Dow rockets, ASX rallies and the US dollar is strong again

Quick Recap

Price action is really instructive, even if you are a fundamentalist. That’s because you can see in the price action, the very movement of prices across days and weeks, the emotional rollercoaster that many traders and investors traverse through time.

Price action is also instructive for me as I write my morning and afternoon notes. How my view is impacted by overnight trade and then the movements in our time zone.

What has become apparent is that even though the US markets are still the global bellwether’s Asia, and China, are becoming more important. So it used to be that my morning self was more insightful than my afternoon self. But now I think its more balanced and perhaps the information gained in our time zone is as strong as the signals from the US.

That said it’s worth repeating what I wrote in my Asian trading wrap yesterday it feels different to what I wrote in the morning.

My charts still tell me the markets are very overdone on the down side. So even thought my long term view is stocks go lower, and I am wary after that late New York selloff in stocks, I have to stick with this bias for now.

Anyway, to the overnight action and Europe missed what ended up being a superb day of rallies on US stocks with the big three indices up either side of 4%. The Dow gained 600 points! That’s helped the ASX SPI 200 futures to rally a further 89 points after yesterday’s pretty solid rally of 0.69% defied the lead from futures the previous night.

On forex markets the USD got its mojo back knocking any notion that the Euro might hold the top of that previous wedge out of the park. Key to this, it seems, is that durable goods last night printed a solid beat on expectations of 2% with the core at +0.6%. That’s reminded many, including my colleague at Business Insider US Bob Bryan that the US economy is doing okay.

He highlights:

There are numerous explanations for the sell-off in the markets, but none of them are because of the American economy.

Unemployment is still down around its pre-recession levels, the housing market is still improving with more being built and increasing values, consumer confidence is very healthy, and GDP is still growing.

None of that’s changed.

What he said. Zero interest rates are incompatible with the current rate of growth. On that front we’ll get another GDP update tonight  in the US. September is receding and Bill Dudley said last night it was less compelling to have to tighten. But they still need to move.

I won’t nick everything I wrote at BI this morning but I would encourage readers to have a look at my discussion of market volatility using Newton Cradles…it might sound esoteric but I think its an easy way for non-professional traders to understand why volatility clusters and then quietens down.

The overnight scoreboard (8.10am AEST):

• Dow Jones +3.95% to 16,285 with a gain of 619 points
• Nasdaq +4.24% to 4,697
• S&P 500 +3.9% 1,940
• London (FTSE 100) -1.68% to 5,979
• Frankfurt (DAX) -1.29% to 9,997
• Tokyo (Nikkei) +3.2% to 18,376
• Shanghai (composite) -1.3% to 2,926
• Hong Kong (Hang Seng) -1.52% to 21,080
• ASX Futures overnight (SPI September) +89 to 5,214
• AUDUSD: 0.7114
• EURUSD: 1.1319
• USDJPY: 120.13
• GBPUSD: 1.5466
• USDCAD: 1.3296
• Nymex Crude (front contract): $38.60
• Copper (US front contract): $2.2510
• Gold: $1,124
• Dalian Iron Ore (September): 425 (it’s denominated in CNY, folks)

On the day

On the data front today, the vitally important Capex numbers are out at 11.30am AEST today. Capex has been in a downtrend since 2012 and the market is looking for further weakness again today. We know from yesterday’s construction data that this part of the Capex picture is unexpectedly strong but non-construction by most estimates is still languishing. The Fed’s Jackson Hole symposium kicks off tonight but the big focus is US GDP at 10.30 AEST. The market is expecting no change on the last reported 2.2% annualised rate.

CHART OF THE DAY: ASX200

Recovery in action – resistance at my fast moving average and then my slow moving average around 5,400.

The gains look like they have legs.

Yesterday’s thoughts that Euro might hold the top of the old wedge pattern proved incorrect. It’s crashed back into the 1.13 region and looking for a bottom on which to range. 1.17 is a distant memory already.