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Mixed Potential For Global Equities

May 30, 2011 9:59 AM ET
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Headlines and Open Positions:
The US economic calendar has dominated the news wires in regard to equity indices valuations, with a stream of data hitting the wires recently that confirm the US business cycle is still unable to move out of the trough phase and into expansion. The potential for new trade signals to form today is weak.

European social unrest and IMF questions are adding to the lackluster period of recent trade. Equity and economic fundamentals remain very questionable, especially as Q1 earnings season wraps up and questions are asked whether the Federal Reserve will instigate another round of quantitative easing programs.

Trade desk signals highlighted the potential in a weekly chart close below 1330 on the S&P 500 (1332), below 7150 on the German Dax (7195), and below 9500 on the Japanese Nikkei (9505), as being pivotal for equity outlooks going into June. Holding support on a weekly chart offers a near-term base to work higher from.

SPY (133.50), the exchange traded fund (ETF) that tracks S&P500 momentum looks set to continue its sideways trading pattern, in-line with global equity trade that has found fair value. There is very little support if 131.00 breaks on SPY, which will draw in targets of 129.50 and 127.50 if momentum builds in global equity selling.

Breaks above 1340 on S&P 500 and above 134.00 on SPY, which have been highlighted as major resistance areas, still look to be important price points of note this week. The next price action break of note will carry a lot of pent-up momentum, but as yet there have not been any confirmed signals indicating that markets are ready to move and easily hold.

Alternate Trade:
Traders could trade the currency pair EUR/USD in-line with the potential seen in global equity and commodity movement. Buying the US dollar and selling the Canadian dollar is a simple process of placing a buy order on EUR/USD, and then closing that same position in a similar way that equity trades would be bought and sold.

If global market trade favors the buying of S&P 500 above 13340 a potential trade signal will be issued on EUR/USD. Buying the EUR and selling the USD via this currency pair from 1.4370 draws in 1.4410 and 1.4480.

S&P 500 Price Action:
Strong buying activity was seen at 1330 on S&P 500 trade in April and May. The market has moved lower and tested this major swing point area, and will now be closely monitored. Market alerts and updates will be sent to subscribers when price action moves look to be sustainable.

Main S&P500 support: 1295. Main S&P500 resistance: 1340.

Daily trading range on S&P 500 is 16 points, which is above the historical norm and indicates that volatility is increasing, in low-volume markets.

ETF Price Action:
SPY trade ran into a wall of resistance in April and May at 134.00, which will now be very difficult to break. The trade desk will pay close attention to price action as the week unfolds, and expects a lot of price gaps to form between each session open and close. Volatility will build if the pattern of Asian and European trade moving S&P 500 futures valuations overnight continues.

Main SPY support: 131.00. Main SPY resistance: 134.00.

Technical Correlations:
S&P 500 100-day Simple Moving Average (SMA) is at 1312. S&P 500 price action has a 36-month 75% correlation to crude oil moves, and a 90% correlation to the aussie (Aud/Usd) currency pair.

A trade signal was issued to clients recently on the S&P 500 with a break lower from 1333, which has now completed its course. Traders have seen lackluster momentum reads in global equity trade.  Clients will be notified when price action confirms further trade signal potential.”

Sentiment and outlook towards equity trade remains weak, and favors consolidation as month-end book balancing is absorbed. Price action will likely continue the choppy and volatile intra-day patterns seen in equity and ETF prices during the month of May. Traders committing to long equity-based trades at these levels need to use caution in trade size levels.

The main US ETF’s that track technology (XLK) (26.10), energy (XLE) (76.30), semi-conductors (SMH) (35.30), financials (XLF) (15.70), and emerging markets (EEM)(47.75), show little indication that momentum is building. A break above 15.80 on XLF and above 26.20 on XLK may draw in some buying activity.

TheLFB trade desk generates trade signals that highlight specific price points to trade from, and market alerts that highlight sentiment changes in global markets. TheLFB provides 24 hour market support for traders, investors, and institutions. Service offerings include analysis of three asset class areas:

§  Foreign Exchange (Dollar Index, EUR, GBP, AUD, CHF, CAD, JPY)

§  Equity indices and ETFs (SPY, DIA, GLD, SLV, USO)

§  Commodities (Gold, Oil, and Silver)

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