Long Tails suggest Friday’s bounce might have legs

August 11, 2014

It looked ugly in Asia at one stage Friday but I wasn’t entirely surprised to see that Asian weakness in stocks gave way to strength by the time US markets opened.  Instability is seen by many as having only a downside risk but when a market can crash and recover as US stocks have twice in a few weeks you can either take it as a sign of underlying strength or a warning.

I’ll take the warning.

Anyway there is no decent explanation for why why the Dow finished 185 points to the good. But the post hoc explanations have centred on a possible de-escalation in Russia activities in Ukraine and war games on their shared border, equally it could have been the big surge in Chinese exports that no one paid heed to in Asia.

But the fact that US 10′s fell to 2.37% and that this stock sell-off has pulled up around the same percentage loss as the last three suggests technical buying and bargain hunting are as likely a culprit as anything.

Indeed if you ARE technically minded there are a lot of markets from S&P futures to USDSGD which show very long tails (on the daily candlestick) after Friday’s Asian selloff.

Maybe the worst is over for this run?

Anyway at the close the Dow rose 1.13% to 16,445. The Nasdaq rose 36 or 0.83% while the S&P 500 finished at 1,932 up 22.02 for a gain of 1.15%.

Daily rally but weekly charts pointing lower[/caption]

In Europe the FTSE finished at 6,567 down 0.45%. The DAX fell 0.33% to 9,009 and while the open this evening on European markets is likely to be positive after Friday’s US moves the DAX is a long way from recent highs. In Paris the CAC hardly budged fall just 0.05% to 4,148. In Milan and Madrid stocks rose 0.33% and 0.26% respectively.

Time for a bounce – technically at least. Bias lower still LT[/caption]

Locally the SPI 200 September futures rallied 37 points after a terrible day locally to close Saturday morning at 5,413.

On Friday in Asia the Nikkei crashed 2.98% as USDJPY sold off putting a hand brake on Japanese growth at a fragile time for the economy. But Nikkei futures are up 300 points from the lows of Friday. The Hang Seng was down 0.23% while traders in Shanghai took the index 0.29% higher.

We can largely forget Asian trade on Friday but equally Monday morning Asia is also often a bad lead for the week. So it’s not till US markets trade tonight that we can get a real read on whether Friday night was a solid reversal or just a one night wonder.

On currency markets the US dollar lost the Asian strength as USDJPY moved back to 102. Euro recovered from 1.3340 to close at 1.33 and looks like it is building a base from which it might rally. Sterling was lower closing on the 200 week moving average and looks weak at 1.6796 while the Aussie is off the lows at 0.9330 to 0.9370ish.

As discussed last week I closed my Euro short, too early yes, but am looking to sell again as the long term trend has given way.

On commodity markets September iron ore futures fell 25 cents a tonne to $94.75 while Newcastle coal for the same month rallied 60 cents to $71.75 a tonne – its highest level since mid-June.

Nymex crude was up a little at $97.46, gold is at $1,311 while silver sits at $19.92 an ounce. Copper is at $3.18 a pound while on the Ags wheat fell 1.85%, corn dipped 2.17% and soybeans were 0.96% lower.

On the data front today it is a very quiet day to start what is a fairly quiet week of data. Chinese money supply and new loans are out after the fairly uneventful CPI on Saturday (+2.3% as expected). Japanese confidence is of some interest as is UK retail sales but otherwise its a data drought.

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