FOREX, COMMODITIES, STOCKS OUTLOOK June 23rd : News, Analysis Trades 10:30 GMT

Stocks: Prior day: Asia, Europe, US down. Today: Asia, Europe down. The nascent reaction bounce rally hit a wall of bad news on US housing, European banking, Yuan revaluation doubts, and technical resistance that sent markets lower yesterday, though thus far today European markets are attempting a partial recovery.

– US Bonds: Predictably, US Treasuries attracted support amid the stock market’s selloff. The benchmark 10 year note was higher as stocks fell for the day, bringing the yield down from 3.2430 to 3.1660%.

– Commodities: Down, generally backing off from strong resistance levels after recent risk asset rallies

– FX: Overall bias to safety currencies [JPY, USD, CHF in order of safety appeal] vs. risk currencies [AUD, NZD, CAD, EUR, GB in order of risk appetite appeal], mostly according to a currency’s place on the risk spectrum with exceptions as noted below

– Main events: MON: EUR: ECB Pres. Trichet speaks, CHF SNB Chairman Hildebrand speaks TUES: CHF Trade Bal. EUR German Ifo Bus. Climate, Current Account CAD CPI m/m, GBP Annual Budget Release USD Existing Home Sales, NZD Current Account, WED:EUR Gfk German Consumer Climate Flash Mfg & Services PMIs for Germany/France/EZ, GBP MPC Mtg Minutes, CAD Retail Sales USD New Home Sales, FOMC Statement, NZD GDPq/q THUR: JPY Trade Bal. AUD CB Leading Index, USD Durable Goods Orders m/m, Unemployment Claims FRI: JPY Core CPI y/y, USD Final GDP, SAT ALL Day 1 G20 Meetings

Big Theme: Risk Appetite Off Again? The nascent reaction bounce rally hit a wall of bad news on US housing, European banking, Yuan revaluation doubts, and technical resistance that sent markets lower yesterday, though thus far today European markets are attempting a partial recovery. Markets boost the GBP on the new austerity budget to cut the UK deficit – a message for others?

STOCKS:

US: Down – Disappointing housing data caused range bound trading to deteriorate by late morning into a broad selloff that left stocks to settle bearishly at session lows on Tuesday, which took the bellwether S&P500 back below both its 50 AND 200 day moving averages and calls the nascent risk rally into serious doubt as it was approaching the lower limit of its anticipated reaction bounce to the 1140-1160 range.

The only saving grace of the move was that it came on below average volume for the past 20 days, suggesting a mere end to the technically driven bounce higher rather than any new risk aversion.

Stocks began resiliently, shrugging off news that Standard & Poor’s upped their estimates on loan losses for Spain’s banking sector, though that news, along with a credit rating downgrade of BNP Paribas, weighed on foreign banks in overseas trade. Asia and Europe had already been pulling back on renewed skepticism about China’s revaluing the Yuan and profit taking as many felt the risk asset bounce, after steep declines over the past weeks, was likely ending.

The early advance was undermined by the latest existing home sales figures, which decreased 2.2% from April to May, to an annualized rate of 5.66 million units, below the forecasted rate of 6.12 million units per year. Both homebuilders and home improvement retailers fell almost 3% as investors considered the implications of a slower recovery in housing.

Trade had been largely range bound through the morning, but got worse as the day wore on and really fell in the final hours. More than 95% of the S&P 500 ended down as a result.

Energy stocks were hit with some of the worst selling. In turn, the sector dropped 2.7% in its sharpest slide of the past two weeks. Drillers were given temporary relief from the selling effort as word circulated that a judge ruled against the deepwater drilling moratorium. To the point that the ruling could be challenged, CNBC reported that the White House will appeal the judge’s decision. Drillers dropped 3.6%.

Tech stocks, which had been up more than 1% in the early going, were dropped for a 0.9% loss. Large-cap tech had even helped drive the Nasdaq up to a gain of more than 1%, but the tech-rich index succumbed to the same late barrage of selling that sank the broader market.

Trading volume barely broke 1 billion shares on the NYSE. That’s well below the average of more than 1.4 billion shares for the NYSE over the past 50 sessions, but it is in-line with the Big Board’s share volume for the past 10 sessions. The drop in share volume comes as many trading desks become more thinly staffed as summer vacation season gets into full swing.

Trading volume certainly wasn’t helped by the lack of corporate news flow, which is expected to remain sluggish in the coming weeks until we approach Q3 earnings season in mid July, but a steady flow of data remains on tap. Tomorrow, the latest in new home sales is due in the morning, followed by the Federal Open Market Committee’s latest policy statement in the afternoon.

As the below chart shows: With the S&P 500 futures now having closed Tuesday at about 1093.50, down from 1123.50. The five layered 1120-1100 resistance zone has reasserted itself.

S&P 500 Daily Chart Courtesy of AVAFX 01jun23

It is comprised of the:

1. Upper Bollinger band at 1123

2. 61.8% Fibonacci retracement level at 1116.32

3. 50 day moving average at 1110

4. 200 day moving average at 1103

5. Psychologically important 1100 price level

The zone’s resistance power has reasserted itself as the index has failed to sustain a move beyond it to our anticipated maximum of 1160, though we wouldn’t be surprised at another attempt as long as there is no new bad news to prevent more range trading.

Next Likely Market Moving News?

Barring more bad news from the EU or an unexpected source, the next possible source of market moving news could be today’s US new home sale data and the FOMC statement, though more likely the we’ll need to wait for the G20 meeting this weekend or next week’s US monthly job reports and those reports that lead up to them.

After that, look for a quiet calendar week followed by the beginning drumbeat of Q3 US earnings season, opening with Alcoa (AA) July 12th.

Graham Summers of Phoenix Capital Research noted shortly after the start of this rally that the market is behaving as per established historic precedents for crises secular bear market periods, saying:

“So the bulls finally managed to kick off a bounce. The issue now is: what’s next?

The simple answer is that we’re likely to see a test of the 200-DMA (1,107 on the S&P 500). We’ve already tested this level twice, failing to break it both times in the last month. If we can clear it this time, then we’re likely to see a challenge of 1,115. If we can clear that, then we’re likely going to 1,160 on the S&P 500.”

“This would fit well with historic tendencies. So far in 2010, the market has followed a clear Crisis pattern that has historic precedents. That pattern is a March–May Crisis, followed by a summer rally, and then a nightmarish autumn.

Bill King detailed this pattern in a recent King Report noting that it occurred in 1907, 1929, 1931, 1987, 2000 and 2008. In each of these years, stocks came undone via some kind of Crisis during the March–May period. There was then a brief summer “relief” rally, and then things got VERY ugly in the fall. To check out Bill’s work, (it’s top notch stuff) go here.

So for now the market is in bounce mode. If history serves as any guide, we’ll see something of a multi-week rally here, most likely a slow grind higher. However, once this is over, we will likely re-enter full blown Crisis mode in the Autumn. And that’s when the REAL collapse will begin.

NB: The above fits with what we heard back in April from leading market researcher Charles Nenner of the Nenner Research Center in our interview with him, (CHARLES NENNER’S HIGH CONVICTION TRENDS, TRADES: 2010-11 Investor’s Roadmap) in which he foresaw the market pulling back in the 3rd week in April (they peaked 2 weeks later), another market top in August, and then an extended downtrend for the next 6-12 months at least, potentially down to March 2009 lows.

Markets Still Ignore Brewing Trouble In Spain see: The Latest EU Debt Crisis: Now 3 Reports Spain Seeking Aid

US Bonds: Predictably, US Treasuries attracted support amid the stock market’s selloff. The benchmark 10 year note was higher as stocks fell for the day, bringing the yield down from 3.2430 to 3.1660%.

Solid results from an auction of 2-year Treasuries helped. Dollar demand at the auction hit $138.0 billion, which is the second highest of the eight most recent auctions and the bid-to-cover came in at 3.5, which was above the 2.9 ratio seen in the previous auction.

Asia Stock Outlook: Down at the close, on follow through from US markets on bad US housing data, and as markets hit resistance levels that tempt profit taking plus concerns and also on euro zone bank concerns after French bank Credit Agricole (CAGR.PA) reduced profit targets for its struggling Greek unit Emporiki (CBGr.AT) ,reported 400 million euro write-down as Greece fights its debt load.

That followed a ratings downgrade of French bank BNP Paribas this week and S&P’s announcement on Monday that it had raised estimates for loan losses for Spain’s banking sector. This trouble for Spanish banks is another piece of evidence suggesting a Spain aid package could be in the works, if for no other reason than to scare off bond vigilantes when Spain makes major bond sales in July.

European Stock Outlook: Down at the open – European shares opened lower today following Asia’s retreat as the same concerns weighing on Asia hit European markets, though many risk assets and EU markets are attempting a bounce to make up some of yesterday’s losses.

ASIA Down prior day	N225 -1.22 %	HS -1.45 %		SSEC +0.10 %	FTSTI -0.42 %		AORD -1.11 %
EUROPE Down prior day	FTSE -0.98 %	DAX -0.38 %		CAC -0.83 %
US Down prior day	S&P -1.61 %		DJIA -1.43 %	NASDAQ -1.19 %
Asia Down	N225 -1.87 %		HS +0.18 %	SSEC -0.73 %	FTSTI -0.19 %		AORD -1.57 %
Europe Down	FTSE -0.51 %		DAX -0.41%	CAC -0.73%

Commodities Outlook Tuesday and early Wednesday trade GMT: Down-generally backing off from strong resistance levels as stocks and other risk assets pull back against technical resistance, rising Yuan, concerns about European banks and poor US housing data.

The CRB Commodity Index finished Tuesday in the US as follows:

· a 0.4% loss, led by the 1.3% sell off in the energy sector.

· July natural gas futures shed 2.3% to finish at $4.76 per MMBtu, marking a third consecutive down-day. Profit taking from its recent run up above the $5 level has been responsible for the recent losing streak. August crude oil finished down 1% to $77.90 per barrel.

· It was a rather uneventful session for precious metals. August gold closed more-or-less flat on the session at $1240.80 per ounce. July silver finished higher by 0.4% to $18.90 per ounce.

Crude Oil Daily Outlook: Down- Oil futures followed the S&P 500 down Tuesday in US trade after testing key $80/bbl resistance early for the reasons noted above that are pressuring risk assets, currently around $77.50, sitting just below its 76.4% Fibonacci retracement level for a good low risk entry point long or short if you place your stop loss just on the opposite side of this level depending on whether you believe it will go up or down.

As we’ve noted in the past, the widening death cross on the daily chart (and of other related risk assets) suggests more downside for the weeks ahead, as does this return to below the 200 day moving average at about $78. It has also violated its uptrend line. See daily chart below for illustration.

Gold Daily Outlook: Down – Futures gapped lower, continuing to follow the EURUSD’s gap down, suggesting gold continues to move mostly on EUR sentiment.

With no inflation threat likely until some time in 2011 at earliest, the biggest single factor driving gold is anxiety about the value and viability of the Euro, for that has driven the breakout gold has had since mid-April, coinciding with the rapid deterioration in the EU debt crisis. The latest potential default threat from Hungary, unlikely the last such situation from Eastern Europe, adds to fear about the EZ and thus becomes a new fundamental driver for higher gold prices.

Declines in the EUR have tended to bring rallies in gold, and this negative correlation is getting stronger over time and will likely remain as long as deep anxiety over the EUR remains. The recent €1 bln EU/IMF rescue package has succeeded for now in stopping a major run on the PIIGS bonds, but has failed to restore confidence in the Euro or the longer term viability of the EU. Spain’s bank takeovers and credit rating cut 2 weeks ago didn’t help, nor did last week’s announcement by the new Hungarian government that it too risked default without decisive action.

Given that the EU’s problems are not expected to be solved soon, expect gold to maintain its uptrend or at least stay above support at $1160, pulling back only on oversold bounces in stocks and on central bank intervention likes we saw two weeks ago. When either of these occurs, they are a good setup for new long positions. For the coming weeks, we expect gold to bounce within its $1160-1240 range. It could go higher if there is any further significant deterioration in the EUR and / or new sovereign debt deterioration.

FOREX Daily Outlook Monday and early Tuesday trade GMT:Bias to safety currencies with major exceptions, GBP up vs. all on positive market reaction to its deficit cutting- a message to the US? CHF also strong, NZD the best of the otherwise weak commodity dollars.

US Dollar Daily Outlook: Down vs. the JPY, CHF, GBP, up vs. the EUR, AUD, CAD, NZD. Moving mostly per its place in the risk rankings in an overall risk aversion day thus far but GBP stronger as markets react well to the new UK emergency budget to reduce the deficit, and the CHF continues to make up for lost ground as the #3 safe haven.

USD PAIRS AT MAJOR INFLECTION POINTS FOR SAFE LOW RISK ENTRIES LONG OR SHORT– OUR BIAS TO RISK AVERSION AS PER THE S&P 500 TREND NOTED ABOVE

Presents many interesting entry points for playing the longer term risk aversion trend as it sits at or near major support/resistance points for low risk entries to go long or short, though the longer term bias is clearly to the risk averse trades, meaning long USD vs. all except for the JPY, though if the near term risk appetite trend continues these would be good safe entry points to go long risk (long USDJPY, short the USD vs. others) with stop losses on the just the other side of major support for your positions. Here are a few examples to consider on the daily charts for going with the longer term risk aversion trend.

· Charts for each of these are presented below at the end of the article

· USDJPY Short: just above key 61.8% Fibonacci retracement level on the daily chart at 90.43 for low risk entry for a longer term short as the pair is in a longer term downtrend consistent with a bear market), near term target to around 90.

· EURUSD Short: key resistance at 1.2400 has held, gapped lower yesterday, the current level around 1.2288 a good short entry with stop loss just above 1.2320, for target of just above 1.2200-1.2000

· USDCHF Long?: currently around 1.1062 from 1.1090 24 hours ago, just above its 61.8% Fibonacci retracement level at 1.1045, hasn’t been this low since mid April, good safe entry level to go long the USD with stop loss just below the 1.1045 level, target to just before the 76.4% level around 1.1300. Note the CHF has been making up for lost gains since its decoupling to the EUR, so keep the stop loss tight as suggested should the Fib level fail to hold

· AUDUSD Short NOW: Currently around 0.8720, the 61.8% Fibonacci retracement level at 0.8746 has held as risk assets retreated yesterday, now have a safe entry point to go short the pair as it breaks below this level, with stop loss just above it and target of about 0.8600 for better than 4:1

· USDCAD Long: Currently at 1.0299. Bounced hard up from key 1.0200 support for good 1/3 partial entry with stop loss just below this level and target of just below the 50 day sma resistance at 1.0343, don’t commit more to this until it clears the 200 day sma around 1.0400, and the final third of your position once the 23.6% Fib level is cleared at 1.0545.

· NZDUSD Short as soon as begins to reverse today’s bounce back from yesterday: Currently at 0.7079, just below key 38.2 % Fibonacci retracement level of 0.7087 for a good re-entry to short the pair with little risk, with stop loss just above the 0.7100 level, first target to just above the 50% Fibonacci retracement level at 0.6950

Euro Daily Outlook: Up vs. the CAD, AUD, down vs. the JPY, USD. NZD, GBP, CHF. Moving mostly per its place in the risk rankings in an overall risk aversion day thus far but GBP stronger as markets react well to the new UK emergency budget to reduce the deficit, and the CHF continues to make up for lost ground as the #3 safe haven.

Eurozone PMI reports show a mixed picture. Overall the news from the Euro-zone suggests that manufacturing continues to see a boost from the lower euro but the service sector has taken a hit from the recent turmoil in the financial markets. In both manufacturing and services the new order components dropped, indicating that growth may slow further in the upcoming months.

Despite the mixed data, the euro is attempting to break above resistance at 1.2300 in mid morning European trade as risk appetite improving throughout the session. Although the news tonight shows a small slowdown in economic activity, the PMI gauges remain well above the 50 boom/bust level suggesting that for now the region’s economy is in no danger of slipping into a recession.

Yen Daily Outlook: Up vs. ALL except the GBP still up vs. the CHF but losing its gains vs. the CHF and to a lesser degree vs. the commodity dollars thus far today, also

British Pound Daily Outlook: Up vs. ALL as markets react positively thus far to the new budget aimed to slash the UK deficit.

Australian Dollar Daily Outlook: Down vs. all on an overall risk aversion day, falling hard vs. the NZD, GBP, CHF, but steady, no further losses thus far this morning vs. the USD and JPY.

New Zealand Dollar Daily Outlook: Down vs. the JPY, USD, CHF, GBP, up vs. the EUR and other commodity dollars

Canadian Dollar Daily Outlook: Down vs. all except the AUD, EUR

Swiss Franc Daily Outlook: Up vs. all except the GBP, CHF (but gaining much of what is lost yesterday thus far today)

CONCLUSIONS & Big Picture: The nascent reaction bounce rally hit a wall of bad news on US housing, European banking, Yuan revaluation doubts, and technical resistance that sent markets lower yesterday, though thus far today European markets are attempting a partial recovery. Markets boost the GBP on the new austerity budget to cut the UK deficit – a message for others? See the USD section and below charts for numerous good entry points for multi-day swing trading as the recent rally and its beginning reversal leave many instruments ready to resume the longer term downtrend.

USDJPY DAILY CHART COURTESYOF AVAFX.COM 03jun23

EURUSD WEEKLYCHART COURTESY OF AVAFX.COM 04JUN23

USDCHF DAILY CHART COURTESY AVAFX.COM 05JUN23

AUDUSD DAILY CHART COURTESY AVAFX.COM 06JUN23

USDCAD DAILY CHART COURTESY AVAFX.COM 07JUN23

USDNZD DAILY CHART COURTESY AVAFX.COM 08jun23

CRUDE OIL DAILY CHART COURTESY OF AVAFX.COM 02JUN23

DISCLOSURE AND DISCLAIMER: OPINIONS EXPRESSED ARE NOT NECESSARILY THOSE OF AVAFX, AUTHOR HAS NO POSITIONS IN ABOVE INSTRUMENTS.