.
Commodities:
Commodity markets indicate continuing risk-on trades. NYMEX crude tacked in +0.9%, NatGas +1.1%, gold +0.4%, silver +02% and copper +0/6%. All are following their current emerging patterns.
Currencies:
Currency market is indicating a change in the risk-on/risk-off trade mentality. The dollar basket is within an emerging ABCD pattern with a downside target of 81.60 in the vicinity of July 2nd low.
EUR/USD is still pursuing the breakout of an inverse head-&-shoulder pattern with a target near 1.2600. GBP/USD is trading in the middle of a symmetrical triangle. USD/JPY continues to consolidate near 78.00 with a downside bias. USD/CHF has broken below a head-&-shoulder pattern with a downside target near .9500.
Resource currencies are continuing their march against the greenback.
AUD/USD is moving upward through a congestion zone, that it created in March, towards testing the 2012 high near 1.0800. Kiwi is within an even bigger congestion zone that it created in March and April. Aussie congest zone was downward sloping whereas Kiwi’s congestion was a horizontal channel, hence a bigger resistance level. In NZD/USD closes above the April high of 0.8321 then it will have a better chance to test 2012 high of 0.8471. AUD/JPY is just breaking out of a horizontal pattern with an upside target of near 86.30.
AUD/NZD is moving down after making a triple top – highs in March, May and July near 1.3050 levels – indicating that Aussie is outperforming the Kiwi. This trend was helped by the New Zealand PM John Key’s comments that RBNZ has scope to cut interest rates. On the other hand, RBA kept it interest rate steady at 3.5% and is in a wait-&-see mode to ascertain the impact of prior cuts and the global demand patterns.
USD/CAD is taking a fresh leg down towards the 2012 lows. It is within an ABCD pattern with a downside target of 0.9860.
Key Levels For The Day:
| $INDU | $SPX | $COMPQ | $TRAN | $FTSE | $DAX | $VIX | |
| Previous | 13,096 | 1,391 | 2,968 | 5,086 | 5,787 | 6,866 | 15.64 |
| Open | 13,100 | 1,391 | 2,978 | 5,087 | 5,787 | 6,846 | 15.85 |
| High | 13,187 | 1,400 | 3,000 | 5,123 | 5,838 | 6,943 | 16.27 |
| Low | 13,100 | 1,391 | 2,974 | 5,081 | 5,767 | 6,846 | 15.82 |
| Close | 13,118 | 1,394 | 2,990 | 5,082 | 5,809 | 6,919 | 15.95 |
| Change % | 0.2% | 0.2% | 0.7% | (0.1)% | 0.4% | 0.8% | 2.0% |
| Change | 21.34 | 3.24 | 22.01 | (3.95) | 21.49 | 53.06 | 0.31 |
| Close (vs. MidPoint) | Low | Low | Hi | Low | Hi | Hi | Low |
| TR % | 0.7% | 0.6% | 1.1% | 0.8% | 1.2% | 1.4% | 4.0% |
| Resistance 2 | 13,222 | 1,404 | 3,014 | 5,137 | 5,875 | 7,000 | 16.46 |
| Resistance 1 | 13,170 | 1,399 | 3,002 | 5,110 | 5,842 | 6,959 | 16.21 |
| Pivot | 13,135 | 1,395 | 2,988 | 5,095 | 5,804 | 6,903 | 16.01 |
| Support 1 | 13,082 | 1,390 | 2,976 | 5,068 | 5,771 | 6,862 | 15.76 |
| Support 2 | 12,995 | 1,382 | 2,950 | 5,026 | 5,701 | 6,765 | 15.31 |
