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Market Open – Monday July 30, 2012

Friday's Action:

The impact of ECB President Mario Draghi's 'It will be enough' speech continued on Friday. Friday's action also got a boost from the second quarter real GDP reading of 1.5%, which though lousy turned out to be enough to lift investors anemic expectations.

The earnings announcement after Thursday's close and Friday's open were mixed. Amazon missed on revenues but its stock price surged. Facebook beat but its price was sharply lower. Merck and Amgen were higher on good reports.

Most indices are either closer to a short term resistance level or are trying to break out above it.

DJIA just completed an ascending triangle pattern and has broken above the resistance level of past few weeks. Now the latest support is in 12950-to-12980 range. However, Dow Transport is lagging and has not confirmed DJIA. It is still making a descending triangle, though it is moving closer to the upper limit of the triangle. Since Early June it hasn't made a higher high after making a high on June 19th. Since then it has broken below short term June 25 low of 4932 on July 24. But DJIA did not confirm this move. Since June 4the DJIA is making higher highs and higher lows. So we have two components of Dow Theory not willing to confirm each other.

S&P 5oo is making a similar pattern as DJIA. Both are also in an upward sloping flag, leading to a battle of patterns. NASDAQ, on the other hand, is making a symmetrical triangle within an upward sloping flag. It is close to the upper limit line and if it breaks above July 19 high then it will be more bullish.

Overall it seems that the US market is trying to make another run at the 2012 highs with mixed actions. The momentum after last week's action has shifted slightly towards upside and barring any bad news from Europe or US economy it has a chance of taking out 2012 highs.

Overnight Action:

After making a high on Friday, S&P futures are seemingly consolidating with a slight down pressure in the process making a downward sloping flag - a bullish pattern - on one hour timeframe. A convincing break above the upper trend line or Friday's close, has a greater chance of reaching 1411-1420. After last week, the market is also going to wait for the next shoe to drop or the correct saying would be that actions need to follow words.

At around 7:00 AM, S& futures were down by 2 points, Dow by 10 points and NASDAQ by 1.

Asia:

On Monday, most Asian markets cheered the Wall Street action on Friday except China. Nikkei, Hang Seng, S&P/ASX 200, Kospi and Taiex were all up by 0.5% to 1.06%. Shanghai Composite traded -0.89% - another fresh low since March 2009. Metals and insurance sector declined so did many foreign denominated stocks. China's 8.1% growth target looks shaky now.

Indian blue-chips helped Sensex rise by over 300 points or 1.8%. Positive action in the west and other Asian bourses were catalyst too. So was tomorrow's RBI first quarter policy review. There are some hopes that RBI may announce some positive measures but, unlike other countries, inflation in India is stubbornly high.

Europe:

Most European markets are following through and are giving the benefit of doubt to ECB and Eurozone that this time they may take not away the football at the last moment as Lucy does with Charlie Brown. FTSE 100, DAX, CAC-40, STOXX 600, SMI etc. are all up by 0.30% 0 0.90%.

Bonds:

30 Year Treasury yields surged on Friday by 0.152 to 2.642%. In the process it has broken above the downtrend line, temporarily, reversing the downturn that started in March and picked up steam in early July. On Monday, the bonds are consolidating - making an inside candle day.

Commodities:

By and large commodities had a positive day on Friday. CRB Index gained 2.13, NYMEX Light Crude 0.74, Gold 1.60 and Copper 2.05. Monday morning is seeing them all consolidating and trading lower. Crude is lower by 0.55, Gold by 11 and Copper by 1.20. One of the reason is Dollar Index is up by 0.115.

Currencies:

On Friday, Dollar Index closed below the near term support of 82.80 after completing a 3-day candlestick reversal pattern. On Monday it is consolidating and pondering the next move - whether up or down.

Currency market still has doubts that Europe has gotten its act together. This is being reflected in euro and resource - risk - currencies. EUR/USD has taken a leg down and is closer to 1.200 levels. In the process it has completed a short term 3-candlestick reversal pattern just after touching the down trend line from May. Unless, ECB and Eurozone follow through on their 'or else' word of last week, EUR/USD is in danger of resuming the downward trend with gusto. If that happens then it may bring down other markets.

Key Levels For The Day:

  $INDU $SPX $COMPQ $TRAN $FTSE $DAX $VIX
Previous 12,888 1,360 2,893 5,007 5,573 6,583 17.53
Open 12,889 1,360 2,907 5,007 5,573 6,605 17.11
High 13,118 1,389 2,962 5,159 5,631 6,690 17.30
Low 12,889 1,360 2,901 5,007 5,551 6,514 16.52
Close 13,076 1,386 2,958 5,127 5,627 6,689 16.70
Change % 1.5% 1.9% 2.2% 2.4% 1.0% 1.6% (4.7)%
Change 187.73 25.95 64.84 119.86 54.05 106.43 (0.83)
Close (vs. MidPoint) Hi Hi Hi Hi Hi Hi Low
TR % 1.8% 2.1% 2.4% 3.0% 1.4% 2.7% 5.8%
Resistance 2 13,257 1,408 3,001 5,249 5,683 6,808 17.62
Resistance 1 13,166 1,397 2,980 5,188 5,655 6,749 17.16
Pivot 13,027 1,378 2,940 5,097 5,603 6,631 16.84
Support 1 12,937 1,368 2,919 5,036 5,575 6,572 16.38
Support 2 12,708 1,338 2,858 4,884 5,495 6,396 15.60