Markets have settled into what looks to be a consolidation move in front of crucial meetings from the Fed and the BoJ, however the strengthening of the yen suggests that the market is somewhat sceptical that the stimulus package out of Japan will be able to meet expectations. The yen has started to unwind some of its recent gains after suggestions that perhaps the government fiscal stimulus package in Japan will underwhelm and be unable to stimulate the growth necessary. Markets are also looking at the selling pressure coming through the oil price once more as concerns over the strength of the dollar, global demand and oversupply (amid news of record Russian supplies).
After European markets fell into the close a late bounce on Wall Street (S&P 500 closed -0.3% lower) there is a degree of catch up with some mild early gains today. This comes despite the weakness of the Nikkei (-1.4%) on the yen strength, whilst Asian markets were broadly higher. The forex markets are looking mixed today. The dollar is under some corrective pressure as the yen has strengthened sharply whilst the Aussie and Kiwi are both gaining. On the flip-side of this is the weakness once more on sterling which is testing two week lows again. The slightly weaker dollar is also helping to support commodities which is seeing gold and silver mildly higher and the selling pressure on oil is taking a brief pause.
Traders will need to wait until the US data this afternoon for a steer, beginning with the S&P Case Shiller Home Price Index at 1400BST which is expected to improve slightly to 5.5% (from 5.4%). The Conference Board’s Consumer Confidence is at 1500BST and is expected to dip back to 95.9 (from 98.00). The New Home Sales are also at 1500BST and are expected to improve slightly to 560,000 (from 551,000).
Chart of the Day – S&P 500
I do not often talk about the S&P 500 but in front of the Fed I thought it might be interesting to look at the technical outlook. The old mantra is “don’t bet against the Fed” and in the light of the Fed dialling back on rate hikes, the S&P 500 has jumped into new all-time high ground again. However is it close to a correction? The rally has been slowing in the past few days with the S&P having spent the past week in a tight range of less than one percent, whilst momentum indicators are beginning to roll over. Yesterday’s candle was improved by a late rally into the close but there was still a corrective feel to the day as it pulled the market back from the highs. This has helped to pull the daily Stochastics into crossing lower, whilst the RSI has also rolled over and the MACD lines are losing impetus. The initial support is 2155 and a move below would signal a technical correction of around 20 ticks which would be back towards the support of the old high and breakout at 2134. I would view this as a healthy correction into a support band between 2120 (the June high) and 2134. The hourly chart has had slowing momentum for over a week now and also suggests the bulls have run out of steam. The Fed is likely to guide the market near term but the technicals are certainly suggesting a correction could be on the cards.
There has been a minor unwind of the move lower, with the posting of a mildly positive candle yesterday. However, there is still the overall sense that rallies continue to be seen as a chance to sell. The momentum indicators retain a solid negative configuration with the declining RSI, MACD lines and Stochastics looking bearish. The market has now been trading clear of $1.1050 (which is a long term pivot) now for almost the entirety of the past five sessions and the failure to break back above this overhead resistance reflects the downside pressure. The minor recovery has continued early into today’s session but is now into a 50 pip band of near term resistance (as shown on the hourly chart) between $1.1000/$1.1050. With the Fed looming, the market could begin to settle but all things remaining equal the next sell signal could be close.
After Friday’s sell-off the bulls would have been looking for a positive reaction to law back control. However the bull candle yesterday was limp and does little to change the outlook. The pressure remains on the support of last week’s low at $1.3060. The momentum indicators continue to suggest that the next sell signal is just around the corner, and with the Stochastics now gaining traction to the downside the bears are already threatening. A breach of $1.3060 would complete a bearish breakdown and suggest there is further downside which would come with a move below the psychological $1.3000 again and then probably to retest the 31 year lows again at $1.2796. The hourly chart shows a negative outlook on the momentum indicators now and that a near term pivot has formed around $1.3160 meaning around 40 pips of resistance between $1.3160/$1.3200. Expect pressure back on $1.3060 to be seen today.
The bears look to be regaining control once again with the overnight strength of the yen returning to drag the pair back below several near term supports. The daily chart shows how the initial support at 105.50 which had been holding for the past few days has now been breached, in a move which (as things stand) will confirm a Stochastics crossover sell signal, whilst the MAD lines are failing at neutral and the RSI is back below 50. The long term downtrend channel remains intact. The hourly chart shows that the outlook has turned corrective again with the acceleration below 104.60 which I was taking as a key barometer as this was a key higher low within the recovery and its breakdown means that key support are being broken. There is also a new series of lower highs and lower lows that has formed, whilst the hourly momentum shows that rallies are now a chance to sell. There is a resistance of initial overhead supply now between 104.60/105.40 which is likely to capture any unwinding moves today. The lower high is now in place as resistance at 106.70.
There is still a corrective outlook to gold with the indicators all continuing to creep lower. However the pace of selling remains very slow and it certainly does not have the look of a market that has decisive bear control. After rallying from the low at $1310.50 last Thursday this support has been maintained and the move this morning looks as though the correction on gold could be beginning the process of stabilising. Admittedly this is coming ahead of two central bank meetings that could have a significant impact on the price of gold and perhaps traders are feeling reluctant to take a view. Despite this though, there is still this there is still a consistent failure at $1335 which is growing as resistance, whilst today the near term resistance band $1320/$1325 could be seen as important to whether the $1310.50 support is retested again. I continue to view a retreat to the $1306 old breakout as an opportunity for longer term buying.
The oil price continues to track lower and WTI has now followed the lead of Brent Crude in breaking to a new 10 week low. The move also continues to track lower within the new downtrend channel that has formed in recent weeks. The break of the initial support at $43.69 subsequently briefly breached the $43.03 key May low by a few cents yesterday and this next key support is now under threat. However if the May low were to be breached decisively then the bears will be confirmed as being in control. The concern already is that the RSI has confirmed the test of $43.03 by a move on the RSI to the lowest level since mid-February when the big rally began. Stochastics are also bearishly configured and it all suggests near term rallies remain a chance to sell. The hourly chart shows there is initial resistance around the breakdown of the previous support at $43.69, whilst a resistance band is growing between $44.50/$45.00. Beyond $43.03 there is initial support at $42.40, but the next key reaction low is at $37.60.