Markets Close Below the Moving Average
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The Regular Update from The Mole and paddypowertrader.
The Financial Markets - 10 July 09
It was one of those all sound and no picture days where stocks ended marginally positive for the day after a rally(ette) in the last half an hour. After the bell Alcoa marked the start of the pantomime that is the quarterly earnings season by reporting a smaller than expected loss i.e. the less bad is good club. Stepping away from the intra day noise and seeing the bigger picture the S&P 500 has lost over 5% over the past few sessions and is 75 points below its June 11th high.
The key question to ask is whether we have reached an inflection point in the index and downside momentum is building. A sustained selloff in the index would confirm the much-anticipated correction in growth expectations and may led to a summer of higher volatility and risk aversion, which I have been highlighting in recent weeks here. Both fundamental and technical factors are now in play and there are plenty of potential sources for volatilities in the coming weeks, any of which may trigger a broad selloff.
Technically speaking the S&P 500 confirmed with Tuesday’s close a head and shoulders reversal. The move lower Tuesday together with the bearish close, confirms the head and shoulders reversal pattern that now puts stocks in a downward cycle. Whether this is a correction or a resumption of the primary bear trend remains to be seen. What is clear though is that the near term should see stocks move lower with the first target in the S&P at 845.70 which is the level around the 38.2% retracement of this years strong bounce between March and June.
Capitalism Takes A Hit There are two levels to watch for as far as resistance is concerned: 1) 898.70 and 2) 931.90. The latter is key and a break here is required to ease the developing bearish theme.
Other factors worth noting:
- The S&P 500 closed below the 200-day Moving Average (MA)
- The Nasdaq closed below the 50-day MA for the first time since March 16th
- Oil Futures closed below the 50-day MA
- The VIX closed above the 50-day MA
Today’s Market Moving Stories:
- Japanese stocks fell on Thursday after the yen spiked to a five-month high against the dollar overnight, with investors seeking to trim riskier bets amid growing concerns about the health of the global economy. Japan’s Nikkei 225 average fell 0.5 percent, touching a near two-month low and down for a seventh straight day. MSCI’s measure of stocks elsewhere in the Asia-Pacific as barely moved, clinging to gains of more than 27 percent so far this year.
- Almost one in three new Chinese college graduates are unable to find a job, according to the official Xinhua news agency. Citing the Ministry of Education, Xinhua said about two million graduates, or 32 percent of the total of 6.11 million, were without work. The figure is the highest since the ministry started collecting the data in 1996.
- European metals stocks (e.g. Vedanta, Norsk Hydro & BHP Billiton) are bid this morning on the back of Alcoa’s numbers last night. Rio Tinto have been upgraded by rating agency S&P following its successful $15.2bn rights issue & progress with its disposal programme
- Auto makers Daimler & Peugeot Citron are looking perky today after an “overweight” recommendation from Bank of America (note Chinese car sales “figures” showed a 48% increased in June according to official figures
- Tullow Oil has been cut to neutral at Credit Suisse
- Even though I’d hinted in these columns that I was favourably inclined towards C&C their trading statement still came as a positive surprise. The core cider unit is enjoying strong momentum thanks to weather, new product and better marketing. In Ireland, cider volumes during the first four months are up an impressive 4% amid the toughest consumer recession in Europe ever. They could soon be one some ones radar as a takeover candidate by a global player. That said I can’t see the Wurzels making a comeback
- Fyffes are benefiting from strong demand for bananas from Japan where imports of the yellow fruit bellowed of Andy Warhol are up a staggering 30%. They will also of course get a lift from the strong yen when reporting revenues in Euro. This demand may help why prices have jumped in Europe in the midst of a global depression.
IMF Sees End To Recession – But Not In Euro Area
The IMF came out with revised forecasts yesterday, according to which global economic growth for 2009 was revised downward – from minus 1.3% to minus 1.4% – and revised upwards for 2010, from 1.9% to 2.5%. The optimism for 2010 reflects stronger growth in emerging markets, the US, China and Japan. For the US, the 2010 forecasts are up from 0 to 0.8%, for Japan from 0.5% to 1.7%, but for the euro area only from minus 0.4% to minus 0.3%. Unemployment will rise throughout 2010 on a global level, as the growth is insufficient to stabilise employment.
FT Deutschland quotes Olivier Blanchard as warning that governments and central banks not to embark on premature exit strategies. While the risk of a global financial meltdown is now lower, the banking sector remained at risk. The IMF said the stabilisation occurred only as a result of direct government intervention. Blanchard also said the big challenge for the post-2010 era is to find a replacement of the US consumer as a source for global demand growth.
Chinese Whispers
Reuters reports that China will expand about 8% this year, a leading think-tank said on Thursday, the latest in a series of broadly bullish reports reflecting the growing momentum of the world’s third-largest economy.
The State Information Centre, which reports to the National Development and Reform Commission, China’s top economic planning agency, said it was premature to declare victory after a deep downturn triggered by a collapse in global demand. “The Chinese economy has successfully touched bottom and has started to rebound, but this does not mean a recovery trend is assured,” the research outfit said in a report carried in the official China Securities Journal.
But the centre pointedly said the economy did not need further stimulus on top of the government’s 4trl yuan ($585bn) spending plan or the help of lower borrowing costs. “In a view of preventing inflation in the long-term and controlling inflationary risks, there should be no interest rate cuts this year,” the SIC said.
The International Monetary Fund on Wednesday became the latest organisation to take a rosier view of China’s prospects, raising its forecasts for GDP growth this year and next by 1% to 7.5% and 8.5%, respectively.
The World Bank, the Organisation for Economic Co-operation and Development and a clutch of banks have recently upgraded their forecasts as evidence mounts that massive fiscal and monetary stimulus is likely to lead to full-year growth close to the government’s 8% target. Indeed, the official Xinhua news agency cited unidentified statistics officials as saying gross domestic product growth was already “close to 8%” in the second quarter. The figures are due on July 16. A Reuters poll points to growth of 7.5% from a year earlier. Xinhua said the data would clearly show that the economy was no longer declining but was now moving up. Many export-reliant economies in Asia are banking on a rebound in China to help offset still feeble consumer demand in major, recession-hit Western mark.
There are now a whopping 29 million “underutilised”workers in the U.S.
Commodities Commotion
For Commodities here should be a summer correction for commodities as the seasonal manufacturing slowdown takes effect. Copper is particularly vulnerable because normally LME copper inventories rise in August, weighing on the price.
Chinese stockpile buying has led to record imports of a number of commodities, including copper, and has driven price gains. That said, large surplus stocks of copper may have built up and imports should ease in July-August.
Cancelled warrants, which are an indication that metal is likely to be removed from warehouses, have tumbled from 21% of total LME inventory in May to around 5%. However, in the longer term copper remains our top base metal pick. Inventories are approaching critical levels; mine capacity utilisation remains woeful and the supply response is likely to be weak when demand recovers
Ahead today
- The chaps at the Bank of England MPC makes their policy decision today at noon (London time). No change in rates (from 0.5%) is likely, but a bigger question is what the MPC announces on QE. They have 3 main options: i) do nothing, in which case QE ends in two weeks’ time, ii) announce the final £25bn (of £150bn currently permitted) will be used (I think this is the most likely outcome) or iii) announce the £25b and ask the govt for permission to do more. The MPC could at the same time as doing any of those options slow the pace of QE from its current £6.5bn per week, signalling that the policy is slowly being wound down. At current rates of purchases the extra £25bn would span the August Inflation Report meeting, at which point their new forecasts may dictate whether more QE needs to be done
- Notable earnings reports today include 3com (expected EPS $0.05) and Chevron ($1.27)
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"Markets Close Below the Moving Average" last update by The Mole, 10-Jul-2009
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