Today was the day when those “powers that be” announced they are ‘really serious this time’.
Over lunch, French President Sarkozy and German Chancellor Merkel called for a new European Union treaty that include automatic sanctions for countries that violate rules to keep government deficits in check. They hope to decide on the changes by March. This is ahead of Thursday’s ECB rate decision and a summit of EU leaders in Brussels.
CFTC approved a rule that puts tighter limits on how brokerage firms can use customer funds.
As both of these items essentially already have rules and regulations on the books, we wonder if they will receive the same focus on enforcement going forward.
Markets reacted in sympathy, boosting the Equities and selected physical markets higher and pressuring the US Dollar and Treasuries. By early afternoon, however, talk that S&P is on the verge of downgrading France, Germany and several other triple-A rated sovereigns set this move back on its heels.
Currencies: 05Dec With the French and German Euro-zone debt discussions continuing to provide hope, there has been a modest anti-US Dollar rally and subsequent sell-off from their highs. There has largely been sideways action from the extremes caused by last week’s intervention. It seems like the various FX markets are waiting for the next externally driven market dynamic. This week has a relative dearth of data releases, chiefly sentiment/confidence indicators. Look for news out of the Euro-zone as the most likely candidate for some sort dynamic producer. However, further news out of Asia could make an impact, too. The uncertainty in the Euro-zone shows up in our European currencies, including the untracked Swiss Franc, all having RSIs close by the indecisive and mid-level 50 level.
Aussie: 05Dec Even with the late session weakness, the Aussie remains our strongest currency. It sits right above the still rising 200-day Moving Average. It now appears as if 1.0300, which the Aussie has been unable to stay above for more than a few minutes, is acting as the nearest term resistance. Volume figures point to a consolidation of last week’s gains as other dynamics work their way out.
On a recent historical basis, the recent Momentum turns have lasted slightly less than a month. Given that recent history, look for a likely positively biased Aussie though about year-end. This may be subject to a sudden shift if the fundamental dynamic change.
Seasonal Snapshot:All three patterns firming until the end of the year.
British: 05Dec With thesizable intervention led action now in the rear view mirror, Sterling remains in a consolidation pattern. Which direction it breaks out to is now the question. If it’s positive, it’s likely on a shorter-term pattern basis with a reasonable breakout above 1.570.
If it’s negative however, it’s in keeping with the bearish action from late October highs. This targets a lower low than late Nov and possibly the early Oct lows below 1.52.
Of note is that our latest shift in Momentum was after a materially shorter period than the previous 2 shifts.
Sterling also remains well below the 200-day Moving Average, which is still declining. Seasonal Snapshot: The 5yr is diverting from the 15&30yr: 5yr continues the descent into the end of the year, the 15&30yr move higher.
Canadian 05Dec The Loonie participated in the early AM rally to levels close to the initial rally levels from last week’s intervention. Since peaking near 9 AM Central this AM, it fell to test the 9800 support and bounced back into the congestion near the lower end of the post intervention action.
The 200-day MA is still declining which is counter to the current daily Momentum
Seasonal Snapshot:All three patterns are weak through the end of the year.
Dollar Index: 05Dec While the post intervention action has clearly been consolidative and its daily Momentum shifted negative, its 200-day Moving Average still seems to be bottoming. The tug of war going on between longer-term and shorter-term action is definitely worth paying attention to.
Without further external actions by authorities, we expected previous pricing dynamics to resume their directional bias, regardless of our current technical tone.
Seasonal Snapshot: Choppy consolidation with a downward bias until year end.
Euro-FX: 05Dec If you stand back from the picture of last week’s noisy intervention led rally, the Euro remains in decidedly negatively biased bearish pattern. However, if as expected, the Euro-zone leaders can’t figure out how to put the debt crisis genie back in the bottle, we expect to see more negative action in the future. We look at current action as being not so much as positive as less negative in tone…for now. However, watch the and tighten risk controls if the Euro again looks to be breaking down against the recent lows near 1.32. Some sort of artificial government dynamic is likely there.
Seasonal Snapshot: A more positive bias until the end of the year.
Yen: 05Dec We remain with some of the same comment from last week, that for all intents and purposes the Yen has gone nowhere post intervention. Daily momentum is still negative and our shorter RSI indicates some modest downward upward pressure as well. Though there are fundamental reasons to short the Yen, the technical picture is not yet clear.12800 shows as strong support.
Seasonal Snapshot: Consolidation with a downward bias ion all three patterns until year end.
Energies: 05Dec Warmer temperatures may be constraining Heating Oil’s participation in the resumption of the Petro sector’s upward bias. It is still lagging the recent positive turn in Crude and RBOB’s Momentum. Consequently, be watchful of Crude and RBOB’s historically Overbot conditions.
Seasonal Snapshot: All three tracked Petro markets are in a pronounced negative bias until mid December.
Crude: 05Dec A Doji Candle, indecison day after squirting higher overnight. The 200-Day Moving Average (95.90) continues to provide support in the recent wide, volatile consolidation range, capped at 102.00. Momentum is about to go positive, but beware the fact that the market is revisiting Overbot conditions again. Volume is trending lower after Tuesday’s monster bounce off the 200-day moving average.
NatGas: 05Dec The weekend’s warmer temperatures undermined our positively tilting technical picture which would be in keeping with our view that NatGas is attempting to build a base around the 3.50 level. All that’s lacking is cold weather. Watch this market and Northern temperatures carefully for the next several weeks. A protracted cold spell would be needed to chew through the record storage levels to produce a supply side rally. Without it, look for a further test of the 3.45 support, now in the Jan, Feb, and March contracts.
Seasonal Snapshot: The 15 & 30yr patterns are pointed strongly to the downside through the end of the year. The 5yr is sideways with a mild downward bias.
Equities: 05Dec Our rising Rates of Change are keeping Momentums positive, but all three markets we track are well off their highs as of this writing.
As we noted last Friday, the complete reversal of our RSI for all three tracked markets (from the teens last week to the mid 70’s, as of this writing… too far, too fast) makes the market vulnerable for a fall.
The SP’s 200-day Moving Average and falling trend line resistance at 1260 is providing resistance, but both the Dow and NASDAQ have broken out above. Indeed, the Dow has led the charge higher and is flirting with the mid November highs. Neither the SP nor NASDAQ can boast this dynamic. Watch these previous highs:
Although Volume across the sector exploded on Wednesday’s rally, it has fallen off a cliff on the last two sessions’ quiet consolidation.
Seasonal Snapshot: The SP & Dow’s 15&30yr patterns are in an uptrend for the rest of the year.
The NASDAQ’s upward pattern has been in place since the middle of July and continues until the end of the year.
Grains:05Dec Consolidation and retracement from overextension to the downside has been the theme for the last several sessions. Today’s negative action keeps the pressure on, however, and targets the recent lows.
Corn:05Dec The March contract’s consolidation fulcrum remains at 6.00, but a move below the double bottom at 5.85 would cement the negative technical picture and a harbinger for more losses. Recent strength has seen March fail to break out above the declining trend line that dates back to the 11/9 high.
Volume has declined since last Wednesday’s rally.
Seasonal Snapshot: The 5yr pattern leads the choppy 15&30yr patterns gently higher until the end of February.
Soybeans: 05Dec Momentum has moved positive and the RSI is headed higher off of Oversold levels. However, the 200-day Moving Average is still falling and the Jan contract is still struggling with falling trend line resistance at today’s highs. That fact and the January resistance at 1165 should provide a drag on positive performance.
Seasonal Snapshot: Consolidation in the 30yr pattern and more choppy in the 5&15 yr ends in mid Dec when all three take a more positive tone through the end of the year.
Wheat: 05Dec A bearish engulfing pattern (a higher high and lower low, settling down on the day) sets the market up for more losses. The March contract settled right at descending trend line support from back to July.
Our primary indicators are positive in bias, but our Rate of Change is showing some weakness. Addtionally, the 200-day Moving Average does pose a longer-term negative dynamic. Be careful of any break below 6.00
Seasonal Snapshot: The 15& 30 year patterns are generally trending negative into mid December. The 5-year pattern rises rapidly into early December starting 11/16.
Interest Rates: 05Dec Still an inside day for the long-dated maturities as of this writing, despite the failure to make new lows on this morning’s weakness, and the subsequent rally back to just lower on the day. Our falling Rates of Change keeps the pressure on Momemtums that are already quite negative, but trending lower Volumes across the entire sector call the recent weakness into question. These dips have tested rising trend line support going back to July.
Upside risk in the long-dated maturities is the developing Oversold condition. Look for a further bounces off the intervention lows.
Seasonal Snapshot: 5, 15 & 30 yr patterns in long-dated maturities’ US Treasury instruments are weak until mid December. The 2yr has a negative bias until year end, but is much more choppy.
Gold: 05Dec More consolidative action around the 1750 level. The case could be made for a symmetrical triangle formation, since early September, which is currently bound by 1700-1765. Recent action has the market easing off the upper boundary.
Improving technicals, with Momentum on the cusp of going positive, are on hold today. A break out above noted resistance would be further cemented if the market can take out the previous early November highs just above 1800.
The general rising trend we noted from the spike lower on 9/26 and the subsequent retest lower that bottomed near 1590 is still in place.
Seasonal Snapshot: General strength through the end of the year in the 5, 15 & 30yr patterns.
Copper: 05Dec The consolidation of last week’s huge rally seems to be stalling out below the late October highs, but through the upper boundary (355.00) of what appears to be a symmetrical triangle from mid September. Momentum remains positive, but the almost comical reversal of our RSI (from the mid 20’s last week to 72 as of this writing… too far too fast) has us searching for resistance. Volume has been trending lower for the last three weeks. Be on guard if you are long, or trying to pick a spot to go short. This market is reacting to headlines in vicious fashion.
That said, the 50% retracement of the August-September decline, about 20 cents higher at 375.00 offered resistance in late October and the market made an ensuing higher low, which can be constructive.
A sustained move through this level targets the (falling) 200-day moving average another 25 cents higher at 400.
Seasonal Snapshot: All three patterns consolidate until year-end.
05Dec There is only one thing, actually one number, that we would like to note: 2.94. On a scale of 1-100, this is the measure of overextension in Cocoa. This is the most Oversold we have ever seen any market. Volatility is falling off a cliff. Look at option purchase strategies.
The recently rising Rate of Change tried to ease the selling pressure, but it ended up being more consolidation of losses and has resumed its weakness.Seasonal Snapshot:
Strong tendency to the upside until 15Dec. Coffee:
05Dec Wide, violent consolidation of September’s losses. Today’s 8cent range follows three out of last four sessions’ +10cent ranges. This month long range has been bound by 220.00-240.00. Our Rate of Change and Momentum are flipping back and forth, waiting for a directional move. However, the falling 200-day Moving Average is detrimental to the health of the market.Seasonal Snapshot:
The 5yr is more pronounced, but all three patterns have a positive bias until 19Dec when choppy consolidation takes over at the beginning of Feb. Cotton:
05Dec Continued consolidation of losses and not able to sustain a rally, where other physical markets have been. The fact that it’s not Oversold is probably a negative as it gives it that much more room to run to the downside. Seasonal Snapshot:
Moderate upward bias is interrupted by a downdraft in early December, then marches higher until year end. Sugar:
05Dec March is still struggling with the 24.00 resistance level. Our rising Rate of Change has pulled Momentum positive and points our focus towards how the market acts at this recent resistance area. If it can’t rally, lower tests are again expected. That said, the 200-day moving average (26.60) has been moving decidedly lower for a while and should cap any rallies. Seasonal Snapshot:
The 30yr pattern leads all three higher into Dec.Disclaimer:
There is risk in trading futures and options. One's financial suitability should be considered carefully before placing any trades. Past performance is not indicative of future results.