There is enough technical evidence in a vast array of markets at the moment to act as a warning to stock market bulls and as a result to US dollar bears – preemptive, yes but a warning nonetheless.
But while the debate is certainly raging about this stock market rally as US stocks ended trade Friday strong and the S&P 500 closed the week at an all-time closing high of 1760 up 8 points or 0.45%. The Dow finished at 15,570 up 0.39% while the Nasdaq is up 0.36% and awaiting Apples results tonight.
On the data front Friday we saw Durable Goods falling 0.1% when you strip out aircraft and the other volatile transport items and consumer confidence was lower than expected 73.2 from 77.5 last. But Amazon and Microsoft were solid results and UPS’s delivery data was also a positive.
In Europe UK GDP rose just 0.8% in Q3 and German IFO business index undershot slightly at 107.4 but that didn’t stop the DAX from heading through the 9000 mark for the first time, just from closing there with the Frankfurt exchange ending the week at 8,986. IN London the FTSE was up 0.12% and in Paris the CAC was down just 0.09%. Spanish stocks fell 1% while in Italy the heat is rising on Silvio Berlusconi and the MIB fell 1.45%.
Closer to home the Sydney Futures Exchange was 33 points higher on the SPI 200 contract so it should be a solid open before the Banks start to report this week.
Having said that though while the SPI has been doing well and stocks in Australia this morning are going to open higher this is already reflected in the SPI CFD on my Vantage FX platform as you can see in the chart below. So the question is where to next?
This looks like a classic retest of previous support line and although there is nothing except this to suggest that the SPI should pull up soon the fact that the S&P 500 has a wall of its own in front of it.
As a result I’m expecting a return to something like 5300 in the week’s ahead.
On FX markets the US dollar is under intense pressure and the USD Index is less than 1 full point away from a material break which could see it cascade lower. 78.50 is the level to watch and while it would be expected to hold initially a break would signal a big move higher for the Aussie, Euro, Sterling and of course Yen.
Looking specifically at the Aussie it closed off its lows at 0.9584 but continues to look under a little pressure. Technically the focus is lower which means on the crosses it is underperforming the likes of the Euro (1.3807), Sterling (1.6166) and Yen (USDJPY, 97.61).
Over the weekend Vincent Cignarella of the Wall Street Journal wrote a piece about the Aussie dollar and the pressure it is currently under. At the time I tweeted that the target was right but the rhetoric was hyperbolic. The reason I said that was because Cignarella seemed to have mixed a long term structural debate about china with a short term target in the Aussie of around 94 cents.
I think he is right about the 94 centsish level as I wrote last week but if he is also right on the China story then the Aussie is not going to stop at 94 cents – it will be 85 cents with a bullet because if China falls in a hole then global growth is once again under pressure and as we saw between late April and August the Aussie is going to be under the pump.
Anyway, as it stands now the Aussie’s technicals are pointing lower but short term our fast moving average is offering some support.
Key here is the previous break 0ut around 0.9525 and then below that 0.9470. The MACD histogram suggests to me that while support is there for the Aussie it is still heading lower.
On commodity markets Nymex crude continues to hover below $100 with the price closing at $97.90, Gold is sitting at $1351, Silver at $22.42 and Copper $3.26. Corn was largely unchanged, wheat down 0.83% and Soybeans fell 0.74%.
On the data front its about earnings here at home with the Majors up this week and then of course in the US earnings season continues. A very quiet day in Asia today with nothing until German Retail sales tonight and then Industrial data and pending home sales in the US.
TO RECAP: This market needs a rest
I am not bearish by any stretch of the imagination at the moment. But then again as a trader I’m not bullish either – I’m just trying to go where the market tells me it wants to go.
So on that basis that I am neither a rusted on bull or bear I reckon that this rally in stocks is ready for a retreat and that the Aussies pullback has further to go in either time or price and most likely the latter.
Let me explain.
My process is simple – I have a number of technical indicators which I use to help guide me as to whether the market is going up, down or sideways. Essentially it is a combination of Moving averages, Fibonacci levels, trend lines and MACD Histogram.
At present in a number of markets are looking like they are either toppish or heading lower.
So it’s time to ensure stops are in place but that if the outlook remains positive you can still ride the wave.
Have a great day and good hunting