S&P breaks 1800 but ASX and Aussie dollar lag

November 19, 2013

A big night for milestones with the Dow and S&P 500 both hitting historic levels, trading above 16,000 and 1800 respectively for the first time. The Nasdaq fell a little short of the 4000 level which would have given us a trifecta, but fell just shy of this level, printing 3995 overnight. As it stands at the close of trade the Dow is back at 15,976 for a gain of 0.09%. The Nasdaq is down 0.93% at 3949 and the S&P 500 is down 0.534 to 1792.

It’s hard to square the circle of what actually drove markets because on the one hand the taper talk continued with the slightly weaker than expected US home builders index (54 v 55 expected) suggesting no taper any time soon. However Bill Dudley, the head of the New York Fed and permanent voter on the FOMC, said overnight that “I have to admit that I am getting more hopeful…Not only do we have some better data in hand, but also the fiscal drag, which has been holding the economy back, is likely to abate considerably over the next few years at the same time that the fundamental underpinnings of the economy are improving”

In Europe the better tone out of Shanghai after the reforms were announced Friday buoyed markets and the FTSE was up 0.44%, the DAX rose 0.61% while the CAC rose 0.67%. In Milan stocks blew through the roof rising 2.24% and above the 19,000 level for the first time ever on a bank driven rally. In Spain stocks rose 0.90%

Closer to home on the Sydney Futures exchange the rally offshore continues to pass us by with the SPI 200 down 16 points at 5381 bid. The local market has been crashing into a wall of resistance above 5400 in recent weeks.

The ASX under performed everything yesterday which is a very interesting tell on the market. To me it suggests that we are heading back to last weeks lows over the next week and then we’ll see what happens. I’m still short.

On Forex markets the slight moves on the day belies the little bit of volatility that occurred over the past 24 hours. Euro is up 0.1% to 1.3513, GBP down 0.8% to 1.6107, USDJPY is still struggling to break up through resistance and kick on finding itself this morning at 100.09. The Aussie dollar on the other hand has benefited from the better China tone and is up 0.23% at 0.9389 but down from the high of 0.9418.

The Aussie rallied up above 94 cents yesterday but hit and reversed off the fast moving average. It doesn’t mean that the Aussie is in a bear trend but just gives a feel for where the resistance is at the moment. My sense is that the China bounce yesterday and the spectre of the RBA minutes at 11.30 this morning are keeping the Aussie buoyed.

It’s hard to see anything but a fairly bullish Aussie picture to emerge from the minutes given the statement that was released was upbeat on the impact of low interest rates although the risk is there of some aggressive language around the still high Aussie dollar.

In the end the outlook is the same as yesterday – a break through the fast moving average takes it to 95 cents while a fall below last week’s lows opens up a move into the 90 cent, perhaps below, region.

Looking at the Euro we see it is back above 1.35 and trying to break higher – why or how I’ll never know but it is what it. I’d rather be a seller than a buyer.

1.3580 is the level above which Euro could rocket again.

On Commodities Copper is an interesting one and it is down 2 cents to $3.16 lb. Technically copper looks weak and its an important bellwether for the global economy so it is worth keeping an eye on. Technical target remains $3.02. Nymex crude is also down falling 0.95% to $92.95 Bbl. Gold fell again down 1.17% to $1272 oz. Corn tanked 2.25% but wheat fell just 0.35% and soybeans rose 0.66%.

Today the RBA Minutes will be released at 11.30 which is partly why the Aussie is still higher. Later in the day we get Chinese FDI, Japanese Leading Indicators, Industrial data from Italy and then the important German ZEW economic survey in Germany and the related one for the EU. Tonight in the US we get the Redbook index, Treasury Secretary Lew speaks as well as Chicago Fed President Charles Evans.

And a question for you – did we just reach the top?

Obviously this is a dumb question the answer to which we can only know in hindsight but with the Dow hitting 16,000, the S&P hitting 1800 and the Nasdaq just missing 4,000 it might be a banner night for a reversal.

The calls for a reversal are growing in some quarters but Barry Ritholtz over on the Big Picture Blog over the weekend reported that newsletter writers are the least bearish ever. What’s clear in this is that a lot of people are wary of fighting the Fed and want to ride this bull until the end but others recognise that there are some issues arising.

What is driving the S&P’s rally – It’s PE expansion in 2012 and 2013 – so we have all been warned.

Have a great day and good hunting

Greg

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