Markets trying to base and recover for a while. Bullard suggests delay to QE end

October 17, 2014

I’m not sure this is the end of the stock market sell off. Indeed I’m pretty sure that it’s not.  but when you get a noted hawk – like James Bullard – saying that that there could be a delay to the end of QE, which is expected this month, overnight and you look at the technical patterns, at least my system, that are evident in so many markets then I think it’s time for a pause in the recent trends and in some places a reversal.

Indeed I went very small long USDJPY yesterday. Well above last nights lows mind you but that’s why its a one unit rather than my usual two unit position. The stop was below the low of the previous day so this morning with USDJPY up at 106.30ish it’s all good.

The key for me – in terms of the Yen and also markets generally is not just Bullard but also the massive 3-year trendline in the S&P 500 I highlighted yesterday. No guarantees on this one – is there ever :S – and I’m possibly a bit early but looking for a move back to 107 first and then we’ll see how things look.

Anyway looking to trade overnight and it was a better night for stocks in the US with the early swoon giving way to a mid-morning recovery. The data in the US was solid. Jobless claims fell to 264,000 which is apparently the lowest in

Jobless claims fell to 264,000 which is apparently the lowest in 14 years. The industrial production data also beat with a rise of 1% against 0.4% expected and -0.2% last while the Philly Fed manufacturing survey printed 20.7 versus 20 expected.

At the close, the Dow was flat down 0.1% to 16,118.9, the Nasdaq was up 0.1% to 4,220.9 and the S&P 500 rose 0.1% to 1,864.2.

All around a better night, even it if wasn’t super strong, but there is a sense that the bounce off the  that occurred yesterday might have legs for now. Certainly comments from Fed President James Bullard which is expected this month, is also helpful.

Europe managed to close down again, which is very interesting given the recovery in the US the night before. The FTSE was 0.25% lower at 6,196, the CAC fell 0.53% to 3,919 but the DAX managed to eke out a 0.13% gain to 8,583. In Milan and Madrid, with Greece back in the news, it was another ugly day with stocks falling 1.21% and 1.71% respectively.

Locally the support of futures traders – implying a general level of buying for the index rather than just specific stocks – off the multi-year trendline in our day yesterday hasn’t helped overnight traders, who once again have taken the SPI 200 futures substantially lower. The December contract is down 38 points to 5,193 bid. Perhaps it’s the continued fall in coal and iron ore which has them worried? We’ll have coverage of how the physical does throughout the day.

In Asia yesterday, the Chinese new loans data looked solid, printing 857 billion yuan against expectations of just 730 billion. But it was nonetheless a down day for the region, with the Shanghai exchange off 0.74% to 2,356, the Hang Seng off 1.03% and the Nikkei, which hates USDJPY at 106 and change, falling 2.23%.

Currencies consolidated the lows of this week, with USDJPY making a low overnight of 105.49 but it is back above 106 now. Likewise, euro fell to 1.2704 but is back at 1.2814 and the Aussie dollar tested 0.8684 but has recovered solidly to 0.8764 this morning. GBP is at 1.6059.

The Aussie is trying to base looks like a diamond so going with the break is the way I’ll be playing it.

On Commodity markets, iron ore’s reversal continued, suggesting a bit of a dead cat bounce so far from the lows. The December 62% Fe futures were down 98 cents a tonne to $79.58 while Newcastle coal has now dipped below $64 a tonne, losing 65 cents to $63.90. Elsewhere, copper slid below $3 a pound to close at $2.98 in what seems a bit of delayed catch-up to renewed concerns about global growth. Crude did better, with Nymex up 2.61% to $83.91 a barrel and gold is at $1,242 an ounce. On the Ags, wheat surged 1.86%, corn rose 0.75% and soybeans were up 2.17%.

On the data front, there is little to rival price action itself as the key driver into the week’s close. It’s a big one with some important levels tested this week and just below the market. A weak weekly close would be an ugly sign for the rest of October but clever traders will respect levels until they break.

Having said that though, housing start data in the US will be important tonight and the Chinese MNI sentiment indicator today is a big one for Asia.

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