Overview: Stocks and other risk assets continue to fall, the latest horror show from the US – the worst existing home sales monthly data ever. Continuing last week’s big theme – indications of slowdown in the second half of 2010, as US jobs manufacturing, and ECRI weekly leading indicator data worsened, Bundesbank Head Weber offered a pessimistic view of the coming year for the EU, and contracting GDP threatened Greece’s recovery. This week’s major events will offer further clarification, including revised GDP reports from the US, Germany,(these 2 could be the biggest events of the week) and the UK, various EU Flash PMIs, and US home sale and durable goods order. For full details on the week ahead see: The Week Ahead: Stocks, Commodities, Forex Key 5 Market Drivers August 23rd – 27th and August 23rd – 27th Quick Review/Preview: Stocks, Commodities, Forex
STOCKS: US: Down – Continuing down, making lower lows on appalling US housing data. After falling below its 50 day SMA last Thursday, the S&P 500 tried but failed to breach it. Futures stable in midday GMT trade Wednesday.
Stocks lower in four straight sessions for a cumulative loss of 3.9%. Existing home sales figures for July. Sales plummeted 27% month-over-month to a yearly rate of 3.8 million units. Not only is that far below the 4.7 million units that had been expected, but also the rate of decline and the actual sales level were the worst ever since recorded (began in 1999)
The major equity averages opened trade with losses of about 1%. The opening slide reflected the weak action of markets overseas, where Germany’s DAX dropped below its 200-day moving average for the first time in more than one month and Japan’s Nikkei entered bear market territory. The Shanghai Composite mustered a modest gain, but it also near bear market territory.
Sellers intensified their efforts with the release of existing home sales figures for July.
Hope for a revival in housing was further dashed with news that the total supply of homes now stands at 12.5 months. That said, some believe a double dip in housing is far more likely. Considering the centrality of US housing to the current US and global downturn as it effects banks, jobs, spending, etc, the report adds further weight to the growing double-dip recession thesis. It is also a resounding condemnation of US attempts to stimulate housing as futile as long as the jobs picture remains bleak.
Such pessimistic headlines sent the three major indices set fresh one-month intraday lows – the Dow even briefly dropped below 10,000 – but some near-term support helped stocks stem their losses.
Near term resistance for the S&P 500 is its 50 day SMA at 1079. Traders could consider going long once this level is breached. Near term support level of 1060 was broken. Next: 1040 (includes 50% Fib retracement from July 2009) then 1010. Traders looking to go short should look to enter on breaches of these levels, with exit targets just before the next support level. Remember your risk management-stop loss levels should be close enough to the entry point so that the distance from entry point to stop loss should be 1/3rd or or less the distance from entry point to profit target, to allow for a 3:1 reward: risk ratio.
Bellwether S&P 500 in serious technical breakdown, suggesting more downside ahead. See the stocks section of August 23rd – 27th Quick Review/Preview: Stocks, Commodities, Forex for details
US Bonds: Up- Benchmark 10 Year Note up with falling stocks, with yield down from 2.6070% to 2.4990%.
Asia Stock Outlook: Down- Most major Asian markets down Japan’s Nikkei average hit a 16-month closing low on Wednesday, at one point falling more than 2 percent, as weakness in the US pressures stocks throughout Asia, and disappointment over the lack of Japanese policy action to rein in the strong yen, which threatens a fragile economic recovery, pressures stocks in Japan.
European Stock Outlook: Down – Most major European bourses tracking US lower on building evidence of economic slowdown, despite rising M&A activity. After attempting to break higher after a lower open, stocks have slid back into the red on poor US data and US, Asian stock performance.
Commodities Outlook Tuesday-Early Wednesday: Futures mixed. Energy weak, gold up, wheat, sugar stable, corn, coffee, soybeans down. Note that most soft commodities have been in major up-trends since July and these remain intact, though many are flattening out
Crude Oil Daily Outlook: Down- Following stocks, continuing its Thursday breakdown after bad US jobs and manufacturing data sent it below strong 4 month support of $75. Futures currently just below $72, down slightly from $72.28 24 hours ago, down from $73.70 48 hours ago, next near term support on daily charts is at its 61.8% Fibonacci retracement from its May 2009 low, just above $71. Bloated US refined products inventories add further downside pressure, as does Sudan’s announcement that it will expand production by about a third in the coming 2 years.
Gold Daily Outlook: Up: Futures up 1.3% over the past 24 hours, currently around $1236 up from $1220 in the past 24 hours, as weak US data currency concerns bullish momentum aid gold. NB hedge funds are heavily long, making gold vulnerable, though a near term test of its highs around 1265 appears likely
FOREX Daily Outlook Tuesday-Early Wednesday trade GMT: Bias to safety currencies but many exceptions, some clear daily rotation occurring. Yesterday CHF weakest, today is strongest, JPY second strongest, USD third. CAD, GBP remain weakest in that order GBP suffers on BoE comments that UK may tip back into recession, CAD from weak oil, stocks.
US Dollar Daily Outlook: Up vs. the, GBP, commodity dollars down vs. the EUR JPY, CHF. Per latest COT report, large speculators are long 3.8 to 1 short. Benefitting from risk aversion, lower stocks, but still the #3 safe haven choice behind the JPY and CHF. Ironically getting a short term boost from bad US housing data in its role as safe haven, though longer term the housing data is negative for the USD fundamentals as it suggests more QE, a longer wait for rising interest rates.
Euro Daily Outlook: Up vs. the USD on bad US housing data vs. better German data, GBP, all commodity dollars, flat vs. the JPY but rising thus far today recouping all of yesterday’s losses, down vs. the CHF. Getting a reaction bounce after yesterday’s drop and bad US housing data, also good German Ifo report.
Yen Daily Outlook: Up vs. all except down vs. the CHF, flat vs. the EUR which is recouping yesterday’s losses vs. the JPY thus far today. Per latest COT report, large speculators remain 5:1 long, small speculators slightly net short, bullish for the JPY. However while a currency can remain oversold for a long time it becomes increasingly vulnerable to any negative developments or risk appetite.
Up strongly yesterday but losing ground vs. most fx thus far today, though net still up over the past 24 hours unless otherwise noted.
British Pound Daily Outlook: Down EUR, USD, JPY, CHF AUD, NZD flat vs. the CAD on BoE official comments that the UK economy risks slipping into double-dip recession.
Australian Dollar Daily Outlook: Down vs. all except up vs. the CAD, though recovery vs. many thus far today.
New Zealand Dollar Daily Outlook: Down vs. all except up vs. the GBP, CAD
Canadian Dollar Daily Outlook: Down vs. all for the third day straight, pressured by falling stocks, oil, risk appetite, and falling rate increase expectations, after a long rally made the Loonie ripe for a correction.
Swiss Franc Daily Outlook: Up vs. all as today’s preferred safe haven on a strong risk aversion day, continuing to gain vs. most major fx.
DISCLOSURE: NO POSITIONS
[...] Overview: Stocks and other risk assets continue to fall, the latest horror show from the US – the worst existing home sales monthly data ever. Continuing last week’s big theme – indications of slowdown in the second half of 2010, as US jobs manufacturing, and ECRI weekly leading indicator data worsened, Bundesbank Head Weber offered a [...] Ava FX Market Analysis [...]
[...] Overview: Stocks and other risk assets continue to fall, the latest horror show from the US – the worst existing home sales monthly data ever. Continuing last week’s big theme – indications of slowdown in the second half of 2010, as US jobs manufacturing, and ECRI weekly leading indicator data worsened, Bundesbank Head Weber offered a [...] Ava FX Market Analysis [...]