SP500 At very interesting Psychological pivot.

I rarely comment on markets these days. However, the recent price action on Stocks (as well as many markets) are extremely interesting. Just over a week ago the psychology of the market, and various commentators, were along the lines of 'The world is about to end'. Maybe not quite that extreme, but I am sure you get the picture, it was an extreme of fear. Since then the bounce has been quite stunning, though with relatively little fanfare. The overriding chatter I sense is that this is just a bounce before further woes. However as the chart shows, there is a possibility that a much bigger rebound may be on the cards, at least with regard to the technical picture. Short-term signs are potentially a double bottom pattern over recent weeks if the market can break and hold above 1940/50. The twin hammer candles suggest that this may be quite possible, and if this does happen then this set the possibility of a move up to 2056 or even 2085. - Whilst this would not kill the formation of the overarching major topping formation, it would call into doubt for now. Equally failure to clear 1940/50, which may act as resistance for a few days, could turn the focus firmly back to lower levels.

TIPPING POINTS ???????!

Overnight markets across the board saw significant moves. Chinese equities dropped sharply, the various indices posted declines of around 4-5%, this has seen follow through in other Asian indices, though not as steep as the Chinese decline. In Europe the move has seen declines of around 2 - 3% thus far, and S&P futures are currently down around 1.3%. Elsewhere global bond markets rallied, leading to a further declines in yields, with the US 10 year yield breaking below 3%. It now appears that Japan, Europe and the US 10 year government yields have all broken key levels... Meanwhile the USD has posted gains versus the Euro and the USDJPY has dropped and is moving close to the spike low posted on the night of the Flash Crash. -- Also worth noting that European spreads PIIGS v Germany have continued to back up following recent declines......
I have posted a selection of charts showing significant markets and the current move in a wider context... FWIW, I believe we are possibly approaching the end of this corrective phase on equity indices, though until the lows of late-May/Early June are clearly broken, this still has the ability to confound me and prove me completely wrong.

Risk on ???

The 'Inverse Cup & Handle' possibility which I mentioned yesterday looks dead in the water, although at one stage last night it did look a good possibility but now its dead... --- Moving swiftly on, this morning it seems that we are moving away from risk-off -- at least for the next few hours/days.... The 'risk-off ' trade of the past several weeks has been characterised by several key features in various asset markets: - Strong declines in major global stock markets, interbank lending rates (Libor) rising, strong USD, JPY and Gold + weak EUR, German and US bonds making strong gains, spreads of Non-German European Bonds widening v German Bond Yields, to name but a few... - However, it appears this morning that a number of these features have turned/ or are turning / or are threatening to turn... Below is somewhat of a chart-fest highlighting these various markets.

Firstly - The USD Index - this has seen very strong gains in recent weeks, however it is running into a major resistance line. - In the bigger picture this is the Neckline of a huge multi-year Inverse Head & Shoulders pattern, in the shorter term however it is major resistance. - Additionally, there is significant divergence between gains in recent weeks and momentum as measured by the RSI and MacD indicator. Taken together this warns of potential reversal or consolidation.The EURJPY has been watched very closely as this has had a very strong correlation with the move lower on the S&P. At first glance this is showing less sign of reversing than some of the other markets, the downtrend is still strong, however RSI and MacD is diverging from this price action. - In addition Monday's low at 108.08 was an exact Fibonacci 76.4% correction of the entire entire rally from 2000-2008, and was also .06 ticks shy of 1.618x the move from Oct 2009 to the intermediate low in Feb 2010.

Pressure on Interbank lending seems to have eased over the past couple of weeks, the rise in Libor has been minimal or stopped altogether in the past few days, whilst Libor futures which had been moving in synch with equities until late May, has seen strong gains since then. This can be seen in the following chart.
Also note how spreads within Euroland v Germany have started to sharply contract. The following 2 charts show Spain and Italy 10 year yields v German 10 year yields.Finally equities. First is the IBEX. this has been particularly badly hit in recent weeks. However, there are signs signs that this may (and I re-iterate the word 'may') be turning. The recent low was within a whisker of the 2/3rd retracement of the March 2009 - Jan 2010 rally, momentum is bullishly diverging, and thus far the breakout of the descending triangle pattern is showing signs of a failure, which could see a reversal. Today and by the latest tomorrow, should shed some further light on whether or not this is a failed breakout. - If it is a failure, this should see the Ibex making some decent gains.

The next chart is the AUSUSD v the SP500 since late April. Yesterday I highlighted how the AUDUSD spot seems to have been leading the Sp500, if this is still the case and the AUDUSD manages to hold onto its strong gains of the past 24 hours, then this would favour a strong move higher in the S&P.


In conclusion. The above charts are posted as evidence that the risk-off episode we have been within over recent weeks may be due to correct. I am not going to commit myself to saying this will happen, only there is a lot of evidence piling up against it. I also do not say this as the end of the overall risk-off trade, only that we may see a few days or even a few weeks whereby the market is able to gain some stability. I will also point out some caveats; the moves of the past 24/48 hours could be minor corrective moves which have or will soon have run their course, in addition most markets or risk assets still remain close to recent extremes. Also I would have liked to see the USDJPY perhaps moving a little higher towards the high 91s. Either way I think the markets face a couple of interesting days.

SEP10 Eurodollars bounced sharply intraday.

The Sep 10 Eurodollars have posted a large rebound this afternoon having sold off sharply this morning. Liquidity fears have been one of the drivers of the recent sell-off in stocks. - Below are charts of Daily Sep Eurodollars and the Daily Dow Industrials.

Mad as a Box of Frogs.

'Mad as a Box of Frogs' describes these markets of the past few days. Currencies, Stocks, Commodities have been all over shop this past 24/48 hours. Overnight, the currency markets saw some huge swings. - Of note the AUDUSD moved sharply lower, hitting 80.72, tagging the 38.2% fib retrace of the entire 18 month rally into 2010, it then posted a 3 big figure rally in a few hours before settling down (relatively speaking). EURCHF has possibly been the most significant mover however. The SNB spent virtually all last week defending the 1.4000 area, their 'line in the sand', then in the past 2 days they squeezed the EURCHF massively higher. Overnight it almost hit 1.4600, since then it has retreated back below 1.4400. It will be interesting to see if what the do today, particularly following comments yesterday from the SNB's Danthine, stating that there were 'no limits to FX intervention'. There are reasons why I believe the EURCHF rebound significant in the immediate environment, which I will elaborate on below.

From a trading stance, I have maintained a short position on the June SP futures this past week, which has helped get my year back on track, following a spate of small disasters through April. Whilst I am of the opinion that we are in the early stages of the next leg of a significant bear market in stocks, I believe we are at risk of a short sharp correction from around current levels. I have posted 2 sets of charts below, the first chart shows the SP500 index over the past 18 months. This shows a line of support connecting a series of lows since Oct last year. It is my belief that this line is critical, and whilst I expect it to succumb I do feel that it may hold a first attempt, which would favour a short sharp correction higher

The second set of chart shows the EURCHF and the SP 500 over the past couple of years. I have highlighted the 2 previous sharp bounces higher in the EURCHF in Oct 2008 and March 2009. It is noteworthy that in both cases the SP corrected sharply higher, whilst I appreciate that 2 data points do not prove anything, I think it is an observation worth noting.

With regard to my trading yesterday; whilst satisfied with my action on the SP500, I am somewhat disappointed with my trading performance on the Bund. Having bought on the break up yesterday through 127.60, I felt we could see a move up into the mid 128s. However, I decided prematurely to get out at 127.80 anticipating a return towards the break-out, which would then be followed by a move sharply higher into the 128s. Well the return to break never occurred and the Bund rallied sharply higher into the 128s, without me on board. Finessing can sometimes be expensive.