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A clear reversal is now present in both S&P 500 futures and Dow Jones futures

Wed, Oct 28 2009, 10:23 GMT
by Per-Erik Karlsson

Avantage Financial GMBH

Market comment

S&P 500 futures breaking below 1070 support today after weaker than expected US Consumer Confidence data came out today. A clear reversal is now present in both S&P 500 futures and Dow Jones futures. So basically both charts are looking weak and a low volume up bar is now what we are looking for to get short. This view would be changed if S&P 500 futures break above 1100, which would open for another leg up. We are not surprised to see weaker US Consumer Confidence and seem like a slight shift in recent economic data for the worse. Remember the really weak UK GDP figure out on Friday. We have been looking for this to happen for some time. We continue to think the recovery will be much slower than what is priced in at the moment. Seems like the recovery is starting to pause and we point out that we remain very skeptical towards the fast paced recovery and think we will see more similar weak data out from other Countries over the next few months as the stimulus packages are running out or money or are removed. As we have mentioned over the last week, the Gold chart is showing weakness and a close below 1043 would indicate a potential top has been made (at least for the short term). On to currencies and treasuries moving up and yield down this afternoon, which is giving support to the JPY that has recently sold off on increasing rates, meaning the rates seems to be the main driver for JPY lately. The AUD and NZD also getting hit following weaker equities, so that correlation is pretty much still in play, so we will continue to monitor equities for clues on direction in AUD and NZD. We continue to favor shorts in NZD as the latest rally has made the NZD overvalued in our opinion. EURUSD saw lots of stops going through as 1.4850 support broke today and at least some of the weak longs got stopped out. The Euro long trade looks very crowded and could easily go down and test the rising long term trend line at 1.4700 near term. The weakness that we spotted in Crude and Nat Gas materialized over the last few sessions and a decent correction down towards some good support levels in both contracts were seen, so could see a new run higher now. Same with Wheat and Soybeans, both got hit hard last two days and basically made bearish reversals. Both are approaching some minor support levels in both contracts that should halt the slide somewhat. However we are looking for short setups in both contracts. Huge spike in VIX over last few days and we called this one on Friday, pointing out that VIX looked very cheap and longs looked very attractive and it should target 25 short term.

Some interesting news stories:

Technical’s

Euro: Failed to get above 1.51 and the correction was triggered when it broke below 1.4850 this afternoon. Next key support is 1.47, where the longer term rising trend line comes in.

Cable: Made it up to 1.6693 (within in 57 pips of our target) before the ugly UK GDP figure sent GBP dropping like a stone Friday. The break below 1.65 now opens for test of 1.60 near term.

USDJPY: 88.00 is key support and while above this level we are looking for a move back toward the 93 level and. The rising treasury yield is leading to a selloff in JPY as it becomes more attractive as a funding currency. We expect this to continue and looking for weaker JPY throughout the rest of 2009.

Swissy: The break above 1.0155 opens for a run towards 1.04.

AUDUSD: The upper end of the long defined trend channel held it corrected lower towards 0.9110 support last few days. A daily close below 0.9100 would signal a top and open for a move towards the lower end of the trend channel, which is coming in at 0.8850 today.

USDCAD: Our upside target of 1.0590 was hit quite quickly and the next key resistance is now 1.0900.

EURJPY: Didn’t make it to 138.72, which was the key resistance, but stopped above 20 pips shy of this level. Yesterday’s reversal opens for a run back towards 134 near term.

GBPJPY: Reached our 153 target Friday, basically hit the September high to the pip at 153.26 and fell back hard on weak UK GDP data this morning. After breaking 150.50 it looks very much toppish and next support level is 148.47.

AUDJPY: Reached 85 this Friday, but profit taking and weaker equities sending it briefly below 84 today.
Looking slightly toppish and following the recent strong rally the pair has now made two down days in a row, which has not happened since start of October. We expect to see a correction towards the reaction high from August at 82.13 over the next weeks. 

Our outlook

Published on  Wed, Oct 28 2009, 12:17 GMT