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GLOBAL OUTLOOK 11/23 Cheat Sheet: Opportunities While World Markets At Resistance, Gold Disconnects



NB: The below is an abridged version those seeking details should refer to the full version

Stocks: Prior Day: Asia, Europe, US down, this morning Asia, Europe up

-           FX: Higher equities, today bias against safety currencies [JPY, USD, CHF in order of safety appeal] vs. risk currencies [AUD, NZD, CAD, EUR, GBP in order of risk appetite appeal], S&P 500 showing signs of stalling at 1100 for possible pullback or range trading

-           Main events today: EUR: French & German Mfg & Services PMIs, ECB Pres.Trichet speaks, CAD: Core Retail/Retail Sales, USD: Existing Home Sales Tuesday: EUR: German Ifo Business Climate, GBP Inflation report, USD Prelim GDP, CB Consumer Confidence, GBP BoE Gov. King Speaks

-     Big Theme: Stocks, Risk Appetite Taking a Break or Reversing?-See Conclusions below for trading opportunities. TRADERS SHOULD HAVE TRADING PLANS READY FOR MOVES IN EITHER DIRECTION, still unclear if markets have fully digested the US jobs data, and news this week is light, suggesting trading with ranges

STOCKS

US: Week ending 20-Nov-09 The major indices kicked off the week on a strong note, with the S&P 500 hitting fresh highs for 2009. But selling pressure eventually emerged, resulting in a mixed finish. Overall it was a relatively slow week, with earnings season winding down and a small amount of corporate news. Given that the rally is already 7 months old it's not surprising that stocks are taking some time to decide if they can overcome the 1100 resistance level. It's a battle between available liquidity pushing stocks up vs. poor valuations and fundamentals suggesting they should be lower. Year end selling may become a factor if traders seek to book profits and take some tax losses to balance them.

 

Asia: Asian stock markets were mixed Monday after a decline on Wall Street and as investors hunkered down ahead of a stream of figures that could confirm the U.S. economy is recovering at a slower pace.

 

Europe: PARIS, Nov 23 (Reuters) - European stocks open higher, as equities were poised to bounce back from a two-week closing low hit in the previous session, supported by buoyant oil and metal prices.

ASIA- DOWN

N225I -0.-54%

HS -0.83 %

SSEC -0.37

FTSTI -0.72%

AORD -1.28 %

EUROPE DOWN

FTSE  -0.31%

DAX -0.68%

CAC  -0.82%

 

US- DOWN

S&P -0.32%

DJIA  -0.14%

NASDAQ -0.50%

 

 

THIS MORNING

N225I -0.54%

HS +1.41%

SSEC +0.92%

FTSTI -+1.05%

AORD +0.69 %

 

FTSE +1.77%

DAX +1.66%

CAC  +1.72%

 

                 

Oil:  WTI crude oil fell after recovering to 78.61 Friday. Has spent over 4 weeks in the $82-$76 range. Holding above $78/bbl on heightened Iran/West tensions. Current month-plus range is $76-82, likely to continue following the S&P 500. OPEC members are satisfied with oil price at 75-78. Angolan oil minister even said that 80/bbl is 'not too high'. Some analysts have gone so far as to speculate that the Saudis are considering upping production and driving oil down in order to give Iran's economy and regime a not so gentle shove. Barclays expects oil prices to average $76 a barrel in the fourth quarter and $85 next year. See full version for Nat. Gas

 

Gold:  Has Demand Truly Increased?  Buying remained strong in gold and other precious metals. Last week, gold rallied +2.75 to 1146.8 and the new record high was set Wednesday at 1153.4.There's a growing belief in a new fundamental factor -- that underlying demand for gold has increased due to central bank buying. After the Reserve Bank of India, the Bank of Mauritius bought 2 metric tons of gold from the IMF at market price on November 11. Compared with India's 200 metric tons, Mauritius' purchase was insignificant. However, same as the deal with India, the implications radiate far beyond the size of the deal itself. SEE FULL DAILY ANALYSIS FOR DETAILS

 

CURRENCIES: Falling stocks Friday and for last week overall lent bias to safe-haven currencies. Bias to risk currencies in early Monday trade, dollar retreating against everything SEE WEEKLY OUTLOOK FOR DETAILS FOR THE COMING WEEK

 

USD:  the dollar saw some substantial swings throughout the week, settling with a 0.4% gain, helped by supportive comments from Fed Chairman Bernanke and a late week stock pullback. USD retreating against everything in early Monday trade-RANGE TRADING LIKELY with continuing downward bias until: major pullback in stocks, and/or fundamental improvement in US economic fundamentals raises interest rate prospects and/or selloff in the EUR.

 

EUR: - Moving with stocks, and opposite of the USD, major events could have some influence, beginning of stimulus reduction could be long term plus if expectations for interest rate increases rise and outweigh corresponding declines in stocks and concerns that EZ economy isn't ready to handle these increase.

 

JPY -  Gained against all majors last week, gaining against most currencies in early Monday trade, potential volatility this week, mostly from US rather than Japan data

 

GBP – One of the worst performers last week due to dovish news from the BoE's Monetary Policy Committee voted as  expected to expand by £25 the Asset Purchase Facility, and the minutes suggested openness to still more stimulus. UK economic news this week is not expected to be positive. US event risk and low liquidity later in the week could make for choppy trade. Also, from a technical view, GBPUSD could be in for further declines, as the pair’s break below a rising trend line drawn from the October 13 lows and bearish weekly candle chart formation suggests a bearish outlook on GBPUSD. See chart below

 

AUD: Falling with stocks Friday, recovering against the USD in early Monday trade.

NZD: Falling with stocks Friday, recovering against the USD in early Monday trade.

CAD: Falling with stocks Friday, recovering against the USD in early Monday trade. More downside than upside risk because it behaves as a risk currency following oil and stocks, both of which could well be in for flat consolidation or pullback, yet lacks the high yield of other risk currencies to fuel carry trade demand

CHF: narrow range trading vs. both USD and EUR, moving with overall risk sentiment aka stocks, if stocks pullback SNB may well not be able to keep the CHF low.

 

CONCLUSIONS: S&P 500 falls modestly, but the small down move revives questions about the rally and whether a bearish double or triple top is forming. See Trading Opportunities section below. Traders should consider going with the current trend but be ready for pullbacks. See below for specific opportunities with the S&P 500, CRUDE, GOLD, EURUSD, NZDUSD, and AUDUSD & GB[ISD.

 

Trading Opportunities:  Near term has favored risk currencies, shorting safe-haven assets. Today's news provides potential volatility for r the EUR/USD and USD/CAD in particular. Given that markets remain very high despite mixed earnings and negative US jobs reports, they're vulnerable to a pullback at this 1100 resistance level for the S&P 500:           1. be prepared to play a pullback in risk assets and get ready to sell stock indexes, commodities, and risk currencies, buying USD, JPY. 2. Trade the near term horizontal trading ranges that should hold until major news causes a change in risk appetite. 3. Those continuing to take long positions in risk assets should consider tight sell stops, though gold and crude may be approaching new breakouts.   Crude oil breaches key $74 resistance, implying more upside unless stocks pull back on earnings disappointments. Always use sell stop orders.



S&P 500


 


 


 


 


 

S&P 500 Daily Chart (01 Nov 23)


 


 


 

Resistance holding at 1110 where there is a convergence of both the upper Bollinger Band and a bearish doji candlestick from Nov. 18th, surrounded by equally indecisive spinning top candlesticks. Also of concern, the price level is currently in the middle of its rising channel, and the current $1100 level is itself a price resistance level. Thus we believe traders should be wary of opening new positions on this index and on all other assets until we get a decisive move above or below 1100. As noted above, it’s a struggle between liquidity pushing stocks up vs. concerns over the underlying fundamentals and high valuations that suggest selling. Unclear how it will play out. Because the S&P 500 is so representative of overall risk sentiment, and thus the "One Chart to Rule Them All", this indecisive picture suggest traders should make long or short moves when the S&P hits support levels at 1076 (Fib retracement +20 day MA + some price support from mid-October + rising trend line) or a decisive break over 1100.


 


 


 

GOLD:


 


 

Gold Daily Chart (04 Nov 23)


 


 


 

Continues moving largely independent of movements in equities, moving instead on speculation (or a new fundamental outlook of greater demand?) that other central banks and other large buyers may do the same, and breaking to new highs despite the struggles of stocks and energy commodities with which it has typically moved. The below chart shows possible retracement points if/when the move makes normal retest of support


 


 


 

As noted in our Global Markets Outlook 11/23-11/27:


 


 


 

Last week, gold rallied +2.75 to 1146.8 and the new record high was set Wednesday at 1153.4.


 


 


 

There's a growing belief in a new fundamental factor -- that underlying demand for gold has increased due to central bank buying. After the Reserve Bank of India, the Bank of Mauritius bought 2 metric tons of gold from the IMF at market price on November 11. Compared with India's 200 metric tons, Mauritius' purchase was insignificant. However, same as the deal with India, the implications radiate far beyond the size of the deal itself.


 


 


 

Earlier this year, the IMF announced its plan to sell a total of 403.3 metric tons of gold to bolster its finances. The news weighed on market sentiment as investors worried about at how much and to whom the gold would be sold. Now, more than half of the planned amount has been sold to official sectors at market prices, sentiment appears to have shifted from concern over overhanging supply to disappearing supply as large exporter central banks and sovereign wealth funds seek to convert depreciating dollar holdings into gold. Right or wrong, that is the sentiment at this time, and it's been strong enough to send gold soaring while crude and stocks have been stalling out. Impressive relative strength that has won many believers and convinced markets that any pullback will not be pronounced or long.


 


 


 

Consider:


 


 


 

• In April, China, the biggest gold producer in the world, increased reserves by +76% to 154 metric tons since 2003. The market anticipates China will be another big buyer of IMF's gold.


 


 


 

• Since the beginning of 2009, gold price has rallied almost +30%. Also, after breaching 2008-high at 1033.9, the yellow metal's rise has accelerated, jumping more than 100 dollars in a month. The long-term uptrend is not likely to end soon.


 


 


 

• Apart from government buying, new private gold funds should give a further boost to robust investment demands. John Paulson announced his plan to launch a new gold fund next year with as much as $250M of his money. Large gold ETFs or funds usually have holdings that are comparable to central banks. For instance, SPDR Gold Shares, the world's largest gold ETF, is the world's 5th largest bullion owner just below France and above China.


 


 


 

In short, it's not just increasing gold demand, but demand from big buyers.


 


 


 

In coming weeks, gold price should continue to be very much directed by USD's movement. However, the inverse relationship between gold and the dollar should not be taken for granted. For instance, in the 90s, the yellow metal's supply was so abundant that its price plummeted. In 2005, gold price surged due to tightness in the market. Therefore, some analysts hold that gold price may continue to rise given the reduction in gold production and increase in central bank demand, despite a possible rebound in USD early next year. Famed NYU Economics Professor Nuriel Roubini, credited for calling the current crisis years ago, believes the run in gold is an unsustainable bubble, while famed commodity trader Jim Rodgers holds gold is going much higher. As long as the central bank/sovereign wealth/momentum story holds up, Rogers looks correct.


 


 


 

Crude Oil:


 


 


 

WTI Crude Oil Daily Chart (05 Nov 23)


 


 


 

Range trading between $82-$76/bbl since mid October, moving more or less with stocks as the S&P struggles at the $1100 resistance level and oil at $82, neither to move higher until further positive news on the recovery. However, with gold having continued higher in utter disconnect from stocks and oil, the historic gold ratio now justifies oil as high as around $97.25 (12:1 ratio) and no less than $77.80 (15:1). Thus while crude remains range bound, if gold can continue breaking to new highs, as many expect it to do, then crude could follow it sharply higher over time, especially if other risk assets can avoid a sharp correction (which they are doing nicely, as shown by the S&;P 500 breaching resistance at $1100) or there is evidence of continued strong demand from China and other developing economies.


 


 


 

EURUSD: Like the S&P 500 and Oil, has been range trading since mid October and is likely to continue to follow the S&P 500.


 


 


 

EURUSD DAILY CHART (06 Nov 23)


 


 


 

As noted in our Global Outlook for 11/23-11/27:


 


 


 

For the coming weeks euro traders need to consider the following developments.


 


 


 

• In the background, stimulus reduction that is starting to build momentum, developing both interest rate expectations and concerns that the Euro-zone economy will falter as government spending slows and exposes a weaker economy.


 


 


 

• Of more immediate concern, there's a series of weighty economic indicators that will offer some volatility.


 


 


 

• However, the main threat of an impending break in recent trends comes from intangible fundamental dynamics like liquidity and the influence of a domineering US dollar.


 


 


 

Risk appetite is the main catalyst and fuel for the financial markets. After an eight-month trend founded based on the need to reinvest funds and take advantage of an historical rally; confidence may now be turning into a hesitation that will be well reflected in the EURUSD.


 


 


 

While the overall rising trend of higher lows from March remains; the past few weeks have turned to chop that is starting to develop an ominous bias, similar to that of the S&P 500. Given the unusual market conditions that back this liquid pair up, the possibility of a reversal in trend shift is more pronounced. The US markets, the single largest source of liquidity in the world, begin an extended holiday weekend starting Thursday, and in turn, a full-week of notable economic releases gets condensed into just a few days. A combination of event risk and shallow market depth may be the final ingredients for a breakout.


 


 


 

NZDUSD: New Shorting Opportunity?


 


 


 

NZDUSD Daily Chart (07 Nov 23)


 


 


 

We noted in our prior Weekly Outlook of 11/16 – 11/20 that this pair was likely to be one of the best shorting plays when stocks dropped back to retest support, because the pair had risen in tandem with the AUDUSD but the NZD lacked the strong underlying economic fundamentals of the AUD and was thus a better shorting candidate. Almost on cue, the pair fell about 282 basis points, 3.76%, a potentially almost 800% profit for currency traders typically using 200:1 leverage, of which they could easily net over 400% even if using a relatively conservative trading plan to minimize risk and get in only once a trend is established. Now in the middle of its $0.7562 - $0.7073 range since late October, the pair moves with the S&P, and this range has enough room to be played in either direction WHEN the S&P 500 decisively breaks though $1100 or drops to retest support


 


 


 

NB: See a daily chart of the AUDUSD, and note the similarity. Those seeking to trade this pair could apply the above mentioned indicators and comments.


 


 


 

GBPUSD: Another risk appetite play, especially as short opportunity if stocks continue to pull back?


 


 


 


 

GBP/USD Daily Chart. (05 Nov 09)


 


 


 

On Nov. 9th, we wrote: "One of the strongest currencies last week against the USD and EUR as it gained on less than expected expansion of QE, but nearing the top of its trading range since mid July and at the top of its Bollinger Band Range and recent high of $1.700. Could be a good short trade if markets pull back." Look what happened.


 


 


 

GBP/USD Daily Chart (08 Nov 23)


 


 


 

The GBP/USD did just that the following week on evidence of new dovishness from the BOE and made a nice 2% move down, a potentially 400% profit for currency traders typically using 200:1 leverage, of which one could take a 200%+ profit if using a sound trading plan that minimizes risks by triggering entries only on confirmed trends and uses trailing stop losses to lock in gains. As the chart above shows, it's following the S&P 500 and has room to play in either direction once the S&P trend is clear. The pair also has enough support/resistance points to provide entry points for long or short plays if the S&P settles into a range for a while. The 1.6300, 1.6400, 1.6500 and 1.6800 levels provide both Fibonacci and price support/resistance.


 


 


 

Given the broken trend line, slight bias to the downside, though again, this pair should continue to follow the S&P 500.


 


 


 

DISCLOSURE: NO POSTIONS IN THE ABOVE INSTRUMENTS