Market Observations: 05 October 2011

Looks as though ‘risk’ assets are back on again, although my gut feeling is that this is just a correction. I don’t believe that the bottom for this move has been put in yet. However, the price action is what is important, not my opinion, so here it is.

Equities

SPX

As I said before, it seems as though stocks have put in a bottom with the 1074 low of yesterday, but I’m not convinced. Since Monday’s observations, we’ve seen some interesting action with the SPX breaking below both the 1120 and the 1101 demand levels with relative ease, closing at 1099 on Monday. The next day, it dropped to 1074, rallied to retest the 1100-1105 level, failed and drifted to the intraday lows before exploding higher in the last hour to close at 1123. The next day we saw another 20 handle rally that has left it at 1145. I am still of the view that the market will test the July 2010 lows of 1000-1050 at the very least, so this move is a bit unfinished for me. Perhaps a poor unemployment report will get us there. For the time being though, I do like us to go to the 1149-1160 area I have highlighted and then possibly face a reaction. This is a supply area on the way down, and it could hold, so I’m looking for reversal candles there on the short term timeframes.

Trading levels: 1149-1160 above, 1120, 1074-1078 below.

Bonds

10 Year UST

Hourly View

The 10 year did retest that 2.06 level that I talked about in the Observations from 28 September. Yield abruptly turned lower, although it crucially did not make a new low like stocks did. Is this divergence a possible sign that the rally in stocks is the real deal? Could be. The highlighted range at 1.925-1.95 is a good supply area for yield.

30 Year UST

Hourly View

The 30 year actually did make a new low since last week, with respect to yield. One could speculate that Operation Twist is responsible for this, but the divergence is still worth noting. This would suggest a further flattening of the yield curve, and a further indication that banks are about to be hit, and a further confirmation of recession. The circled region remains to highlight the day Operation Twist was announced, and thus far the market has played ball, and have been buying up the 30 year. We are approaching a supply area in terms of yield. It will be interesting to see if the Market will take out hte all time high in the 30 year at 2.53%. For now, we’re still on the lower highs and lower lows thing, so play that until the market shows otherwise.

Commodities

Oil/Copper/Gold

Oil acted as we thought last week, retested the 84.5 level and sold off, going through 77 before bottoming at 75. It then rallied up to the 79.6 level. There is a pivot here at 80, as well as a supply zone from 80-81.5. It’s conceivable that this area could represent a place to sell from.

Copper has acted in a similar fashion, although its in a complete range now, from 3.02-3.16. How it resolves itself will be telling in terms of the way other risk assets go, so stay tuned.

Gold too remains in a range, spanning 1590-1680. Again, wait for resolution.

Currencies

EUR/USD

Hourly ViewFib

Fiber has spiked up in the last 24-48 hours along with the rise in equities, and as with equities I don’t think it has found its bottom for the move. Right now we’re in the middle of air on the way down based on a daily chart, with key demand at the 1.2870 low put in back in Jan 2011. I do think the market will trend there, given the decisive breakdown of the 1.34 area. The move down since 1.45 back in August has been rather orderly, and I feel we are in the midst of a corrective phase. The up moves have been laborious while the down moves quick and sharp. This has been the case with equities as well, apart from that monstrous rally at the end of Tuesdays session. I am looking at trading against the 1.342-1.346 area outlined above. The ECB announcement and Trickys presser after will surely be in focus.

 

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