Is the rally over for stocks? When will the Aussie break out?

October 28, 2014

It was a fairly quiet night last night so as much as a wrap is a good set up for the day ahead it is also worth thinking about the what and the where as we slide towards the FOMC meeting this week and the probable end to QE.

On that front, it is worth asking if this US stock market rally might already be exhausted. Given that it’s genesis was in comments that the end of QE could be delayed this week’s meeting could prove that premise a lie. Equally noted bear John Hussman reckons that this move higher is just another bear market rally. I tend to agree.

I’m going out on a limb and saying that if stocks swooned at the end of QE1 and QE2 that this time is different. A test of the trendline support to me seems likely again soon.

This is particulalry the case when you think about the data misses in Europe overnight where the German IFO business expectations (98.3), climate (103.4) and current assessment (108.4) all missed the markets expectations. It is just another sign of the moribund nature of the Europen economy but somehow the Euro rallied and the US dollar is lower across the board.

The US economy is not strong enough to lift the world anymore which suggests that stocks will struggle unless the Fed delays the end of QE and free money or the ECB actually gets busy with its own plans.

Any way at the close the FTSE was 0.4% lower at 6,363, the DAX dropped 0.94% to 8,903 with the DAX banking index off 1.74%, while the CAC fell 0.77%. On the periphery Milanese stocks dropped a stunning 2.39% with the world’s oldest bank, Monte Paschi di Siena under intense pressure after failing the ECB stress tests. In Madrid stocks fell 1.4%.

Stocks in the US shook off the early weakness on the back of the European lead eking out small gains by the close of play. The Dow finished up 0.07% at 16,818, the Nasdaq was 0.05% higher and the S&P 500 dipped 3 points to 1,962.

Even with the recovery in US stocks traders on the local futures market took the SPI 200 lower overnight and the December contract is off 15 points to 5,423. Looking at sectors today we might see the miners under a little pressure again after coal, iron ore and gold dipped again.

Unsurprisingly yesterday’s high on the SPI200 was the fibo level we identified. Short term reversal time. In Asia Shanghai fell again, down 0.53% yesterday to 2,290. Stocks on the exchange have now fallen 2.83% over the past 5 trading session while the Nikkei is up more than 5% in that period and was 0.64% higher once again yesterday. The divergence in the region is really interesting and

In Asia Shanghai fell again, down 0.53% yesterday to 2,290. Stocks on the exchange have now fallen 2.83% over the past 5 trading session while the Nikkei is up more than 5% in that period and was 0.64% higher once again yesterday. The divergence in the region is really interesting and likely rests in enduring stimulus in Japan from the BoJ and, so far at least, the lack of aggressive stimulus from the PBOC.

On currency markets the Yen is the big winner at 107.76 from a high of 108.37 yesterday but the Euro is higher as well reflecting a little bit of position squaring maybe in the run up to the FOMC meeting. Euro sits at 1.2705 while the pound is at 1.6123 and the Aussie dollar is at 0.8799.

The wedge is holding and maybe ther just isnt enough fresh news to break it decisively either way. I reckon the market just got a little too short too soon and my bias is to buy any dips above the 2014 low and I think a test toward 89 cents is coming soon.

On commodities Dec iron ore was 73 cents to $79 a tonne while Newcastle coal was 60 cents to $65.20 a tonne. Nymex crude was off 0.37% to $80.71 a barrel and gold is sitting at $1,225. Interestingly copper managed to rally to $3.06. The Ags fairly exploded though with soybeans were up 6.88%, corn was 2.55% higher and wheat rose 1.16% after looking like it might have been breaking its recent uptrend.

On the data front there is nothing to be released in Australia today but Japanese retail trade is out while tonight we get German import prices. In the US durable goods is going to be huge as will consumer confidence and the Case Shiller house price index.

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