Rate Decisions Spark Further Buying

Global equity markets rallied significantly last week, as optimism about global growth returned to the markets.    The Dow Industrial average finished the week at 9864 reaching a 52 week high, two years after reaching an all time high of 14,198 points.

The S&P 500 Index (the broader market) rallied 46 points or 4.6% to settle the week at 1,071.  Optimism began early in the week after the Institute for Supply Management reported that its index of nonmanufacturing activity jumped last month to 50.9, from 48.4 in August, while its business activity/production index hit 55.1, from 51.3.  These positive results pushed the S&P 500 up 15 points or 1.5% at the start of the week, showing investors that the U.S economy is slowly crawling out of its recession. One must note that a number above 50 is classed as a positive sign and will often point to expansion.

Positive news continued to grip the market at the beginning of the week as the Reserve Bank of Australia increased its benchmark interest rate to 3.25% from 3.00%.  The surprising news pushed the US equity markets and Dollar counterparts higher, with DJIA and S&P rising 1.4% and 1.4%, respectively. On the Forex market the Australian Dollar soared higher reaching a weekly high of $0.9098.  European markets rose too, as DJ Euro Stoxx 50 ended up 2.7%.

On Wednesday night and Thursday the US markets received two surprises as Alcoa announced positive earnings and Jobless claims declined.  Net third-quarter profit for the aluminum giant was $77 million, or 8 cents a share, compare to expectations of a loss of 9 cents a share.  On Thursday jobless claims decreased by 33,000 to 521,000. Economists were expecting a decrease of only 11,000.

Positive Economic News is Bad for the Dollar

The dollar continued to trade on the defensive side, as currency traders were forced to digest a wave of economic news.  Following the RBA rate hike, the Australia dollar showed significant gains against the greenback.  This was compounded on Thursday after the Australian Economy also showed extremely strong gains in employment.   From a technical point of view the Australian Dollar has presented a phenomenal come back, breaking all Fibonacci levels, heading higher. Even though a pullback could take place, the current angle of the trend is signaling that this pair could be headed for its previous high.

The Canadian dollar set a new high for the year around C$1.0565 against the US dollar, using the unexpectedly strong Ivey PMI as a catalyst.  At 61.7 (vs. 56.2 exp), the Sep PMI report, showed the strongest result since July 2008.Despite the positive number one must note that the index is not seasonally adjusted and September tends to be a strong month regardless of economic conditions.

On Thursday after Canadian employment grew by 30,000 jobs, the Canadian dollar made new highs for the week.    The CAD/USD broke through recent tight range of 1.0630 – 1.1125, and is now presenting enough momentum to test the parity level.

Over in the Euro-zone, ECB President Trichet’s post-meeting press conference left little doubt that the ECB will leave both conventional and non-traditional policy measures unchanged well into 2010. To date the bank wants to ensure that the euro zone’s economy returns to a healthy state, characterized by proper economic growth. Even though Trichet stressed on the importance of the U.S Dollar following the ECB’s rate decision, his comments eventually led to a euro relief rally, as it became apparent that the ECB remains on a very low rung of the intervention ladder.  While the euro has since pulled back below $1.4740 with further support around $1.4680, the fundamental picture has not changed with new euro buyers likely to emerge on the pullback.

Gold and silver lead the charge this week in the commodity markets.  Gold hit a new all time high at $1067, while silver also hit a 2009 high at $17.91.  A strong technical breakout along with the growing demand for an inflationary hedge, pushed precious metals higher during the course of the week.  The moves gained momentum after the RBA increased its central bank rate, especially as gold and silver are known to be the best instruments to use as an inflationary hedge.

The Week Ahead

This week a wave of global economic data will be released, some of which traders will need to keep an eye on.  After a bank holiday on Monday in the US, Tuesday will start off with National Australia Bank’s Business Conditions (Sep), Consumer Price Index, Retail Sales in the UK, and the Zew survey of economic sentiment in the EMU.  On Wednesday eyes will turn to retail sales in the U.S and EMU Industrial Production.  Europe and the U.S will take center stage on Thursday as both are expected to release inflation data.  The week will end with Canada in the spot light, scheduled to release its Consumer Price Index.

The market once again proved to be very resilient and strong. The market had regained all the losses from the past 2 weeks. It seems that the market is so confidence that the economy will be stronger in years to come. Indeed, the strengthening of the market in the last few days did back by better earnings report from major big corporation and better economy from other countries such as Australia and others.

On Monday, the economic data, ISM Non-Manufacturing PMI came out better than expected. The market began to rally as the traders and investors see a good opportunity to buy stocks after the major indexes hit the 50 Moving Average.

On Tuesday, the market was surprise by the rate hike from the Australia Central Bank. The market sees it as a positive to the emerging markets, which will help the recovery in the world economy. Earnings report from notable companies such as Yum Brand and Pepsi Bottling Group also posted better than expected earnings result. So the market continues to celebrate the recovery story of the world.

On Wednesday, the market gathers its bullish momentum from the better than expected earnings result from Alcoa, Costco Wholesale Corporation, Family Dollar and Monsanto.

On Thursday, Australia reported positive Employment Change and lower Unemployment Rate. This report give the Asia market lots of cheer and it also provide more evident that the recovery from the financial crisis had already began. Also Weekly Unemployment Claims from U.S. came out better than expected. Earnings reports continue to surprise to the upside as PepsiCo and Marriott International posted better than expected result. Once again, the market finds no excuse not to participate in this rally.

On Friday, the market cheer the better than expected Trade Balance report. The coming holiday Monday, which many Banks closes to celebrate, help to spur the bull to bid the market on a quiet Friday.

Major Events

• Dollar Under Attack.
• Violent in Pakistan.
• Fed Chairman Bernanke give the support to the Dollar and say that the FOMC will hike the interest rate once the economy had recovered.
• Australia hiked ¼ point of the interest rate from 3 to 3.25.

Economic Data

Investors and traders will be focusing on Retail Sales and CPI in this coming week. Also on the tap are weekly Unemployment Claims, Empire State Manufacturing Index, Philly Fed Manufacturing Index, TIC Long-Term Purchases and Michigan Consumer Sentiment report.

Earnings

This coming week, a slew of major giant technology and financial companies will be releasing their earnings reports. Financial companies such as JP Morgan Chase, Citigroup, CIT Group, Goldman Sachs and Bank of America will be schedule to release the earnings report.

Technology companies such as Google, IBM, Omniture and Advanced Mirco will be on the tap.

Notable companies such as General Electric, Halliburton, Mattel, Nokia, Harley-Davidson, Charles Schwab, Xilinx, Steel Dynamics and Abbott Labs will also release their earnings results.

Summary

Earnings reports seem to be getting better from the preview of this week. Most of the companies reported in this week show better than expected result. The market seem to like the earnings report so far even though some of the companies continue to post declining revenues and sales.

The same-stores sales in September bring joy and surprise to the retail industry. Many of them reported better than expected sales. Many of the retail companies hope that the strong result in September will carry forward towards the end of the year.

The U.S dollar was under attack yet again in last week. In a disturbing breaking news story, Arab states initiated a covert operation with China, Russia, Japan and France to stop using the US currency for oil trading and topple the US economy, according to British journalist Robert Fisk. Immediately after the news releases, some of the Arab states came out to deny the report.

All eyes will be on the earnings result from the major industry leaders especially the big banks such as Citigroups, JP Morgan, Bank of American and Goldman Sachs.

Many analysts and the street believe that the financial sectors had got out of the wood and they are likely to post strong earnings result in this quarter. However, Timothy Long, the chief national bank examiner at the Office of the Comptroller of the Currency see a different story as he warn that the risk of the Credit and Commercial Real Estate Crisis

Commodity prices had escalated in last week. Gold and Oil had been hitting the high of the year as the Dollar continue to be weaken. Investors, traders and even some of the Central Bankers seem to have lost faith in the Dollar recently. This situation will likely to spur the growth of the commodities as investors and traders seek out hard assets.

In conclusion, every market will likely to keep going higher if the Dollar keeps going down. The weirdest thing is that both the bond market and commodities market are going up. This means that there are equally people betting that the economy will experience either Inflation or deflation. This means that many people will likely to lose a lot of money either way the economy decide to go. This is a crazy economic environment we are witnessing at the moment. The pressure in the Dollar, the high unemployment rate in U.S, the surging stock market, bond market and commodities market will likely to explode in the near future. Meanwhile, it will be prudent to stay sideline, as there will be a better environment to invest in the future.

Sector Rotation

This week, Energy sector pick up the leadership followed by Materials (4.62%), Financials (3.39%), Consumer Discretionary (3.19%), Technology (2.94%), Industrials (2.63%), Consumer Staple (2.17%), Health Care (1.94%) and Utilities (1.46%).

Energy and Material sectors lead the market as the weakness in Dollar continue to push up the prices of the commodities.

Financial and Technology sectors will be in focus this week. A slew of better than expected report will likely to push the stock prices in these 2 sectors into a high for the year.

In conclusion, the market will continue to watch for the earnings growth in the coming week to decide if the economy had truly began its recovery process.

Technical Analysis

The S&P500 Index closed at 1071 last week. This indicates a gain of 46 points (4.5%) from the previous week’s close.

The market had 5 consecutives positive days in this week. The market had gained it bullish momentum after the major indexes hitting the 50 Moving Average line on last Friday. The market had play out this strategy for the past few months. Investors and traders had been buying from every single dip that the market present itself. Frenzy buying had been spotted at 20 MA and 50 MA levels. As long as there are no major shocking news, the street will likely to benefit from buying at every major support level of the moving average.

The optimism and confidence in the market are growing stronger with every better than expected earnings reports from major industry leader. Further evident of growing optimism can be found in the short interest data, VIX and VXN.

Amid the strong confidence in the market, there are several famous people warning the street on the health of the economy and the overrun in the stock market price. Fed Bullard warns over inflation and cautions unemployment is headed to double digits.

Looking at weekly candles, the S&P500 Index is suggesting a upside movement if it can break above this year high of 1080 in the coming week. The weekly chart shows a bullish ‘marabozu’ candle that indicates a positive ahead. Furthermore, the weekly chart also seems like a continuous pattern of the bullish trend.

Looking at daily candles, the S&P500 Index looks like it might be starting the week with a positive Monday. This is because the market ends up high at the last trading day.

The immediate support levels are S1: 1025, S2: 1000 and S3: 990.
The immediate resistance levels are R1: 1040, R2: 1060 and R3: 1080.

In conclusion, the market this coming week is likely to be bullish if it can break above the 1080 level. Earnings will once again be in the focus. All eyes will be on the big boys such as Bank of America, JP Morgan, Citigroup and Goldman Sachs. Traders had been shorting the Dollar, buying Gold, Oil, Stocks and even Bond. On a caution note, all the investment markets had been overcrowded recently. Any reversal or shocking news will turn the tide that will likely to be fast and furious.

“Market always make the majority look like a fool”

[Lawrence Chua]

Rate Decisions Spark Further Buying

Global equity markets rallied significantly last week, as optimism about global growth returned to the markets.    The Dow Industrial average finished the week at 9864 reaching a 52 week high, two years after reaching an all time high of 14,198 points.

The S&P 500 Index (the broader market) rallied 46 points or 4.6% to settle the week at 1,071.  Optimism began early in the week after the Institute for Supply Management reported that its index of nonmanufacturing activity jumped last month to 50.9, from 48.4 in August, while its business activity/production index hit 55.1, from 51.3.  These positive results pushed the S&P 500 up 15 points or 1.5% at the start of the week, showing investors that the U.S economy is slowly crawling out of its recession. One must note that a number above 50 is classed as a positive sign and will often point to expansion.

Positive news continued to grip the market at the beginning of the week as the Reserve Bank of Australia increased its benchmark interest rate to 3.25% from 3.00%.  The surprising news pushed the US equity markets and Dollar counterparts higher, with DJIA and S&P rising 1.4% and 1.4%, respectively. On the Forex market the Australian Dollar soared higher reaching a weekly high of $0.9098.  European markets rose too, as DJ Euro Stoxx 50 ended up 2.7%.

On Wednesday night and Thursday the US markets received two surprises as Alcoa announced positive earnings and Jobless claims declined.  Net third-quarter profit for the aluminum giant was $77 million, or 8 cents a share, compare to expectations of a loss of 9 cents a share.  On Thursday jobless claims decreased by 33,000 to 521,000. Economists were expecting a decrease of only 11,000.

Positive Economic News is Bad for the Dollar

The dollar continued to trade on the defensive side, as currency traders were forced to digest a wave of economic news.  Following the RBA rate hike, the Australia dollar showed significant gains against the greenback.  This was compounded on Thursday after the Australian Economy also showed extremely strong gains in employment.   From a technical point of view the Australian Dollar has presented a phenomenal come back, breaking all Fibonacci levels, heading higher. Even though a pullback could take place, the current angle of the trend is signaling that this pair could be headed for its previous high.

The Canadian dollar set a new high for the year around C$1.0565 against the US dollar, using the unexpectedly strong Ivey PMI as a catalyst.  At 61.7 (vs. 56.2 exp), the Sep PMI report, showed the strongest result since July 2008.Despite the positive number one must note that the index is not seasonally adjusted and September tends to be a strong month regardless of economic conditions.

On Thursday after Canadian employment grew by 30,000 jobs, the Canadian dollar made new highs for the week.    The CAD/USD broke through recent tight range of 1.0630 – 1.1125, and is now presenting enough momentum to test the parity level.

Over in the Euro-zone, ECB President Trichet’s post-meeting press conference left little doubt that the ECB will leave both conventional and non-traditional policy measures unchanged well into 2010. To date the bank wants to ensure that the euro zone’s economy returns to a healthy state, characterized by proper economic growth. Even though Trichet stressed on the importance of the U.S Dollar following the ECB’s rate decision, his comments eventually led to a euro relief rally, as it became apparent that the ECB remains on a very low rung of the intervention ladder.  While the euro has since pulled back below $1.4740 with further support around $1.4680, the fundamental picture has not changed with new euro buyers likely to emerge on the pullback.

Gold and silver lead the charge this week in the commodity markets.  Gold hit a new all time high at $1067, while silver also hit a 2009 high at $17.91.  A strong technical breakout along with the growing demand for an inflationary hedge, pushed precious metals higher during the course of the week.  The moves gained momentum after the RBA increased its central bank rate, especially as gold and silver are known to be the best instruments to use as an inflationary hedge.

The Week Ahead

This week a wave of global economic data will be released, some of which traders will need to keep an eye on.  After a bank holiday on Monday in the US, Tuesday will start off with National Australia Bank’s Business Conditions (Sep), Consumer Price Index, Retail Sales in the UK, and the Zew survey of economic sentiment in the EMU.  On Wednesday eyes will turn to retail sales in the U.S and EMU Industrial Production.  Europe and the U.S will take center stage on Thursday as both are expected to release inflation data.  The week will end with Canada in the spot light, scheduled to release its Consumer Price Index.

The Rally Continues, Gold Comes Back Into Focus

Numerous events had an effect on yesterday’s session, driving Wall Street and the major currency pairs higher. The Bank of Australia surprised the markets, increasing their central rate from 3% to 3.25%. Gold jumped above the $1000 mark and rumors that the Dollar might lose its status as a major currency in the oil trade, helped to push the indices higher.  The S&P500 closed the session with a gain of 1.37%, while the Nasdaq finished higher by 1.77%.

The trading day started on a positive note, as the RBA mentioned that they expect the Australian economy to return to a normal state during 2010. The bank took certain measures against future inflation, raising their central bank rate.  The RBA finished their speech by mentioning that with inflation now around stable levels and growth likely to be close to trend over the year ahead, they feel that it is now time to start to remove the stimulus provided by monetary policy from the markets.

Even though all the Australian Dollar crosses felt an impact from the bank’s decision the AUD/USD showed the most movement, continuing higher within its recent trend. After bouncing off trend line support last week, the AUD/USD climbed during yesterday’s session reaching the middle of its current channel.

Gold Climbs to new Levels.

The buzz of the day was Gold, reaching an intraday high of $1042.32. Already during mid-day, European hours, this hot commodity broke its prior minor range and headed higher. Within a matter of a couple of hours, Gold broke all resistance levels and climbed higher. Gold finished the day around its highs and held at $1040 during the overnight session.

From a technical point of view Gold has now breached its prior high formed in early 2008. When taking a glance at the weekly chart below one can see that even though this commodity is trading around high levels, indicators aren’t yet pointing yet to an overbought situation. According to some analysts including J.P Morgan, Gold could see higher levels in months to come due to the current situation. With the Fed expected to keep interest rates at low levels, investors are now heading out of the U.S Dollar, rushing to counterparts, which include Gold.

Market Data to Watch Out For

Looking forward, today’s session will be characterized by investors preparing for tomorrow’s interest rate decision. Even though the markets are expecting a ‘no change’ statement from both the banks, recent actions by the RBA have shocked traders, showing them that anything can happen.

GDP is scheduled to be released shortly in Europe and is expected to show a -0.1% figure. In addition, Australia will continue to shake the market, releasing their employment figures later on during the trading day.

Well, we lost the Olympics, but life goes on.

Now we have to get focused on the grand scheme of what the markets have done to predict what they may do in the near future. For example, on Thursday and Friday last week we saw some interesting market moves. Thursday saw a sell-off down to our support line around the 96.20 level in the DIA, only to rally back to 97. Friday brought a lower opening and a sell-off for pretty much the rest of the day, to close slightly off the low of the day.

This morning sees futures rallying slightly, but the buyers and the institutions will have to do some serious support work to get over the Friday jobs report. I am amazed at the media trying to downplay the report, but that is what they do. I only turn my TV on a few times during the day because I can’t stand listening to the talking heads try to rationalize half of what comes out of their mouths.

The Dollar is not making the strong rally that is should have after supporting off of that $76 level in the $DXY. It seems like it wants to retest that support to make sure it holds. The Dollar has major issues that will take a long time to stop… let alone reverse. These include the expansion of US debt and amount of currency derived from the thin air.

Gold is reacting accordingly… with it hovering near high levels. If you read the article in the link I posted last week, we see that world central governments have beenexchanging swap agreements to keep the overall price of gold down. Without this resistance, there is no telling where the price of gold could have been. Some say it should be trading at $2,500. For the sake of our retirement accounts, I hope not. If gold gets to those levels, then something catastrophic has happened to the dollar or our market, where confidence is destroyed.

Remember how our market has been reacting though. A weak (but stable) dollarhas been good for the market, whereas any rally has pushed the market down slightly. I am curious at what point the negative dollar movement turns into a negativemarket movement. The cause could come from the speed and velocity at which the dollar moves. If we have sharp downward moves in the $DXY, then this may causenegative moves in the market. We will have to play the waiting game to see how long the current relationship lasts.

Let’s hope the dollar stays put and buyers step back into this market to push us towards 10k. New highs would bring in even more buyers above major resistance levels, creating a potential short squeeze against all of the 10k naysayers. No matter which way you look at it, the market is overbought on a weakening fundamental base. This has not stopped it yet, so we are more inclined to think they can keep the charade going, but we should be quick to respond to the markets piercing critical support levels.

Have A Great Week!

Economic

Earnings