Markets See a Breakdown in Technical Support Levels

[Excerpted from Bill Cara's Daily Report]

Technical analysts worldwide are reporting the breakdown of significant support levels, ie, a series of recent lows that brought in buying, which indicate that the equity market’s advance since early March is now over, and prices are most likely to slide into summer.

The weakness started a few days ago with alarming economic data, particularly in Europe, resulting in a decline in the Euro and rally in the $USD. The downward pressure on commodity markets and equity markets, which until now has brought in a pattern of buying the dips, suddenly took on a new light as traders pulled their bids. Possibly there was selling yesterday resulting from the uncertain reaction in Congress and on Wall Street to the Obama White Paper on Financial System Reform.

By the close, the DJIA (8,504.67 -107.46 -1.25%), S&P 500 (911.97 -11.75 -1.27%) and NASDAQ Composite (1,796.18 -20.20 -1.11%) were all down over one percent, which, combined with the prior day’s loss, is now down about -3.5 percent across the board over the first two days of the week.

The Toronto Composite (10,307.40 -87.38 -0.84%) and Toronto Venture Board (1,139.19 +6.24 +0.55%) traded in opposite directions, but at the close the Toronto index is now down -3.2% over two days, while the Venture market index is down just -1.5%.

Earlier Wednesday, Austral-Asian markets were mixed. Japan’s Nikkei 225 (9,840.9 +0.90%), and Shanghai (2,810.1 +1.23%) were both up, but the market in Tokyo is still down -2.0% over two days. Hong Kong (18,084.6 -0.45%), Aussie All Ordinaries (3,904.2 -1.36%), and India’s BSE 30 (14,522.8 -2.91%) closed lower.

In late morning trading Wednesday, the European equity bourses had turned weak. The French CAC (3,175.2 6:49AM ET -1.21%), German DAX (4,832.8 6:34AM ET -1.18%) and UK FTSE 100 (4,274.4 6:34AM ET -1.25%) were down about -1.2%.

In US trading Tuesday, all sectors except Healthcare (XLV +0.4%) were lower, while Basic Materials (XLB -2.7%) and Consumer Discretionary (XLY -2.5%), and Energy (XLE-2.1%) were particularly weak. XLB is down -6.1% over two days. Weak discretionary spending is affecting the Retailers ($RLX -3.1%). Oil Services ($OSX -3.1%) was also weak.

There was no standout industry, but Goldminers ($XAU +0.5%) were up. Goldcorp (GG +2.4%) and Kinross gold (KGC +1.3%) showed some spunk.

Other Cara 100s that lifted on this declining day were Aetna (AET +4.7%), Nucor (NUE +2.4%) and Diageo (+1.8%).

The $USD rallied pulled back yesterday (80.71 -0.47 -0.58%) and so did the Cdn Dollar (88.18 -0.10 -0.11%). Against the USD, the Yen (103.80 +1.60 +1.57%), Euro (138.40 +0.47 +0.34%), and British Pound (164.07 +1.00 +0.61%) were all strong.

In active US bond market trading, the US Treasuries followed through the prior three day’s gains, although traders are beginning to ask if a USD collapse is being set up. The US long Bond lifted ($USB 117.16 +0.53 +0.46%). The yields for 30-year (4.503 -0.52 -1.14%), 10-year (3.674 -0.39 -1.05%), and 5-year (2.691 -0.29 -1.07%) sank for the fourth straight day, after the World Bank on Thursday forecasted a deeper -3.0% global economic contraction for 2009 versus the earlier -1.7% prediction.

Treasury bill yields were a tad stronger (0.165 +0.10 +6.45%).

Last Thursday we bought the bonds (TLT), figuring this (four-session) counter-trend action would happen.

Tuesday, I remarked that “on Monday, $GOLD closed down -$11.00/oz (928.20 -1.17%). With the European economic data looking worse than expected, gold closed last week weakly (939.20 -15.30 -1.60%), and this loss adds to doubts of the goldbugs. But we are writing puts (a bullish tactic) and cautiously looking for opportunities to acquire real asset-based equity prices at a discount.” Yesterday, $GOLD lifted +6.50/oz to 934.70.

Crude Oil (71.16 -0.15 -0.21%) was a tad weaker.

The spot (cash) market prices for precious metals this morning were unavailable at this point, so I’ll report the late evening prices, as follows:

• Gold (934.65 +3.55 +0.38% 23:51pm ET);
• Palladium (240 -4 -1.64% 23:46pm ET);
• Platinum (1213 -4 -0.33% 23:48pm ET); and
• Silver (14.1485 -0.0215 -0.15% 23:48pm ET).

Prices in the precious metals began to improve about noon on Monday, and have traded with volatility. As of 7:50am, the gold price had sold down to 929.30.

Dollar futures were flat earlier this morning, while the Euro was a tad stronger (1.3842 +0.0008 +0.06% 06:37am ET).

Crude Oil futures were quiet Tuesday (71.16 -0.15 -0.21%), and earlier this morning were quiet again, but looking to test the psychological 70 level (70.075 -0.395 -0.56% 06:35am ET).

US equity futures for the DJIA were quiet earlier today as well (8501 -13 -0.15% 06:36 am ET), looking like traders were putting up a stiff upper lip in the face of what some people think could be a waterfall event this week.

Comments

[Subhankar:]

The BSE Sensex index in India has still not broken its up trend line from Mar '09. It remains well above its rising 200 day EMA.

Jun 19 01:42 AM