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Market Open - Monday July 31, 2012

Monday's Action:

The week began on a positive note but then the markets gave back some of the big gains of last week. This could be a healthy move as the retracement was mild, though the volume increased. Overall, it indicates that market is holding up positions acquired last week.

DJIA showed its indecision for the day with a doji candle. So did S&P 500. NADAQ's action was somewhat alarming. It is at the upper limit of a symmetrical triangle. On Monday it raced out of gate and touched that limit but then it reversed course and closed lower. At one point it was 31 points below the intraday high. Most US major indices closed in the lower half of the day's range.

DJIA also declined for the ninth Monday in a row - a first in last 27 years.

European indices did better than American, by adding to their last week gains.

Overnight Action:

Asian stocks continued their upward trend with Shanghai Composite still sulking. Asian markets are eying the expected policy easing in the West with hope. However, QE in the US typical brings higher prices in Asia helping commodities, commodity stocks and resources currencies.

Overnight, Kospi was up by +2.07%, Hang Seng by +1.08%, Nikkei by +0.69% and S&P/ASX 200 by +0.55%. Shanghai composite on the other hand sunk to another low. Monday was its fifth decline in a row. One of the worries is profit warnings coming out of a number of Chinese companies.

India's Sensex also advanced by +0.5% despite RBI disappointing the market by holding the rates unchanged. It recovered from an intraday low of over -109 points to close up by +92 points.

Citing persisting inflationary pressures, RBI held the key rates and did not join other CBs in easing. Though, it reduced the amount of deposits banks must hold in government bonds. RBI also cut 2012 growth forecasts to 6.5% from 7.3%. Indian rupee fell -0.3% against US dollar. The

For the month of July, Asian indices were mixed. S&P/ASX 200 was the best performer with a rise of +4.3% indicating demand for resources. The Hang Seng rose by +1.8% and Kospi by +1.5%. Shanghai Composite was the worst performer with a decline of -5.5% in July. Nikkei dropped by -3.5% due to rising Yen. Sensex fell by -1.1%.

Europe:

Earlier in the morning, most European stocks were declining on Tuesday - partly due to many big companies like BP, UBS missing forecasts. Then they turned around with modest gains. At 7:00 AM EDT, FTSE was down by -0.29%, STOXX 600 by -0.28%. DAX is up by +0.49%, CAC-40 by +0.19% and Spain by +1.1%.

July has been good for STOXX 600 thanks to European policy makers' fresh resolve to preserve euro and support economic growth. It is heading for second positive month with 5.1% gain for July, its biggest monthly increase since last October.

North America:

Federal Reserve is starting its two day FOMC meeting and will come out with a FOMC statement and Federal Funds Rate on Wednesday at 2:15 PM. Bloomberg reports that its median estimates of economists in its survey expect that Chairman Bernanke will hold announcing a third round of large scale asset purchases this week in favor of doing it in September.

After a lower Monday, futures are trading higher on Tuesday. S&P futures (NYSE:ES) are staying above the broken resistance level - a horizontal channel pattern - of 1375. If they remain above it then it increases the possibility of reaching the measured target move to 1430.

YM (Dow futures) is up by +24, ES by +2.00 and NQ by +7.75.

Bonds:

30 Years Treasury bonds (ZB) consolidated on Monday and continue to trade higher on Tuesday, however, it just seems to be a mild bounce as it is near 50% of the fall from the high set on July 25.

Commodities:

Commodities are also adding to their gains on Monday, indicating that the risk-on trade is alive and kicking on Tuesday. NYMEX crude declined on Monday by -0.35 but is up on Tuesday by +0.11. It is also at 50% retracement of the drop from July 29 high.

NatGas, Gold, Silver and Copper were all up on Monday and are adding to that gain on Tuesday. NatGas broke above the short term resistance - high of July 24. Gold is consolidating its break out above a symmetrical triangle. It reversed intraday loss on Monday to a gain. However, yesterday was an inside day.

Silver broke a short term down-trend line on July 26 and is continuing the break. It seems to be forming a bottoming pattern. Copper is still trying to regain the loss that it suffered since July 19. It is at the 50% mark. So far, Dr. Copper is not looking as a leader.

CRB Index has staged a good come back from June lows, when it made double bottom (NYSE:DB). So far it has risen above the target move of the DB.

Currencies:

Dollar Index is also somewhat indecisive or consolidating. Monday was an inside day, which followed sharp declines of previous two days. EUR/USD made a 3-day reversal pattern on Monday but it is not following through on Tuesday so far. GBP/USD seems to be retracing after finding resistance at the upper line of a symmetrical triangle. On Tuesday it fell below the lows of Friday when it made a short term high. USD/JPY is trading in a range with mostly a downward pressure.

Resource currencies are rising against the US dollar. AUD/USD has a clear uptrend and is making higher highs and higher lows. It has broken above some short and medium term resistances. Next resistance is at 1.0600 followed by 1.0800.

NZD/USD is struggling to stay above a recently broken upper limit of a horizontal channel. USD/CAD is maintaining its down trip after breaking a support level on Friday. AUD/JPY - another indicator of risk-on trade - is knocking on the upper limit of a 5-week long horizontal channel. A break above will be positive for global equities too.

Key Levels For The Day:

  $INDU $SPX $COMPQ $TRAN $FTSE $DAX $VIX
Previous 13,076 1,386 2,958 5,127 5,627 6,689 16.70
Open 13,075 1,386 2,959 5,127 5,627 6,729 17.55
High 13,129 1,392 2,970 5,160 5,706 6,797 18.08
Low 13,043 1,381 2,939 5,088 5,626 6,703 17.23
Close 13,073 1,385 2,946 5,112 5,694 6,774 18.03
Change % (0.0)% (0.0)% (0.4)% (0.3)% 1.2% 1.3% 8.0%
Change (2.65) (0.67) (12.25) (14.28) 66.42 84.67 1.33
Close (vs. MidPoint) Low Low Low Low Hi Hi Hi
TR % 0.7% 0.7% 1.1% 1.4% 1.4% 1.6% 8.3%
Resistance 2 13,167 1,397 2,983 5,192 5,756 6,851 18.63
Resistance 1 13,120 1,391 2,964 5,152 5,725 6,813 18.33
Pivot 13,082 1,386 2,952 5,120 5,675 6,758 17.78
Support 1 13,034 1,381 2,933 5,080 5,644 6,719 17.48
Support 2 12,949 1,370 2,902 5,009 5,563 6,626 16.63