We are in this difficult area of many charts in the difficult summer period where participants ‘chopped up’. Many hedge funds remain down for the year in spite of the 5% or so higher equity indexes from the jan01 open. (Gold 10% higher than her jan open and silver 30% higher).
Asia over night weak generally. Shanghi lost 1% and is showing signs of rolling over. Technically she is very weak. Certainly the data continues to get worse.. with Chinese manufacturing data confirming what we already know.. a slowing world economy. Hangseng did better but noise really. Nikkei almost unchanged. Euro data also worsening. http://www.bloomberg.com/news/2011-07-21/euro-zone-manufacturing-growth-weakens.html But this is not about economic data this is about monetary announcements from US debt to Euro bailouts to BOJ printing. Markets will rise or fall according to monetary announcements not according to business cycles, data and trends. (Welcome to the paradoxical economy where bad economic data is good for stock prices as it signals more money printing).
US equities remain as was in this difficult area of the chart. Technically this is a classic area to lose shorts having shorted at around these levels a couple of months ago. The down move came broken the trend up but the rejoin to trend has been fast and hard. It gives all the appearance of a perfect rejoin of the cyclical trend knocking over resistances without a problem (or contest). A consolidation period to wash the over bought conditions from price to allow for the next leg up. Against this we have many ‘pros’ in the market in cash or calling tops, we have summer lite trading. It seems a market to me that participants are happy to hold and draw a yield. Very few participants want to actually go short. I’ve maintained my 60% hedge for now. If we had seen a decent battle between longs and shorts with resistances being won rather than blow over i may have taken off my shorts. But no battle is not helpful. I don’t believe it shows strength or weakness. It rather tells us zero.. which is very unhelpful. It is an area of the chart to be sitting rather than acting which is why you see so many participants in cash here.
Industrials wise we still have additional supply and Asian weakness playing on industrial commodities. Until these charts are resolved this will relative weakness will persist.Will the US and Europe keep running oil out of their strategic reserves as China keeps adding to her reserves? We cannot know but the Chinese must be very happy for this to continue a while. The price support of 87 to 88 is likely to come into play in the next 2 months, imo. Charts to follow.
DX wise the usd continues to look incredibly weak. She scored a breakout of the large downtrend but the breakout is in great danger of failing here. If she does she will fall very rapidly to new lows. She is off her floor at present, but only just. She is making new lows vs the jpy which remains unbelievably strong and is getting stronger rather that weaker. The jpyusd is a proxy for a contemporary torture of the japanese economy. This is not only about trade with the USA. It is about trade with Asia and the Middle East and South America as so many fx currencies are pegged to the USD.
The BOJ is being pushed to add jpy liquidity to the markets. The markets require permanent monetary easy conditions to keep them at these levels. Someone is required to print. The easiest way to force the hand of the BOJ is to keep the JPY on a higher trajectory. Lets see if they move.. More money debasement to keep nominal prices from falling. (Exports 1.6% down on the prior June. Better than economists had expected but equally totally insufficient to right the imbalances in japan’s economy).
Soft commodities. Soybeans remain very strong and near the top of her range. Wheat threatening to break northward again. Corn in a tricky zone. Seen a lot of support as price moved lower. Participants are doubting the USDA’s optimistic view from june but they want some more evidence before pushing her north again. Corn stores remain at multi decade lows for now.
The strongest charts remain the precious metals. Gold recent USD breakout also scored a breakout in JPY in spite of the JPYs strength, as above. 126690 jpy an ounce was achieved. Buying gold with borrowed jpy at half a percent interest rates remains a nice trade, imo. Silver seeing extreme volatility. Imo, this will likely increase. The prior high of 50 will be taken out soon or later due to the tightness of the physical market. She covered 8 usds from 33 to nearly 41 in two weeks so she needs to consolidate a little.. Technically, looking for entries to rejoin trend on price support levels (as she did score a breakout and remains one of the most bullish momentum charts in the market) is a high probability trade.
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