U. S. equity markets are called lower this morning based on a poor overnight showing. The catalyst for the overnight weakness was the shedding of risky assets by nervous investors.
The September E-mini S&P is currently testing 1065.25 which is 50% of the entire 1002.75 to 1127.75 rally. Since this market is sitting in the middle of the early July to August range, I guess you can say we are rangebound. In addition to testing a key 50% price level at 1065.25, this market also broke an uptrending Gann angle from the 1002.75 bottom. This may be a signal of lower prices to follow. The first downside target which comes to mind is 1050.50.
The September NASDAQ is testing its 50% level at 1808.00. Traders seem to be leaning on the short side, making the .618 level at 1782.00 the next potential downside target.
December Gold soared to the upside on Thursday following a sharp break in U.S. equity markets. Traders increased their long hedges in gold on the stock market weakness. As mentioned several times the past few weeks, gold (hard asset) and stocks (paper) are competing for the same investment Dollar. Gold has had a tendency to rally lately following sell-offs in the stock market. This trend continued on Thursday. The .618 level at $1228.00 has to hold in order to sustain the upside momentum.
Technically, gold broke out over a pair of major downtrending Gann angles from the $1270.60 and $1267.50 tops overnight. This helped trigger stops and bring in additional momentum buyers.
September Treasury Bonds hit a new high for the year on Thursday. This move reversed earlier weakness in this market. Traders bought T-Bonds for safety and not speculation. Therefore, don't believe the hype about a bubble formation. Quite frankly, why not buy them if the Fed is saying they are going to buy them. Bond traders are probably the smartest traders in the world. They saw the weakness in the economy developing before anyone else did.
The resumption of the downtrend in the equities markets triggered a sharp break in the commodity-linked currencies with the New Zealand Dollar leading the way lower. Today's surprisingly bad U.S. weekly initial claims report renewed fears of a shutdown of the global economy. If investors continue to shy away from risk, then look for further weakness in the Canadian Dollar and Australian Dollar also.
One question traders are asking each other is whether the Dollar is trending or if it is rangebound. On one hand some traders believe in a bullish scenario for the Dollar because of flight to safety buying. Bearish traders believe the U.S. economy will grow at a slower rate than the rest of the world. This clash between the fundamentals could produce side ways action highlighted by periodic exaggerated swings.
Technically, the Aussie rally failed this week at the 50% price level of the .9221 to .8857 range at .9039. This move has set up a developing bearish secondary lower top. Based on the current chart pattern, look for further weakness with .8644 the next downside target.
Earlier this week the New Zealand Dollar completed a 50% retracement of its recent downswing. The range from .7355 to .6996 ended slightly above the .7175 level at .7191. The charts are suggesting a move to .6977 to .6879 is likely over the near-term.
On Thursday, the U.S. Dollar rose sharply as risk aversion is back on following a surprisingly weak U.S. jobless claims report. Especially hit hard during the Greenback's rally were the commodity-linked currencies.
The Euro traded lower after a weak attempt to rally failed after the bearish U.S. report and on the heels of a better than expected forecast for German economic growth.
Technically the Euro is still rangebound amid confusion by traders. Buying and selling interest appears to be even as the bulls want to buy Euros on speculation of renewed strength in the Euro Zone economy but the bears feel the need to sell because of a dim outlook for the global economy.
The charts indicate impending volatility but the direction of the next move is not clear. A breakout to the upside is likely to be met with selling pressure at 1.3033 to 1.3104. A breakdown through support could trigger a downside acceleration to 1.2605 to 1.2433.
The British Pound received a boost Thursday morning following a better than expected U.K. retail sales report. This rally died, however, short of a breakout above the recent high at 1.5701 and after sentiment shifted away from risky assets.
Technically, the Sterling is trapped between a pair of 50% levels at 1.5560 and 1.5635. Major support is being provided by an uptrending Gann angle from the 1.4229 bottom at 1.5529 today. A close under this angle could trigger a tremendous downslide.
The September Japanese Yen started the day in a potentially bearish position as it tried to build resistance inside of a retracement zone at 1.1692 to 1.1719. At one time today, it looked as if the Yen was readying to breakout below the last swing bottom at 1.1579. This move would've changed the daily trend to down.
This market rallied sharply after the U.S. released a surprisingly bad weekly initial claims report. U.S. equities sold off on the news, triggering a flight to safety rally in the Japanese Yen. Unless this market can regain the retracement zone, look for 1.1579 to fail. This would put the Japanese Yen at a new multi-year low.