Market At A Glance:
On Wednesday, global equity market maintained their upward posture notwithstanding early downward pressure. The US futures were trading lower in the pre-market session. But they made low for the day in the first few minutes of trading and then moved up closing in the upper half of the day’s range. For the last three days, major US indices were pulling back in the last couple of hours. Yesterday they did less of that.
Overall the market action still remains positive and gives hope to a test of recent highs. DIA is off 1.2% of its 2012 high and S&P500 is by 1.4%. NASDAQ has further more to catch up. It is off by 4.1%. Dow Transports and Russell 2000 are still giving some cause of concerns. They are off 6.2% and 6.0% off their 2012 high respectively. Also, they are off by 10.9% and 8.5% of their 2011 highs respectively.
The European market price action was equally encouraging. FTSE 100 has regained the uptrend line which it had broken to the downside for few days. EWU, the MSCI UK Index Fund, broke out of a horizontal channel on August 3rd and is now moving towards the measured target near 17.80, which is also near the resistance made by the high of 2012 and a downtrend line touching the highs of March, April and May.
DAX is moving up within an upward sloping channel, hugging the upper limit. It has regained 78.6% of the March-to-June decline. The next resistance is 2012 high of 7194, which is about 3.3% away. EWG, the MSCI Germany Index Fund, on the other hand has more work to do. It is lagging the DAX significantly in terms of recent price action. On August 3rd, it broke above a horizontal bottoming channel. The measured upside target is above 22.15, which is more than 6.00% above yesterday’s closing price of 20.78.
Overnight Action:
On daily time frame, eMini is maintaining an upward posture aiming for a test of 2012 high. However, since midday of August 3rd new York time, the pace of move has slowed down and it seems to be consolidating. Overnight in the Asian session, ES tested the high made on August 7th before retreating. On one-hour time frame, this is emerging as a potential double top formation. A break below the intermediate low of 1390.50 made yesterday will complete the pattern with a downside target of 1377.75.
In early European session, ES is up by +0.50, YM by +21 and NQ by +7.75.
Asia:
Asian markets were influenced by the actions of central banks and economic news. BOJ left its interest rate and policy stance unchanged and reiterated its commitment to monetary easing. Chinese economic data was mixed. Inflation slowed to 1.8% and July wholesale prices contracted at a sharper rate. Retail sales and industrial production also rose less than expected. It increased the markets’ expectation that Chinese economy needs easing and that the authorities have room to maneuver.
Shanghai Composite tacked in +0.7% continuing its reversal. FXI, the iShares FTSE/Xinhua China 25 Index Fund, broke above a double-bottom/horizontal-channel on August 3rd and is more than one third of the way to the measured target near 36.75, which is about 4% away from yesterday’s close of 35.25.
Nikkei closed up +1.1%, Hang Seng by +1.0%, Taiex by +1.6% and Kospi by +1.96%. Sydney closed down by -0.1% and Mumbai is up by +0.1%.
Europe:
Thursday morning the European markets are either tired or weary. There is no clear direction but the general pressure is upwards. The markets are getting some boost from positive results by Nestle and some other big companies. Standard Chartered continued to recover.
In first half of the European session, DAX is down by -0.22%, FTSE 100 and FTSE MIB are almost unchanged, CAC-40 is up by +0.1%, Spain is up +0.3%, Russia by +0.3% and STOXX 600 by +0.7%.
Bonds:
30-Year US Treasury bond continue to slide. Now it is testing the lower limit of a horizontal channel. TLT, the ETF for 20+ Treasury, is underperforming the SPY. Since June the ratio of TLT/SPY was making a descending triangle after an uptrend from mid0March. The earlier uptrend was indicative of TLT outperforming the broader market. The descending triangle was saying that the trend may change. During this pattern, 9-Day RSI was showing divergence. Yesterday’s price action broke the lower limit of the triangle.
Commodities:
Wednesday’s price action was not decisive and it saw commodities lose some ground recently gained. Thursday morning is also un-decisive. NYMEX crude was down by -0.32 yesterday, it is up by +0.52 today. For copper it is -1.90 and +0.35 respectively. Gold was marginally up yesterday and today.
Their chart patterns have also not changed much. Crude is moving towards it upside target of the breakout of a short-term double bottom. Gold and copper are still within a symmetrical triangle.
Currencies:
The action in the currency market is subdued too. On Thursday morning dollar index is up by +0.41 but hasn’t yet made a reversal from short term down pressure. EUR/USD is trying to reach the measured target of an inverse head-&-shoulder pattern but is facing resistance from the prior support of the low made on July 16th.
GBP/USD is trading within a symmetrical triangle with no clear indication which way it will break.
The initial reaction of BOJ reiteration of monetary easing was dollar negative for USD/JPY but now it is up by +9 PIPs. USD/CHF is retracing up within a short term downtrend. Unless it closes above the August 2nd high of 0.9898, the pressure is downward.
Wednesday saw positive Australian employment report giving some boost to AUD/USD. But, it was not enough to take it above a confluence of resistance levels of past high, Fib 78.6% level and psychological 1.0600. NZD/USD has started its retracement from a similar confluence of resistance level. If the 0.8068 low made on August 1st is held then it may resume the uptrend.
USD/CAD is trading at the 78.6% level of the May-to-June rise. A convincing break of this level will increase the chance of a test of May low of 0.9800. The positive upward move of crude oil is favoring this trade.
AUD/JPY broke above a horizontal channel on August 3rd. It is staying above the upper channel limit, improving the chance of risk-on trade and reaching an upside target near 85.60.
Key Levels for the Day:
| $INDU | $SPX | $COMPQ | $TRAN | $FTSE | $DAX | $VIX | |
| Previous | 13,169 | 1,401 | 3,016 | 5,092 | 5,841 | 6,968 | 15.99 |
| Open | 13,158 | 1,401 | 3,004 | 5,091 | 5,841 | 6,945 | 16.46 |
| High | 13,203 | 104 | 3,019 | 5,091 | 5,855 | 6,966 | 16.47 |
| Low | 13,115 | 1,396 | 3,002 | 5,063 | 5,801 | 6,907 | 15.27 |
| Close | 13,176 | 1,402 | 3,011 | 5,076 | 5,846 | 6,966 | 15.32 |
| Change % | 0.1% | 0.1% | (0.2)% | (0.3)% | 0.1% | (0.0)% | (4.2)% |
| Change | 7.00 | 0.87 | (4.61) | (16.89) | 4.68 | (1.81) | (0.67) |
| Close (vs. MidPoint) | Hi | Hi | Hi | Low | Hi | Hi | Low |
| TR % | 0.7% | 92.6% | 0.5% | 0.6% | 0.9% | 0.9% | 7.5% |
| Resistance 2 | 13,252 | (324) | 3,027 | 5,105 | 5,888 | 7,005 | 16.89 |
| Resistance 1 | 13,214 | 539 | 3,019 | 5,090 | 5,867 | 6,986 | 16.10 |
| Pivot | 13,165 | 967 | 3,011 | 5,076 | 5,834 | 6,947 | 15.69 |
| Support 1 | 13,126 | 1,831 | 3,003 | 5,062 | 5,813 | 6,927 | 14.90 |
| Support 2 | 13,039 | 3,123 | 2,986 | 5,033 | 5,759 | 6,868 | 13.70 |
