Seven Days Ahead - Free Market Updates

Rebound in Copper Returns Focus On 76.4% Resistance

Thu, 11 Mar 2010 00:00:00 CET

The Commodity Specialist view -

COPPER - MONTHLY CONTINUATION CHART:

In late 2008 support was seen close to a long term 76.4% pullback level.

Subsequent recovery saw a test of the 76.4% retracement, with Jan producing a type of Key Reversal Month.

While the Jan high stays intact this negative signal remains valid - the current strong corrective bounce is not uncommon when a trend is in process of turning.

COPPER DAILY CHART - MAY-10:

The 76.4% bounce level on the daily chart was eroded after s/term resistance.

But while the 3.5500 early Jan high remains in place there is still scope for a bear scenario to unfold, keeping in mind the Jan reversal month.

At this stage a drop back through the 3.1600 support area would be an encouraging sign. Meanwhile we must await developments.

Philip Allwright

Mark Sturdy

Seven Days Ahead

Why Gold bulls should be excited

Mon, 08 Mar 2010 00:00:00 CET

EUR/CHF Bulls Waiting in the Wings?

Fri, 05 Mar 2010 00:00:00 CET

The FX Trader's view -

WEEKLY CHART: The decisive break below 1.5000 support in Dec-09 has seen an unhindered slip back to the Mar-09 low.

Clear support has emerged around here.

DAILY CHART:

Following an unusual price swing in early Feb, which tested the Mar-09 low, we have been looking closer for evidence of a temporary bull resurgence.

At this stage a close above the 1.4700 23.6% level would provide an initial bull sign; a further one would be a close above the 1.4785 38.2% level.

Higher 1.5000 area, where several former lows reside, offers a tough barrier should any stronger recovery develop.

The overall structure of the breakdown from the 1.5150 area in Dec suggests that there is more downside to play for in due course - so any bounce should prove temporary.

Philip Allwright

Mark Sturdy

Seven Days Ahead

Why Gold bulls should be excited

Thu, 04 Mar 2010 00:00:00 CET

MONTHLY CHART

The catalyst for the market's surge away from the 873 Prior High was the formation of a Head and Shoulders Continuation pattern that completed in September 2009.

The initial surge fell well short of the minimum measured move (up to about 1340), and fell back to the Neckline where there was good support.

Check out the detail of the bounce from the Neckline.

WEEKLY CHART

The catalyst for the market's surge away from the 873 Prior High was the formation of a Head and Shoulders Continuation pattern that completed in September 2009.

The initial surge fell well short of the minimum measured move (up to about 1340), and fell back to the Neckline where there was good support.

Check out the detail of the bounce from the Neckline.

DAILY CHART

Certainly there is a completed bull falling wedge - not the most reliable of patterns - note well the completed Head and Shoulders Reversal - in the last few days....

The neckline support for the H&S pattern is at 1135 or so.

The horizontal support at 1126 beneath.

Minimum measured move? Short-term as far as 1220....

The Macro Trader's view:
The Gold market has held our attention for several years now and during that time we have been long-term bulls of the market, despite several corrections lower during its long march higher. We believe the recent period of weakness in this market has been a correction.

As we have explained in previous commentaries on Gold, we believe the correction was started by a surprisingly stronger US non-farm payroll report at the beginning of December last year.

The release of that number began a strong rally in the Dollar as traders began finally to believe in the US economic recovery, which appeared to rob gold of the safe haven status it had enjoyed during the years of Dollar weakness. But when, over the last few months, a run of mixed data from the US and elsewhere placed a question mark over general recovery the Dollar rallied further as a safe haven and Gold was sold again.

The final phase to date has been the Greek debt crisis, which at its height forced a selloff in several asset classes as traders cut risk and fled, again, to the relative safety of the US Dollar and Japanese Yen.

Now we see Gold once more attempting to go higher. The fears over Greece haven't gone away, but traders currently judge the wider sovereign credit default they feared now looks less likely. Greece has embarked on a tough austerity program, which has calmed markets to the extent that traders are again moving back into riskier asset classes, stocks and commodities among them.

Gold has resumed its position of hedge of last resort formerly enjoyed at times of Dollar weakness. But the Dollar is well-supported now, so that relationship seems to have changed. The reason for this seems to be down to market perceptions of how and when the authorities, will seek to withdraw the massive stimulus injected into the US and Global economy to guard against financial market meltdown.

The US and UK have governments are reluctant to withdraw the fiscal stimulus for fear of precipitating an economic relapse, despite evidence of economic revival, which in the US looks very strong; Q4 GDP @ 5.9% annualised equivalent to just under 1.5% q/q.

Moreover the monetary authorities, the Fed and Bank of England, are reluctant to adjust monetary policy. Both Central Banks continue to see a risk of relapse. In the US this is mainly due to the high level of unemployment that resulted from recession. And with inflation still benign the Fed has the luxury of time on its side. In the UK inflation is higher, but the Bank dismisses this as due to one-offs that will correct. And with a large output gap in the UK, economy policy makers' judge that they too, have the luxury of time.

But note well how when risk aversion recedes as traders become more confident about recovery, Gold now rallies. The reason is that markets do not trust the authorities to time their exit strategies in such away to avoid inflation.

So although the Dollar remains supported, Gold too looks set to rally further, independently of the price action in the Dollar, as the body of evidence supporting a strengthening recovery builds.
We believe the correction in Gold to be over.

Mark Sturdy
John Lewis
Seven Days Ahead

Crude Oil Bears on Alert after Strong Recovery

Thu, 04 Mar 2010 00:00:00 CET

The Commodity Specialist view -

BRENT CRUDE WEEKLY CHART - CONTINUATION:

Price earlier failed to hold above the 38.2% recovery level (which coincides with the Aug-06 high).

The structure of the chart and break of 23.6% pullback level suggested a more prolonged bear phase was unfolding.

The current strong bounce does not yet throw doubt on this analysis - now look closer...

BRENT CRUDE DAILY CHART - APR -10:

The stronger-than-expected rebound pushed above the 77.49 03-Feb high, which raised questions for the bears.

However, in the Commodity Specialist Guide we have been noting key resistance from a s/term bear channel top projection (now tested), ahead of the 80.00 76.4% bounce level - a clear close above this would confuse the outlook, and sideline previous bears.

At time of writing there remains the chance that the s/term recovery will lack staying power, but reversal must happen soon.

Philip Allwright

Mark Sturdy

Seven Days Ahead

Sterling Euro - some direction at last?

Fri, 26 Feb 2010 00:00:00 CET

The Technical Trader's view:

MONTHLY CHART

After the bull surge for the Euro from the completed Head and Shoulders Reversal the market has been consolidating in a large triangle since the beginning of 2009.

Triangles tend to be continuation patterns.

Look closer.

WEEKLY CHART

The detail of the possible triangle is clearer here.

But it is far from completion.

Within the Triangle there is a possible bull falling wedge

Look closer still.

DAILY CHART

The market is on the point of completing that wedge – a confirmed close above 0.8887 in the next few days should see fresh buying.

Notice the 0.8838 resistance has been overcome - that was quite a considerable bull feat ( it was a 50% retracement resistance too) and suggests the bulls have a good deal further to go on the upside - entailing a clear break of the wedge. Note too that the 61.8% Fibonacci is coincident with the break of the wedge adding to the bull energy on a breakout.

Mark Sturdy

Seven Days Ahead

Awaiting EUR/USD Reaction At 61.8% Level

Thu, 25 Feb 2010 00:00:00 CET

The FX Trader's view -

WEEKLY CHART: The reversal in trend at the 76.4% recovery level has so far been characterised by muted recovery attempts.

Earlier support, which included the old 1.3737 Mar-09 high area, failed and the 61.8% retracement around 1.3400 is now under scrutiny.

Now look closer...

DAILY CHART:

Note how the s/term chart structure has subtly changed in Feb - this has been accompanied by positive RSI divergence signs, which call for bears to be more cautious now.

This is occurring on the approach to the 61.8% pullback level (see Weekly chart above).

At this stage a close above the 1.3800 area would be an initial positive sign, but further s/term indecision could be seen before any recovery got properly underway.

Philip Allwright

Mark Sturdy

Seven Days Ahead

Bears Still a Threat in EUA Carbon Emissions

Wed, 24 Feb 2010 00:00:00 CET

The Commodity Specialist view -

WEEKLY CHART - CONTINUATION:

The 38.2% recovery level remains first key resistance on this long term chart.

The current multi-month consolidation (with slight bear bias) continues to unfold.

Any shorter term weakness should prove temporary though
.

DAILY CHART - DEC-10:

Note how nicely support has developed at the 50% retracement.

It is again under pressure, following lacklustre rally attempts, with current risk of a better break.

This would turn initial focus towards the channel base projection at 11.10 currently. However, also note lower 76.4% level at 10.30 which lies close to a Fibo projection at 10.38 - the temptation would be to target this area.

Overhead, the hurdles include s/term 76.4% bounce level at 14.48, falling resistance line just above and then 15.17 08-Dec high. A breach of the latter would violate the pattern of falling highs and lows, and turn the tables in favour of the bulls.

Philip Allwright

Mark Sturdy

Seven Days Ahead

The Dollar still looks strong against the Euro

Sat, 20 Feb 2010 00:00:00 CET

The Macro Trader’s view:

The current Dollar rally began late in 2009 and was driven initially by some strong US economic data. But even when that data turned a little mixed, the Dollar continued to rally.

More recently the rally was driven by a sharp increase of risk aversion caused by the Greek debt crisis, as traders fretted about a Greek Government debt default which, if it occurred, could have spread to other developed economies suffering similar fiscal problems.

But now Greece has moved out of the spotlight after the Greek government received non-financial support from the EU/Euro zone leaders and Greece pledged to enact a fiscal austerity package aimed at sharply reducing the budget deficit. Yet the Dollar remains well bid. What other factors are now in play that offer such solid support?

The US and Euro zone economies have both recently published Q4 GDP data. The US showed growth on an annualized basis of 5.7%, much stronger than expected and clear evidence that recovery is under way.

But the Euro zone reported Q4 GDP of 0.1%q/q and -1.9%y/y. Even if the Euro zone number is annualized to make a better comparison with the US, the growth rate is only 0.4%. Clearly the US economy is doing very much better than the Euro zone. But not only that, the Euro zone economy has lost momentum and growth there has cooled off.

More worryingly still, the German economy, which remains the largest of the Euro zone and has been a motor for recent growth, was even weaker than the Euro zone 4th Quarter average at 0.0q/q.

So the Dollar is benefitting from the US economy’s clear out-performance of the Euro zone.

Moreover, the news this week that China has sold a large tranche of US Treasury bonds has failed to dent the Dollar’s strength. Previously the Dollar had looked vulnerable to threats from China and others if they sought to diversify their foreign currency reserves away from the Dollar.

Another source of support is the Fed. Bernanke recently spelt out how the Fed would begin removing the extraordinary monetary policy stimulus put in place to avert a financial market meltdown. Of course he re-iterated the commitment to maintaining low official interest rates but traders see the Feds actions as starting to normalise monetary policy. This is a sure sign of recovery and that gives additional confidence in the US Currency.

So for now the Euro looks like emerging as the weaker of the two major global currencies as the Dollar claws back some of the losses it has sustained over the multi year period of weakness.

The Technical Trader’s view:

WEEKLY CHART

The two massive supports for the market – from the Prior Highs at 1.4336 and 1.3733 have been breached.

And with the latter, the 50% Fibonacci support at 1.38 has been smashed at the same time.

That looks poor.

DAILY CHART

Bears will rejoice at the solidity of the bear trend over the last few weeks.

Note well how prior lows have been good resistance- where successive rallies have petered out.

The consolidation of the last two weeks looks set to break to the downside – watch for a break of 1.3535.

Continuing the bear trend.

Mark Sturdy

John Lewis

Seven Days Ahead

GBP/USD Support Only Temporary

Thu, 18 Feb 2010 00:00:00 CET

The FX Trader's view -

WEEKLY CHART: Last year's recovery found clear resistance from the 2005 1.7043 low,

but also note that this was close to a 50% retracement, of the fall from the Jul-08 2.0153 breakdown point.

DAILY CHART:

Recent violation of the 38.2% pullback level was a negative sign, but in the Commodity Specialist Guide we had been anticipating s/term support from a bear channel base projection, running through 1.5500 currently.

This has been seen, though rally attempts have been muted so far - resistance coming from the 1.5830 30-Dec low.

In the event of renewed strength bears don't want to see higher resistance from the small channel top projection (approaching 1.6200 now) exceeded at this stage.

Meanwhile, a break/close below 1.5500 would immediately expose the 1.5270 50% pullback - sometimes a good level in GBP-related markets. However, the power should be there to push lower shorter term, with a 1.5100 Fibo projection next on the list.

Philip Allwright

Mark Sturdy

Seven Days Ahead

Further Losses Brewing in Coffee

Wed, 17 Feb 2010 00:00:00 CET

The Commodity Specialist view -

WEEKLY CHART - CONTINUATION:

The 2009 recovery failed ahead of the 76.4% retracement and, now, the Jan break of the rising support line has put bears in control.

DAILY CHART - MAY-10:

The succession of rising lows seen over previous months was finally broken after failure of the 38.2% level and 137.50 04-Jan low.

This low remains first resistance, above which note the rising return line running close to 140.00 currently.

S/term support has come from our first support area of interest, the 130.55 61.8% pullback level and Fibo projection (1.618 swing off prior 137.50-148.70 bounce) at the same level.

Any bounce should prove temporary, ahead of lower targets. Note that the lower Fibo projection, 2.618 swing target, coincides nicely with the 61.8% pullback on the Weekly chart above.

Philip Allwright

Mark Sturdy

Seven Days Ahead

Are the Gold bears broken? It's not clear

Fri, 12 Feb 2010 00:00:00 CET

The Technical Trader's view:

WEEKLY CHART

The pull-back to the massive support from the prior High at 1033 has almost made it.

The long run Neckline was a little higher than there at about 1042 or so.

Like many others we have been watching it and wondering: did that pull-back get close enough for bulls to buy for the bounce - since we remain wedded to the medium term bull pattern and target of very much higher? About 1350 in fact.

Look closer.

DAILY CHART

Well, it got pretty close to 1033. And in the April 10 contract there was a band of support from Prior Highs at 1031-15.

That wasn't quite tested either.

But the market has bounced. Rather impressively, you might say, surging (as Gold does) through the resistance from two prior lows above the market at1073-5 or so.

But we are not totally convinced.

There is a falling diagonal well-established above the market at 1110. Now, lacking a Reversal pattern at the supports, we would require a close above that diagonal before buying. Completing a bull falling wedge.

The Macro Trader's view:

The Gold market continues to frustrate both Bulls and Bears. Although the highs were made in early December 2009, the long drawn-out retreat has been orderly. And on two occasions the market has attempted to re-establish the underlying Bull trend.

What lies behind the price action?

We judge gold is in a consolidation phase. Since gold made the high last December the Dollar has enjoyed a period of strength. Initially this was driven by improving data, and has been aided on several occasions by spikes in risk aversion.

The current leg of the Dollar rally, Gold weakness, is again due to risk aversion. This is currently centered on the Sovereign risk concerns provoked by Greece and other weak peripheral Euro zone members.

But the question begs asking: if Sovereign risk deterioration is behind recent price action in currencies, stocks and Bonds, why is Gold not rallying hard?

Because of the nature of the Euro zone, traders are unable to sell national currencies for Greece et al because they no longer exist, but what they have been doing is selling Greek, Spanish and Portuguese Government Bonds and Buying Bunds. This has caused yield spreads to widen out sharply and has caused the Euro to weaken against mainly the Dollar and the Yen as fears of a Greek default have increased.

So traders are buying the Dollar more as a default consequence of wishing to sell the Euro. But a stronger Dollar usually equals a weaker Gold market.

At some point traders will stand back, re-assess and recognize that the fiscal health of the US isn't any better than the Euro zone countries currently being targeted. What so far makes the difference between US debt and that of Greece is confidence. The US has a long history of honouring its obligations. As the world's largest economy by a margin, with the Dollar the World's sole reserve currency, traders/investors are giving the US the benefit of the doubt over the management of its government finances.

But that can only be stretched so far and the credit rating agencies have begun flagging risks. Obama continues to forecast large budget deficits which are piling up the national debt and although he has said he wants to halve the deficit by the end of his Presidential term, so far his actions don't match that aspiration.

So the Dollar buying may come to an end. And it may yet begin to be sold. If the Euro zone does manage to calm the current crisis, traders will refocus. The UK and US could yet find their bond markets and currencies coming under renewed pressure and that would lift gold.

Mark Sturdy

John Lewis

Seven Days Ahead

USD/CAD Still Trying To Base

Thu, 11 Feb 2010 00:00:00 CET

The FX Trader's view -

WEEKLY CHART: The 2009 downmove stopped short of the 76.4% level at 1.0000.

Support, in fact, was found close to the 1.0296 Sep-08 low, the take-off point for the last major upleg.

DAILY CHART:

A drift back in price saw support emerge in Jan from around the 1.0204 Oct-09 low, keeping that long term 1.0000 76.4% level on the Weekly chart out of reach).

Subsequent recovery has now seen a break of the s/term falling resistance line, but key is the higher resistance around the 1.0880 23.6% level - recovery through this would also mean violation of the bear channel top projection (near 1.0800 currently).

-It would be a clear bull sign, completing a nice base in the process.

We would then be in a position to look at higher targets, the first obvious one being the 38.2% recovery towards 1.1300.

Philip Allwright

Mark Sturdy

Seven Days Ahead

Key Reversal Signs Retreat, Which Recent Bulls in Sugar Beat

Thu, 11 Feb 2010 00:00:00 CET

The Commodity Specialist view -

WEEKLY CHART - CONTINUATION:

Last week's sell-off produced a Key Reversal Week, although the new high prior to reversal was marginal.

Nevertheless, we still think the signal must be given due respect.

First possible support comes from the 25.70 23.6% pullback level - but also note the 24.85 Sep-09 high not much below.

A s/term bounce would not surprise from around here, but should prove temporary.

DAILY CHART - MAR-10:

Previously in the Commodity Specialist Guide we had noted an apparent lack of bull conviction, accompanied by a negative RSI divergence.

The current sell-off is no surprise; but that Key Reversal Week signals something more - any rally is likely to be temporary ahead of further weakness.

A s/term support area is now being tested, starting with the 26.25 01-Sep high, and including the 50% & 61.8% pullback levels (which coincide quite well with supports on the Weekly chart). So a temporary bounce looks likely.Further important support also lies at the 76.4% level and channel base projection around 23.50.

We have said in the Guide that early bears may favour sales in the 28.00/29.00 area, stops just above the 30.40 high for limited risk, targeting 24.00 for partial profits.

Philip Allwright

Mark Sturdy

Seven Days Ahead

Sterling: the futures converging to cash

Fri, 05 Feb 2010 00:00:00 CET

The Macro Trader’s view:

The Short Sterling futures market has been too bearish, expecting the Bank of England to begin raising interest rates both sooner and further than now appears the case.

Despite:
- record low interest rates,
- an unprecedented quantum easing program by the Bank of England, and
- a sizeable fiscal stimulus and debt deterioration, that is unparalleled in peace time.

The economy only just managing to limp out of recession in the 4th Quarter. And the economy still looks in need of assistance. The Bank has now stopped its QE program as CPI inflation and RPI inflation are both in positive territory, indeed, CPI is well above target. Why then isn’t the Bank’s MPC raising rates to control inflation? That is because economic activity remains weak. Also, a large output gap has opened up in the economy because of the depth of the recession and monetary policy makers expect this to bear down on inflation and bring it back below target.

In fact, the Bank of England had forecast this current ‘temporary’ spike which they attributed to one-off factors such as last year’s VAT cut which was restored earlier this year.

There another reason why they are likely to leave interest rates at current low levels for much of, if not all of this year. For without low rates the economy will not survive the impending fiscal consolidation so necessary to reduce the budget deficit and the level of debt compared to GDP. Whomever is returned to office will have to take concrete steps to cut the deficit, Labour probably through higher taxes, the Conservatives favour spending cuts.

If the deficits are not reduced, rating agencies have already warned the UK’s AAA sovereign rating could be at risk without serious fiscal consolidation, and that would be bad news for funding the deficit.

Official interest rates are 0.50% and 3 month LIBOR is currently about 0.625%. The Short Sterling futures strip could rally a long way to achieve convergence.

Of course economic data could suddenly pick up, or the ONS measure of GDP could be revised higher, but on current data, a bull convergence prior to maturity looks most likely.

The Technical Trader’s view:

WEEKLY CHART MAR 2011 CONTRACT

The chart of the short-sterling futures contract is powerfully constructed as the market ratchets better on successive highs as they act as support.

DAILY CHART MAR 2011 CONTRACT

The continuation Head and Shoulders pattern in the March 2011 has completed and is set to drive the market a good deal better still.

The minimum move? About 98.45.

Mark Sturdy
John Lewis
Seven Days Ahead

Bulls Eye Next Target in US Dollar Index

Thu, 04 Feb 2010 00:00:00 CET

The FX Trader's view -

MONTHLY CHART: The main sign in 2008 that long term bears were losing momentum was the breach of the bear channel top projection.

Subsequent resistance from around the 38.2% recovery level prompted a pullback.

Note that the 76.4% pullback area provided quite nice support.

DAILY CHART:

After the first upleg in Dec and temporary pullback, a second upleg has got underway, aided by a better break of the 23.6% level.

Next upside focus begins at 80.00 , the 38.2% recovery level, but also note the s/term bull channel top projection currently coinciding with an equality target at 80.90 (‘74.170-78.449' upleg extended off 76.601 low). We would be on the lookout for resistance up here.

At present first support comes from the channel base around 78.00, ahead of the 76.601 13-Jan low. Ideally this latter will hold else the expected continued recovery would be delayed.

Philip Allwright

Mark Sturdy

Seven Days Ahead

CRB Index – Bearish Key Reversal Month

Wed, 03 Feb 2010 00:00:00 CET

The Commodity Specialist view -

MONTHLY CHART:

Following a brief push through the 284.61 Jan-07 low the market has struggled.

In fact the sell-off in Jan produced a negative Key Reversal Month, its impact perhaps aided by the fact that the trading month was made up of four complete weeks.

WEEKLY CHART:

On the Weekly chart note how the recovery from 2009 low failed ahead of the 38.2% retracement level.

There was a well-defined uptrend line which has been clearly broken, implying a deeper pullback phase has got underway.

DAILY CHART - MAR-10:

After the earlier drop below the 280.00 area the bear argument strengthened following the break of the s/term bull channel base projection, and then 271.66 23.6% pullback (of whole 2009 recovery).

This was our cue to adopt a bear stance in the Commodity Specialist Guide, supported by that key reversal month, above.

Any bounce should prove short-lived, ahead of a further downleg, possible resistance around 280.00.

Look out for s/term support centring on 260 (larger channel base projection just above, 38.2% just below). But the Index should push lower in due course.

Philip Allwright

Mark Sturdy

Seven Days Ahead

Retracement or reversal in the S&P ?

Fri, 29 Jan 2010 00:00:00 CET

The Technical Trader's view:

WEEKLY CHART

The sell-off has been brisk with a sharp increase in volatility.

But in the context of the bull run from the beginning of 2009 it has yet to be extensive.

Nor is there any reversal pattern in place.

In addition, we can see that the minimum move implied by the clear Head and Shoulder Reversal pattern lies far above the market. It is at the top of the band of horizontal resistance from the two prior Lows in 2008.

Which is a powerful coincidence.

We remain bulls.

DAILY CHART

The technicals did not especially anticipate the sell-off (there was for example no completed Top formation) but they did suggest vulnerability.

It was apparent from the price action that 1128 was important support.

First because the market bounced of it successively and second because that level was a major Fibonacci resistance from the whole bear move 2007 - 08.

The subsequent bear move has broken through a series supports from Prior highs.

Use the range 1073-1093 as wide support. Note that volumes have been dropping on the sell-off suggesting a diminution of bear energy. Only a break of 1073 might send them higher again. Yet even then, because there is no reversal pattern in place we would remain medium-term bulls.

The Macro Trader’s view:

We are currently in the middle of the US Q4 earnings reporting season, which hasn’t gone too badly, but equities are not moving higher, as would be expected, instead they are suffering a correction lower. Why?

One could argue that data has turned a little mixed, and it has. Recent retail sales reports have disappointed and the housing market correction seems to have stalled, just as the government support program for 1st time buyers has expired.

But other data has remained reasonably robust:

· Recent ISM manufacturing and non-manufacturing surveys look strong,

· Capacity utilization has picked up,

· Consumer confidence has recently firmed,

· Non-farm payroll, while still reporting net job losses, reports a much lower rate of job destruction, and

· Today’s Durable goods report wasn’t as weak as the headline number suggests when you look at the Ex-transport report which came in better than expected.

So on balance you could argue there is currently more going right in the US economy than wrong. Add in yesterday’s FOMC policy decision in which policy makers repeated their pledge to keep rates at exceptionally low levels for an extended period and the environment for stocks is quite benign.

Or would be, but for political threats to the market.

US President Obama has already surprised the markets, especially equity traders, by announcing a levy on US Banks, as a means of compensating US Tax payers for rescuing them. This was a surprise. When the financial assistance was originally offered to the Banks it was widely understood that the US Government was only looking for eventual repayment. But it seems the banks have recovered sooner than expected and are in the process of repaying the financial assistance.

Not only that, but business was good last year and big bonuses are back. This has angered the US public, and a President looking weak in the polls has decided to go for popular measures, rather than economically sound policy.

So he surprised the markets for a second time last week by announcing plans to introduce legislation echoing the 1930’s Glass-Steagall Act. This split Banks into commercial and investment. Obama wants to stop banks owning or investing in Hedge Funds, Private Equity funds and from operating their own Proprietary trading desks.

The income Banks receive from Prop trading is typically 5 - 10% of total revenues, but that isn't what has upset equity markets, especially the S&P. The markets have been upset by the air of hostility to Wall Street and they don't know where it will end. Thus the S&P has driven lower over the last several days.

How much further the move can go is unclear. Last night's FOMC policy statement and State of the Union address may have stopped the rot. News that Ford has made a whole year profit for the 1st time since 2005 also helped.

But unless and until Obama explains exactly what he intends to do and re-assures markets that he isn't anti business or anti Wall Street, this market could remain fragile.

Mark Sturdy

John Lewis

Seven Days Ahead

EUR/USD Bears Get Bit Between Their Teeth

Fri, 22 Jan 2010 00:00:00 CET

The FX Trader's view -

WEEKLY CHART: Excellent resistance was seen at the 76.4% recovery level, when the whole upmove from the Mar-09 low was showing signs of maturity.

The structure of the fall suggests that bears' energy is far from spent - any s/term rallies should prove temporary.

We have re-calculated our pullback levels, taking the Oct-08 low as the starting point - will 38.2% provide s/term support? - Probably.

DAILY CHART:

The break below an earlier bull channel base plus 1.4623 03-Nov low gave a bearish signal, confirmed by violation of the 23.6% pullback level.

The recent Dec-Jan bounce was meager, finding resistance ahead of that 1.4623 low (and close to the 38.2% bounce level at the time).

Any rebound from around the 38.2% pullback area should be short-lived, dying out ahead of the 1.4582 13-Jan high.

Whilst the lower pullback levels should be kept in mind (see Weekly chart) we draw attention here to the 1.3737 Mar-09 high which previously provided good support in Jun-09, but more importantly to the 1.3672/54 area, an equality target (1.5144-1.4216 decline extended off 1.4582 high) and Fibo projection. We are minded to give these more emphasis than the pullback levels. A better rebound from near here would be sought.

Philip Allwright

Mark Sturdy

Seven Days Ahead

Gilts rebound

Fri, 22 Jan 2010 00:00:00 CET

The Macro Trader's view

We started the New Year bearish of bonds as we judged the global economic recovery looked on track and although a slow recovery was still expected, traders seemed confident enough to turn their attention to the debt build up in the major developed economies.

This had the effect of hitting many major sovereign bond markets hard in the early days of January. Of course, the bear move had begun over the Christmas and New Year Holiday period, but it wasn't until the New trading year had began that we judged the move was more than Year End activity.

Yet over the last two weeks the Gilt (with other bond markets) has managed a steady recovery away from the lows. At first we thought this was a reflex move caused by the pause in the equity market rally, but sentiment in bonds has clearly changed and the reasons are international rather than purely domestic.

This week UK CPI came in worse than expected, but the Bank of England has largely forecast this and they expect a reasonably rapid correction back below their target. And today the UK government borrowing data was a little bit better than expected, albeit still on track for the worst debt build up ever in peace time. That explains this week's price action from a domestic stand point.

But what of the international dimension I mentioned?

The US President has over the last two weeks turned hawkish towards the US Banks. Previously traders were under the impression that those Banks that received money from the US authorities to save them from collapse, only needed to repay those funds to be free from the governments grip. Obama now intends raising a levy or tax on US Banks as a means of compensating the US taxpayer. Additionally, he is looking at introducing legislation to limit proprietary trading activities of the Banking industry in an effort to reduce risk. This has had a negative impact on bank shares and weakened stocks.

Also there has been weaker-than-expected US data over recent weeks with some patchy profit reports from leading US Banks and corporations.

Then there is China. The Chinese Central Bank has already announced it is tightening Bank's reserve requirements in an attempt to cool lending and stop the economy from overheating. This too weighed heavily on stocks as it was seen as a prelude to higher interest rates. Additionally, China announced today Q4 GDP growth of 10.7%. This too hit stocks hard and further supported bonds as traders' fears about higher interest rates intensified.

Why, you might ask, does it matter to western stock and bond markets what the Chinese authorities do? Simply, China has or is close to over taking Japan as the World's second largest economy and it has been the engine of growth pulling the rest of the World out of recession. So while China has enjoyed strong growth, the major developed economies are only crawling their way better. If China acts to cool its economy, it will cool the global recovery too.

So the dynamic of the markets has changed. Traders have stopped worrying about debt, they see no threat from inflation short/medium term in the developed economies and are again worrying about growth.

Result: stocks weaker, bonds (including the Gilt ) stronger on safe-haven buying. Where does the Gilt go from here? Watch the data, not just UK, but globally - for a clearer picture.

The Technical Trader's view:

WEEKLY CONTINUATION CHART

The market has bounced off the Pivotal low of 114.26.

But the retracement has yet to meet the resistance from the Neckline above the market at 115.94 or thereabouts.

Only a break of that would really upset the bears

DAILY CHART

This is sobering for the bears.

The bear rising wedge has yet to complete (that would require a breakdown through the lower diagonal).

But it remains intact.

On the other hand, for the bulls, there is no clear bottom formation in the making yet.

So, despite the penetration of the diagonal from the Prior Lows, we remain biased to the bear tack, but waiting for a short-term selling signal.

Mark Sturdy

John Lewis

Seven Days Ahead

Silver Bears Look Well-Placed

Thu, 21 Jan 2010 00:00:00 CET

The Commodity Specialist view -

WEEKLY CHART - CONTINUATION:

The 76.4% recovery level wasn't very effective as resistance - it is arguable whether or not it has had a residual resistive influence.

What is clear, though, is the resistance found from the Jul-08 high.

First interesting support on this chart is implied around 16.00 (see also Daily chart below).

WEEKLY CHART - CONTINUATION:

The 76.4% recovery level wasn't very effective as resistance - it is arguable whether or not it has had a residual resistive influence.

What is clear, though, is the resistance found from the Jul-08 high.

First interesting support on this chart is implied around 16.00 (see also Daily chart below).

Philip Allwright

Mark Sturdy

Seven Days Ahead

USD/JPY Bulls Pause for Thought

Fri, 15 Jan 2010 00:00:00 CET

The FX Trader's view -

MONTHLY CHART: In the FX Specialist Guide we have started to look at a positive divergence on the monthly RSI indicator now visible - the implication is that long term bear enthusiasm is on the wane.

WEEKLY CHART: The break below the 87.11 lows was deceptive - but such false breaks can be turned to advantage.

Note that key long term falling resistance is currently around 93.80, and a decent Weekly close above this would provide a further bull signal.

DAILY CHART:

The break above the 90.76 04-Dec high and bear channel top projection supported our thinking that bears had enjoyed a blow-off finale in Nov.

S/term resistance around the 50% recovery level has been seen, but we view s/term weakness as probably temporary ahead of another bull attempt.

First support from that 90.76 high has come under pressure today - below this note in particular the 88.23/87.96 support area, 61.8% pullback and Oct low.

It is unclear if losses can extend to the lower 86.92 76.4% level. A subsequent break above the 93.76 08-Jan high (and, therefore, above long term falling resistance on the Weekly chart) would next turn our focus on the 95.10/50 area, 61.8% recovery and Fibo projection.

Philip Allwright

Mark Sturdy

Seven Days Ahead

CNBC interview with Mark Sturdy: views on the TNote

Fri, 15 Jan 2010 00:00:00 CET

Is the correction in Gold over?

Fri, 15 Jan 2010 00:00:00 CET

The Technical Trader's view:

WEEKLY CHART

The underlying bullishness of the market is derived from the massive H&S reversal that suggests a minimum move up as far as 1313.

The first impediment was the Fib cluster at 1221-1232.

But the pull back found support exactly where you might expect - the first Prior High at 1072.60.

Look closer.

DAILY CHART

The market bounced off that support from the Prior High, and when the resulting surge faltered, not well how the Prior High at 1114.50 was support again - ratcheting the market better.

There's no clear reversal in place yet, but the market appears supported for further bull trending in both the short and the medium-term

The Macro Trader's view:

Gold is a market that has enjoyed a clear underlying Bullish trend since early 2004. Along the way there have been several corrections lower, some of them relatively steep, but the market has on each occasion shaken off its malaise and resumed its bull trend.

More recently, Gold has tested the lows after making an all time high in December 2009. And earlier this week, it looked set for a fresh rally, but the market has slipped, what lies behind this price action and should bulls be concerned of something more profound emerging?

The rally in Gold has been driven mainly, but not entirely, by the weakness of the Dollar. So it is no coincidence that Gold began its correction at the same time as the Dollar began its own recent correction after a stronger than expected US Non-Farm Payroll report at the beginning of December 2009.

However, the strength implied by that December payroll report hasn't uniformly followed through in subsequent data releases. Once again, this has led to questions being asked about the strength of the US recovery which has resulted in the Dollar giving back some of its gains.

But the recent strength of Gold wasn't just due to the Dollar's price action. As the New Year began traders became more concerned about the level of government debt in many of the developed economies, but especially in the US.

With the current US administration set on a path of almost never-ending debt accumulation, the credit rating of the US has been subjected to scrutiny as never before.

The build up of debt, especially in the US, worries investors because they fear the US could be building up a problem it might struggle with in subsequent years. They think the financing of that debt could and probably will drive up long term yields, stifle recovery, hinder productivity and unleash inflation.

All of these fears are reasons to go long of Gold. But just as this market looked set to rally further, the gains were given back. Once again weaker US data was to blame, causing a deeper sense of angst about the recovery.

However, even if it is right to begin fretting about the strength of recovery (and we currently do not hold that view) the long-term outlook for Gold remains Bullish. If ,as we expect, the recovery gradually builds, traders will focus squarely on the budget deficit and debt, which will undermine the Dollar and support Gold.

If, on the other hand, the recovery falters or turns out to be much more anaemic than current expectations, then the outlook for the deficit and debt looks even worse as policy makers would be tempted to pump prime with yet another unaffordable fiscal stimulus.

In such a circumstance we believe the US would be in line for a sovereign debt down grade, the Chinese et al would voice their concerns about the Dollar's long term value even louder and Gold would make new highs.

Timing as ever is the key. For now we think this correction has a little further to play out. But don't be fooled into thinking this is a bear move: it isn't.

Mark Sturdy, John Lewis

Seven Days Ahead

Copper – Awaiting Reaction at 76.4% Resistance

Thu, 14 Jan 2010 00:00:00 CET

The Commodity Specialist view -

WEEKLY CHART - CONTINUATION:

A long term bear channel top projection that we had been looking at did not, in the end, work as resistance.

However, not far above this lies the 76.4% recovery level which could make bulls think twice.

We are awaiting reaction around here

WEEKLY CHART - MAR-10:

On the Weekly chart of the front month we note that the first interesting Fibo retracement of 23.6% lies close to the Aug-09 high, i.e. the 300 area should prove key in determining future performance.

DAILY CHART - MAR-10:

In the Commodity Specialist Guide we had been looking at a Fibo projection just below 350, which the market has so far been unable to hold above.

On this chart the first hint of momentum loss comes from a break/close below the small bull channel base projection around 330 and the 3.2750 04-Dec high.

The bear case would strengthen on a break below the 38.2% pullback level, with subsequent rallies then to be viewed as temporary ahead of further bear activity.

Below here note that the key 300 area from the Weekly chart coincides nicely with the 61.8% level here, reinforcing its importance.

Philip Allwright

Mark Sturdy

Seven Days Ahead