Market Observations: 28 September 2011

The markets continue to hinge on the situation in Europe: should the Europeans announce a ‘solution’ (read: money printing), we should see global risk assets appreciate. With the Germans continuing to be reluctant to play ball, it seems that it is more likely that a deal will not happen, and therefore risk assets resume the selling we’ve seen in the few months.

Equities

SPX

Hourly View

The equity markets have been pretty choppy the last few weeks as have all markets to be honest. The bias here is still to the downside, as nothing has changed in the long term view I outlined in the weekly outlook on the 26th. In that post I also suggested a possible short opportunity in the supply area from 1189-1200. Today the market gapped up into that area, and rallied into it and lost steam as the day went on. The last hour of trading sold out of the area in rapid fashion down to its close at 1175, suggesting that this is a good supply level to work from.

Trading levels: 1189-1200 above, 1140, 1120, 1100 below.

Bonds

10 Year UST

Hourly View

The 10 year has seen a predictable correction since hitting new all time highs recently, and still remains in a bull market. I believe this is a bubble, as the fundamentals do not support these levels in the slightest, but given that we entered into the realm of the absurd a few hundred bps ago, anything could be possible. Technically, the red channel presented a decent trading range that resolved to the downside. A retest of that lower cluster seems on the cards, specifically from 2.06-2.11.

30 Year UST

Hourly View

The 30 year is more interesting, because of the impact of Operation Twist. A similar channel formed which resolved to the downside as in the 10 year, but unlike the 10 year, the 30 year has not corrected back to its pre OT level (the circled area). In all likelihood it will do so, which may present an opportunity to buy back in. A close over that OT level (roughly 3.27%) is significant as it represents the market refusing to play ball with Bernanke. Should be an interesting trade to watch.

Commodities

Oil

Hourly View

The hourly chart here shows another retest of a former trading range. The yellow supply level established at the breakdown of the range provides the basis to trade from. The bias is lower here, first to the 77 area, and likely lower.

Copper

Hourly View

Copper has taken a massive hit in recent weeks, and its role as a leading economic indicator portends ominously for world economies. Its reaction from the lows and subsequent failure at the 3.50 pivot point seems to be a good shorting opportunity. However it must break through the 3.30 level to confirm more downside.

Trading levels: 3.50, 3.7-3.8 above; 3.30, 3.07-3.10 below

Gold

Hourly View

Gold has seen a 20% correction from the 1923 double top high, and I do feel that it has put in a bottom. This does not prevent a possible retest of lower levels, but I do think that the time is right to step in and buy. The larger time frames indicate this, but at such a level it is always wise to be a bit prudent in these potential early stages. The cluster at 1724-1770 is going to be important to overcome, a failure there may lead to a retest of lower levels. I’d be a buyer here with a very tight stop below 1630.

Trading levels: 1630, 1600, 1535 below; 1680, 1724-1770 above.

Currencies

EUR/USD

Hourly ViewFib

Fiber traded really choppy the last couple weeks, the first range to the left of the chart was capped basically by the range in red there. The Market then traded lower and then reacted back to that range. It’s failure at the top of that range presented a shorting opportunity. Should momentum continue lower, signified by a break below  1.355, we could see a retest of the lows on this chart, about 1.3360. There is a decent chance the fiber moves back higher above 1.365, so be vigilant of this one in its early stages. Should that occur, a move to the 1.38 area is likely, which would present a great place to short.

AUD/JPY

Hourly View

The red channel provides a great area to trade against short, although a cheeky long can be taken right now with a tight stop until that point.

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