USD strength continues to reassert itself at the slightest sign of a pullback in equities, but CAD and CHF remain relatively robust against the US currency. USDCHF continues to offer opportunities for range-bound traders between 1.0390 and 1.0300. There is no change in our positive bias in USDJPY favouring 92.20s and 92.60s especially as the Japanese currency proves daily that fundamental weakness is here to stay for at least 3-4 weeks. GBPUSD also shows no signs of breaking from its downtrend, now eyeing a retest of $1.5800. GBPCHF remains vulnerable to retesting 1.6460s
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Fixing flows drove the euro sharply lower against the U.S. dollar. Up until the release of U.S. consumer confidence numbers, the EUR/USD held onto its recent gains. However around 11am NY Time, the EUR/USD began to fall aggressively and within half an hour, the currency pair dropped close to 80 pips. There was no news or economic data released around that time and the move cannot be attributed to the confidence numbers since the EUR/USD stalled for approximately an hour after the release. Once or twice a day, banks will provide a fixing rate for market participants. This rate may be used to mark option trades, future or forward contracts and other things such as tourist rates. The fix rate is then considered the benchmark for the currency pair that banks and other vendors will use for their customers that day. Importers and exporters may also settle contracts based upon the fixing rates. Therefore typically ahead of fixings or option expirations (which usually occur around 12pm NY Time or 5pm London Time), there can be a lot of volatility in the dollar which is exactly what we witnessed today. German consumer prices were released this morning and based upon the latest report, inflationary pressures increased significantly in the month of December. Meanwhile the Swiss Franc ended the day virtually unchanged against the euro and marginally weaker against the dollar despite a sharp rise in the UBS Consumption Indicator. According to the report, consumer spending rose to the highest level since September 2008 confirming that the recovery in Switzerland is underway. Perhaps this may be part of the reason why the Swiss National Bank has been missing in action over the past 2 weeks. The KoF leading indicator report is due for release tomorrow and we expect similar strength as the UBS report.
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U.S. DOLLAR: LOW LIQUIDITY SWINGS
The lack of liquidity in the financial markets this week finally triggered low volume breakouts in the foreign exchange market. The Australian and New Zealand dollars for example strengthened dramatically against the greenback despite the lack of any Australian or New Zealand economic data. The euro ended the day only marginally weaker against the dollar, but the 0.2 percent decline masks significant intraday volatility. The same is true for the British pound which fell as much as 200 pips from high to low on an intraday basis. The dollar primarily gained momentum during the U.S. session because prior to the NY open, the dollar was actually down against all of the major currencies except for the Japanese Yen. By the end of the day however, it managed to overtake everything except for the Aussie and kiwi.
Global Equity Indices Hit Year to Date Highs
We also found it interesting that many equity indices hit a year to date high today on an intraday basis. Aside from the Dow, Nasdaq and S&P 500, European indices such as the FTSE, CAC and DAX all climbed to fresh highs while Singapore’s Straits Times Index rose to a 15 month high. On a year to date basis, all of the major stock market indices are up more than 20 percent while some emerging market indices such as Brazil are up 80 percent. Although part of the strength can be attributed to low liquidity, the rallies year to date is a clear reflection of the global recovery. Emerging markets also tend to be particularly sensitive to the global outlook and their out performance confirms the broad belief that better times lie ahead in the coming year. Whether this is true remains to be seen but we also believe that the worst is behind us.
Chicago PMI on Tap
Meanwhile according to the latest U.S. economic reports, house prices rose for the fifth month in a row in October. The S&P/CaseShiller home-price index increased 0.4 percent from the previous month on a seasonally adjusted basis, bringing the annualized drop in house prices to 7.3 percent, the smallest year over year decline in 12 months. The data indicates that low mortgage rates and the tax credit continued to support the housing market. Meanwhile consumer confidence rose from an upwardly revised 50.6 to 52.9 in the month of December. Although consumers were less optimistic about the present situation, they grew more optimistic about the outlook for economy for the second month in a row. This increased optimism is in line with the improvements that we have seen in the labor market and the increase in holiday spending. Chicago PMI is the only U.S. report due for release tomorrow and this month the number is particularly important because the other regional releases have been mixed. Manufacturing activity slowed in the NY region but accelerated in Philadelphia and Dallas. The sector’s performance in Chicago will help the market forecast next week’s manufacturing ISM report.
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The markets have floated since the Santa Claus rally began early last week. The volume has been extremely light and this does give the market a slight upside bias. Remember the old saying, never short a dull market. Well, this market has been very dull if you go by the current volume. Many stocks have screamed to new highs for the year such as Apple Computer(Nasdaq:AAPL), U.S. Steel(NYSE:X), and Simon Property Group(NYSE:SPG). This is the Santa Claus rally that everyone looks forward to every year. The one problem this year is the market has rebounded over fifty percent for the year already. What is left in the tank?
The last time we had a bounce of this nature was in 2003. At that time the market rallied from a March pivot low into the end of December. Will history repeat again so soon? Back then many believed it was the start of the new bull market. The Federal Reserve Bank Chairman Alan Greenspan had lowered the Fed funds rate(overnight lending rate from the Federal Reserve to the large banks) to 1.00 percent. This caused a boom in commodities and inflationary stocks. It also made capital easy to borrow. This in return caused the great credit and housing bubble of 2007.
What is one to expect now? The current Federal Reserve Bank Chairman Ben Bernanke has lowered rates to 0-0.25 percent. This type of policy in rates is usually a bubble maker, however, with 10 percent unemployment who is really worrying about inflation. It seems like the U.S. Treasury and the Federal Reserve Bank are trying to defend against deflation. Remember Japan has been in a deflationary tailspin since 1988. This was when the Nikkei index was trading as high as 39,000. The index now trades at 10,000 and has been much lower last year. The point here is that deflationary economies are hard to fix. The U.S. looks to be attempting a print and spend methodology. Print more money and spend everything that you print.
It is important to remember the one factor that helped the Japanese citizens was their high level of savings and their low debt. The U.S. consumer is really just the opposite. Most Americans have high debt and very low savings. This is a reason for caution. Many talking heads are saying the worst is behind us and the new bull is in effect. Similar words were spoken in 1930 after a 50 percent rebound as well. Remember what the famous writer Mark Twain said, “history does not repeat exactly, however, it does often rhyme.”
Nicholas Santiago
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Today's markets are slightly higher as the volume is as light as a feather. However, today the leading names are trading lower. Apple Computer (Nasdaq:AAPL), Google (Nasdaq:GOOG), and Potash (NYSE:POT) are all negative today even as the market is positive. All of these leading stocks have had tremendous moves in 2009. These could all be leading candidates for a correction in the New Year.
2009 has had a bull run to remember by all measures. There isn't anyone who could deny that. However, I find it rather amazing that the leaders in the government were able to predict it so well. In early March I recall President Obama telling people that it looks like a good time to buy stocks. While March is often a cycle turning point he was as accurate as can be. Since that time stocks are higher by more than fifty percent and still rallying into the end of the year. My hat is off to President Obama for a great call in the markets. Recently the Treasury Secretary Tim Geithner said that the stock market will not see another double dip in 2010. After such a bold call by President Obama how can anyone dismiss this call by the Treasury Secretary?
In the 1970's and 1980's there was a late night television program hosted by a comedian named Johnny Carson. He would often do a bit where he would play a character called 'Karnak the Magnificent'. This was a character with clairvoyant powers. It is now amazing that we now have Karnak's in the White House. Where were these Karnak's in 2007, and 2008? It is simply amazing that predictions can be made by the same people who should be held responsible for the financial crisis in the first place.
Where are all the toxic assets that have been swept under the rug after the mark to market accounting changes? Is anyone talking about the huge spending deficits that this country is under? Where is all this money coming from? Without a doubt, it will have to be printed and created. The expense for this bailout must be in the TRILLIONS already. Yes, I said Trillions. The country continues to spend like a drunken sailor. This is the second straight administration to do so. The first one was not any better.
People voted for change and got more of the same. This government is borrowing and printing with reckless abandonment. While everyone is more concerned with Tiger Woods' love life than caring about Fannie Mae(NYSE:FNM) and Freddie Mac(NYSE:FRE) getting the spending cap lifted while the tax payer is singing Christmas carols with their family. Well at least we have Karnak's in the White House.
Nicholas Santiago
Chief Market Strategist
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As we head into the end of the year, the U.S. dollar continued to give up some its recent gains. By now, most corporations, hedge funds and institutional investors have already closed their books and the few remaining market participants are mostly interested in selling dollars and repatriating their funds to window dress their balance sheets. As a result, the dollar is trading lower against all of the major currencies except for the Japanese Yen. This morning's economic reports were in line with expectations and provides no threat to the U.S. dollar. If anything, it has helped the dollar recover some earlier losses. Overall the dollar's losses against the euro are very modest and any action can only be found in the Australian and New Zealand dollars, both of which have climbed more than 1.25 percent against the greenback. Unfortunately there has been no news from either country and nothing outside of model buying and fixing demand to explain the breakout. In this context, the rally in the AUD/USD and NZD/USD are perfect examples of the type of volatility that low volume and thin trading conditions can create. Equities also reached new yearly highs at the open and if the current pace of gains continue, stocks could actually end the year at their highs.
According to the latest U.S. economic reports, house prices rose for the fifth month in a row in the month of October. The S&P/CaseShiller home-price index increased 0.4 percent from the previous month on a seasonally adjusted basis, bringing the annualized drop in house prices to 7.3 percent, the smallest year over year decline in 12 months. The data indicates that low mortgage rates and the tax credit continues to support the housing market. Meanwhile consumer confidence rose from an upwardly revised 50.6 to 52.9 in the month of December. Although consumers were less optimistic about the present situation, they grew more optimistic about the outlook for economy for the second month in a row. This increased optimism is in line with the improvements that we have seen in the labor market and the increase in holiday spending. Given that this morning's reports failed to ignite any fireworks, we expect quiet trading in the forex markets for the rest of the day.
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Posted by dentist 007 on December 29, 2009 at 9:09am
srv99you can see the latest range constriction..no up or down signal.a very low box sized chart.anyway,we want a tight coil.a better break when it happens.bracket orders for this one
This is a fairly massive stock so I figure I can put it here.
In 2008 we had a descending triangle I think, inversely we have an ascending triangle now? also theres a symmetrical triangle pattern. I put question marks because Im not sure, its just a suggestion and Im pondering out loud whether I should continue to hold them.Right now Im thinking this is bullish though this market is surely due some profit taking, I dont mind a small fall if its not the larger trendThis second chart shows volume by [price and confirms to me the horizontal line is of significance
Ignore the MA, its not shown here but intel just met and rose off the 5 day average priceIs this bullish, what say ye
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By ITMS News on December 28th, 2009 4:26pm Eastern Time
** The below analysis was posted on December 28th, 2009 11:56am Eastern Time on this very blog; note the chart below and bear witness to the accuracy of our Chief Market Strategist **
It has been a move for the history books. Stocks like United States Steel (NYSE: X), Alcoa Inc (NYSE: AA), Titanium Metals Corp (NYSE: TIE) and Century Aluminum Company (NasdaqGS: CENX) soaring into the end of 2009 like a rocket ship headed for the stars. Just in the last month or two, these metal stocks have ripped higher by 25 - 50%. It now looks like they are coming into massive resistance levels and I am issuing a red alert sell signal.
Based on valuations, growth projections and technical extensions above key levels, these stocks have been added to my red alert drop list. I expect them to see 10% or more corrections in the near term of January. Already today, United States Steel has started to form a daily bearish candle along with Alcoa Inc. U.S Steel has rocketed higher since the hit of the 200ma on November 3rd, 2009 at $34.00 to a high today of $58.19. It is far above the 20ma and after a four day surge, multiple indicators are showing a January or sooner correction coming. Look for price to fall back to the 20ma.
The same can be applied to all the other stocks listed. The extension moves they have had were due partly to short squeezes and partly to momentum runners as hedge fund and money managers looked to show these in their portfolios for year end statements. Come January or sooner, I am issuing a red alert sell signal on all these stocks. Be smart, learn the technicals, understand the fundamentals and go the opposite of the crowd. Learn, Live, Profit!
Gareth Soloway
Chief Market Strategist
InTheMoneyStocks.com
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