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Clouds Not Disappearing: Daily Remarks - Thursday August 23, 2012

|Includes:SPDR Dow Jones Industrial Average ETF (DIA), SPY, TLT, UUP

Wednesday's Recap - Fed To Rescue?

Wednesday was the FOMC meeting minutes release day and that kept the markets on tenterhooks for most of the day. The overnight action from Tuesday's close was stifled by some disappointing news from Japan and Australia along with the apprehension about the FOMC meeting minutes. US futures were under pressure since mid-Tuesday and remained so well into the early New York session on Wednesday. Then the minutes were released and they showed that policy makers are thinking about taking further action fairly soon if substantial and sustainable improvement in recovery do not become evident.

Couple of hours before the FOMC minute release, eMini had started a turnaround - around noon EDT - by making a 'Trend Channel Line Overshoot' pattern (on 30 min time frame) that Al Brooks calls a good setup. Sure enough, when the price settled above the overshot candle - 12:30 PM candle - the eMini raced up 10 points from the low of the day to an hour before the New York close.

Not Enough:

Still, not all is clear. The chart action on Wednesday was mixed but the clouds hanging over the short-term rally have not disappeared.

Dow Jones Industrial Average followed up the long bearish engulfing of Tuesday with another down candle. This was the confirmation of the bearish pattern. Though there is short term support immediately below, the chance of a 2.7%-to-3.5% decline is still there.

Other major US indices - S&P 500, NASDAQ, Russell 2K, NYSE Composite, and Dow Transport - made similar patterns. Dow Transportation Average continues to indicate that the Dow Theory is not very sure of the rally.

Overnight Action:

Futures continued to drift upwards after the FOMC event and are delicately placed. eMini has retraced the 61.2% of the decline from Tuesday high to Wednesday's low. NQ (NASDAQ futures) is near 78.6% level and YM (DJIA) is near 50%. Interestingly, YM (September contract) is making an inverse head-&-shoulder pattern on 30-min timeframe. If it closes above the right shoulder - above 13200 - then the upward target of the pattern would be near 13300.

Asia - Data is For Contrarians

China's manufacturing data was weak but investors countered that with increased expectations of a stimulus package. Asian markets generally closed higher recouping some of the losses of previous day. Nikkei 225 closed up +0.5%, Shanghai Composite +0.3%, Hang Seng +1.2%, S&P/ASX 200 +0.2%, Kospi +0.4% and SENSEX unchanged.

Shanghai Composite if hovering at the three-year lows. A successful bounce will create a double bottom pattern with a target near 2360. But, it is way too optimistic at the moment. A longer sustained bounce is needed for this pattern to become real.

Most major Asian markets are maintaining their upward bias, though some are at crucial resistance levels. Nikkei 225 is trying to go over the hump - neckline of a double bottom and a gap-down in May. Successful overcoming of this resistance will open up the path to a measured target near 10000.

US Dollar Precariously Positioned:

The FOMC meeting minutes are seemingly going to strike a blow to the dollar index. DX, the continuous contract, is at a major support level. It has reached the measured target of a broken bearish flag. A break below the support of 81.40 will bring in to play an un-even head-&-shoulder pattern with a measured target near 78.75 coinciding with another support level.

Dr. Copper Showing Some Life:

The summer rally since early June did not see the participation of Dr. Copper. It has been languishing in a trading zone for more than three months. Now, it seems that it may be slumbering back into life. On Monday it completed a pattern, which resembles an inverse head-&-shoulder pattern. We say it resembles because a classic inverse H&S occurs at the end of down trend. As copper is in the middle of a trading range, the pattern is not a classic one. Nevertheless, it has some potential as the red metal has also broken a downtrend line beginning from the April high. The measured move target is near 363. The next resistance is the upper bound of a symmetrical triangle.

Bonds Are Not Sure:

The FOMC meeting minutes have created some confusion in the bond market. 30-year US Treasury bond had broken below a horizontal channel and was on its way to a rendezvous with the measure move target near 143. However, a strange thing happened and now it is trying to go back to the high. A close above August 13 high will negate the channel-break target.

Key Levels for the Day:

 

 

  Dow S&P500 NASDAQ DJTRA Russell 2K FTSE DAX VIX
Previous 13,204 1,413 3,067 5,194 815 5,858 7,089 15.02
Open 13,198 1,413 3,060 5,191 815 5,867 7,066 15.32
High 13,205 1,416 3,081 5,224 815 5,857 7,081 15.52
Low 13,120 1,407 3,053 5,181 810 5,771 7,018 14.75
Close 13,173 1,413 3,074 5,194 813 5,774 7,031 15.11
Change % (0.2)% 0.0% 0.2% 0.0% (0.3)% (1.4)% (0.8)% 0.6%
Change (30.82) 0.32 6.41 0.00 (2.80) (83.32) (57.82) 0.09
Close (vs. MidPoint) Hi Hi Hi Low Hi Low Low Low
TR % 0.6% 0.7% 0.9% 0.8% 0.7% 1.5% 1.0% 5.1%
Resistance 2 13,251 1,421 3,097 5,243 818 5,887 7,106 15.90
Resistance 1 13,212 1,417 3,085 5,219 815 5,831 7,069 15.50
Pivot 13,166 1,412 3,069 5,200 812 5,801 7,043 15.13
Support 1 13,127 1,408 3,058 5,175 810 5,744 7,006 14.73
Support 2 13,042 1,399 3,031 5,132 804 5,658 6,943 13.96
Stocks: DIA, TLT, SPY, UUP