Yesterday’s Actions: Indecision – A Pause or a Turning Point?
Monday morning saw S&P futures under pressure since the start of European session. After closing at a four month high, the futures generally drifted upwards overnight and reached a high at around 5:00 AM EDT (9:00 AM GMT) in the early European sessions. The news that Bundesbank is holding firm in its opposition to ECB bond buying put pressure on futures and they started to slide down.
The US session started with futures in the red but the low for the day was made on the first half hour. After that the major indices tried to recover the lost ground, closing near the high for the day but marginally in red. In the process, DJIA and S&P500 made dragonfly dojis and other made similarly candlesticks indicating some sort of indecision on the part of the market.
In Dragonfly doji the open and close are at the very high of the day. This type of candle normally appears at market turning points. If it emerges after an advance then it indicates that bulls may be losing the upper hand. It requires a confirmation. If the market does not close below yesterday’s close then it will negate the bearish underpinning of the formation.
NASDAQ formed a hanging man, another candle indicating indecision as it came after an advance. In hanging man candle, the market moves lower after open but then closes in the upper half of the day’s range. Like dragonfly doji, it also requires a confirmation.
Dow Jones Transportation Average made a doji – open and close at the middle of day’s range. Russell 2000 made a harami – the Monday’s small body was completed within the larger body or Friday’s price action. NYSE Composite also made a doji with open and close in the upper half of the day’s range. It is in the process of making and evening star – a three day pattern.
As these candlestick formations have come after an advance they indicate indecision or pause. They require a confirmation – close below yesterday’s low – for their bearishness to become real. Most major indices are also near either an upper bound of a trading range or downtrend line. This increases the probability of a turning point. But the market has been defying the odds of a pull-back for some time hence wait for a convincing confirmation before acting. The current inertia favors the upward movement.
Overnight Action: Headlines In Driving Seat
If it is not the gloom-&-doom then it will be hope-&-dope that will move the market. The overnight action in most capital markets has been positive as the speculation have been mounting that there will be some progress on the Greece crisis in this week’s meeting in the Eurozone and the persistent expectations – for some time – of a Chines stimulus.
For almost 12 hours – from 6:00 PM GMT (2:00 PM New York time) to 6:30 AM (GMT) – S&P 500 futures traded in a very narrow range of 1-2 point. Then the market moved higher at the European session open. In early European morning session, ES is higher at +3.00, YM at +27 and NQ at +7.50.
S&P futures are at the 2012 high resistance. It is also making a cup-&-handle pattern with a very handle. The cup formation was from May 2011 to March 2012 and handle from March 2012 to now. If S&P 500 closes above 1440 – the high resistance from May 19, 2008 – then the pattern will come into play. For SPY the resistance is at 144.30.
Asia: Mixed Sentiments
Asian markets were mixed on Tuesday as weaker than expected earnings (Cnooc) weighed on Hang Seng, Chinese Stimulus hope, and some good earnings reports helps S&P/ASX 200.
Sydney close up +0.44 to four month high. After making a fresh low since March ’09 on Monday, Shanghai Composite mounted an advance 0f +0.5%. Hang Seng barely closed in the red and Nikkei 225 and Kospi closed down by -0.2%. Tomorrow’s release of FOMC meeting minutes weighed on the Asian market. Really?
Europe: Banks and Miners Shining
Bourses in Europe are mostly up in the early morning session buoyed by rising Rio Tinto, BHP Billiton, RBS, Barclays and Lloyds Banking Group.
The general chart pattern of European stock indices is closer to a break out above a trading/resistance zone than a break down. Germany’s DAX is clearing the upper bound of symmetrical triangle on weekly time frame. A convincing weekly close above 7014 will increase the likelihood of DAX challenging the 2011 high of 7600.
UK’s FTSE 100 is still below the upper bound of a symmetrical triangle but is trading above 10-week, 39-week and 89-week SMA. France’s CAC-40 broke above the upper limit of symmetrical triangle couple of weeks ago. The next resistance is 2012 high of 3600. Spain’s IBEX is knocking at the 200-day SMA. It recently completed a double bottom formation with and upward target near 8500, 500 points or 6.7% away from current levels. The target for MSCI Spain ETF, EWP (last close at 25.86), is between 28.75 and 29.25.
Italy’s FTSE MIB index has been above 200-day SMA for the last three days. It too recently completed a double bottom pattern with target near 16500 or 9.3% from current levels. The target for MSCI Italy ETF, EWI (last close at 11.52), is near 13.
Currencies: Continuing Recent Patterns
Another Tuesday and dollar index continues to feel the pressure. The green back is breaking below an upward sloping bearish flag. The down side target is near 81.30 and second target near 80.50.
This is good news for EUR/USD bulls as its inverse head-&-shoulder pattern is still alive with a target near 1.2600. Similarly, GBU/USD is also seeing positive action as it is breaking above the upper bound of a symmetrical triangle. The upcoming resistances are at Fib 50% of 1.5780 and 61.8% of 1.5900.
On Last Thursday, USD/JPY broke above a downward sloping flag thus nullifying its bearish intent. Now the approaching resistance levels for it are near 80 and 80.62.
Swissy is mirroring the dollar index pattern, though it also has an emerging head-&-shoulder pattern. The down side target for USD/CHF is near 0.9475.
Aussie and Kiwi have completed their short term pull back. AUD/USD is turning up after briefly breaching the uptrend line connecting the lows of June 1st and July 25th. Based upon its price action since June, an ABCD pattern is emerging with an upward target near 1.0820.
Commodities: Powering On
After completing a double bottom in early August, NYMEX crude has reached its target. In the process it also broke above a horizontal channel with a measured target near 99.00, where a confluence of resistance levels – Fib 61.8% and Downtrend line – sit.
Gold is showing some life and is near breaking above a symmetrical triangle –above 1631 – that it prematurely broke earlier. Above are some more resistance levels.
Dr. Copper is still vacillating and is bang in the middle of trading range. This continues to put some damper in the rally.
Bond: Pullback Continues
30-year US Treasury bond has convincingly broken below a horizontal channel at the all-time high. It has also covered the half distance to the measured target near 143. For the last few days it is consolidating. The probability of a down move is higher (higher yields).
Key Levels for the Day:
| Dow | S&P500 | NASDAQ | DJTRA | Russell 2K | FTSE | DAX | VIX | |
| Previous | 13,275 | 1,418 | 3,077 | 5,194 | 820 | 5,852 | 7,041 | 13.45 |
| Open | 13,275 | 1,418 | 3,073 | 5,194 | 818 | 5,852 | 7,037 | 14.11 |
| High | 13,276 | 1,418 | 3,072 | 5,209 | 818 | 5,858 | 7,086 | 14.78 |
| Low | 13,230 | 1,412 | 3,060 | 5,170 | 812 | 5,803 | 7,009 | 13.38 |
| Close | 13,272 | 1,418 | 3,076 | 5,190 | 817 | 5,824 | 7,034 | 14.02 |
| Change % | (0.0)% | (0.0)% | (0.0)% | (0.1)% | (0.4)% | (0.5)% | (0.1)% | 4.2% |
| Change | (3.56) | (0.03) | (0.38) | (4.12) | (3.38) | (28.05) | (7.19) | 0.57 |
| Close (vs. MidPoint) | Hi | Hi | Hi | Hi | Hi | Low | Low | Low |
| TR % | 0.3% | 0.4% | 0.5% | 0.7% | 0.9% | 0.9% | 1.1% | 10.4% |
| Resistance 2 | 13,305 | 1,422 | 3,082 | 5,228 | 821 | 5,883 | 7,120 | 15.46 |
| Resistance 1 | 13,289 | 1,420 | 3,079 | 5,209 | 819 | 5,854 | 7,077 | 14.74 |
| Pivot | 13,259 | 1,416 | 3,069 | 5,190 | 816 | 5,828 | 7,043 | 14.06 |
| Support 1 | 13,242 | 1,414 | 3,067 | 5,171 | 813 | 5,799 | 7,000 | 13.34 |
| Support 2 | 13,196 | 1,408 | 3,054 | 5,133 | 808 | 5,744 | 6,922 | 11.94 |
