Daily Market Reports | Jan 29 2010
By Rudi Filapek-Vandyck
The Dow lost another 115.70 (1.13%) to close at 10,120.46 after having spent the whole session in deep negative territory. The good news is that losses were much, much larger earlier in Thursday’s session (taking the Dow to 10,080). The bad news is that technical support levels went out the window during the process.
The S&P500 in particular captured everybody’s interest with chartists holding their fingers crossed for key support to hold at 1085. As it happened, the index cut through the level like a hot knife through butter around mid-day, only to recover back above the level and exhibit a fierce fight between bears and bulls in the last hour of trade. Was the index going to close above or below the key level?
At the close of trade the index read 1084.53, which is strictly taken as below key support. This would suggest more selling to come, and thus weakness is to be expected for the near term (not necessarily the next day).
The Nasdaq outperformed to the downside with a loss of nearly 2% to 2179. Apple shares were sold in a case of after-the-event selling, with traders also pointing at many negative reviews of the newly launched (and much hyped) iPad in the international blogosphere.
In addition, and probably of more importance, leading mobile phone technology company Qualcomm’s quarterly report and guidance heavily disappointed. Qualcomm shares were slaughtered on the day.
Yesterday, the Australian share market defied another weaker session on Wall Street, as well as the fact that technical selling had kicked in for base metals. With both leading indicators persisting on Thursday it is probably a safe bet that the Australian share market is going to make up for its misplaced optimism on the last day before the weekend.
The SPI 200 March futures are indicating as much, trading down 84 points or 1.8% to 4563.
Before we move on to yesterday’s session in more detail, let’s pause for a moment and reflect back on two things I pointed out in this week’s Rudi On Thursday. Firstly, financial assets and markets en masse are sinking through trendline support lines dating back to the first quarter of 2009. Secondly, the same thing happened in 2003, when, in hindsight, the bear market of 2000-2003 was transforming into the bull market of 2004-2007.
Over the past 48 hours more commentators, including AMP’s eternal market bull Shane Oliver, have made a similar comparison. So are we reliving the 2003-experience?
The first and obvious comparison to make is that January 2004 was equally a negative month for the Australian share market. (We still have one session left but it’s a safe bet right now January 2010 will generate a negative net return for Australia’s major indices).
Back in 2003, the share market rally stopped in November, with similar technical results for equities, commodities and currencies as is happening right now. After this, the share market traded sideways for about nine months, albeit (and as pointed out on Wednesday) with a slight upward bias. After the All Ords lost some ground during January, for example, it gained 100 points by the 1st of March.
The good news is, of course, that at the time this “break in trend” proved the precursor to the next bull market. Stay tuned for more market commentators (and probably stockbrokers too) to pick up on this.
One more statistic to throw in after Thursday’s session on Wall Street: January has now proved to be a negative opening to the new calendar year for three years in a row. This year, the Dow reached a new 15-month closing high on January 19 and has quickly lost some 650 points, or 6%, since then, marking the worst seven-day period for the Dow since March last year.
Earlier on the day, Europe did what Australia refused to do: resources companies sold-off as commodities continued to suffer from technical related selling. In addition, companies such as AstraZeneca disappointed with their sales forecast, overshadowing better-than-estimated earnings from the likes of Nokia and Hennes & Mauritz. The DJ Euro Stoxx 50 declined 1.8% to 2737, the German DAX fell 1.8% to 5540 and the FTSE was 1.4% lower at 5146.
I haven’t included any charts for these indices in my recent stories on broken trendlines, but rest assured: they ALL have broken below trendlines over the past week.
As far as US economic news was concerned, US durable goods orders rose by 0.3% in December after falling 0.4% in November. Economists had tipped a 2% gain. US claims for unemployment insurance fell by 7,000 in the latest week to 470,000. Economists had tipped a fall to 450,000.
The US Senate increased the government’s borrowing authority to US$14.3 trillion allowing Treasury to service the nation’s debt through 2010. Meanwhile, speculation that a European bailout of troubled Greece will become inevitable continued to dominate global bond and FX markets. Greek Prime Minister Papandreou will bring forward tax reform plans from April to February to address fiscal problems.
In addition, concerns about Portugal’s budget are firmly on the rise.
It shouldn’t surprise anyone the EUR/USD continues to weaken. Yesterday the cross fell to $1.3974 – below that psychologically important $1.40. In Davos the Russian Finance Minister Kudrin spoke about the world needing global currency regulation.
The US dollar index, which tracks the US currency against a trade-weighted basket of six major rivals, rose to 78.885 versus 78.750 late Wednesday.
The slump in the euro to a 6-month low against the US dollar was helped by the release of a European Commission report stating Greece hasn’t done enough to contain its deficit. On top of this came comments from the head of the EU finance ministers, Jean-Claude Juncker, who told the French newspaper Les Echos that the euro is overvalued and that divergences within the Euro-Zone may threaten its cohesion.
GBP/USD was initially trading higher but later pared gains to open the Asian session weaker at 1.6123. USD/JPY opens at 89.89 after a flat session.
The AUD erased gains overnight. AUD/USD opens around 0.8950, falling from its overnight high of 0.9049. AUD/EUR fell sharply in the latter part of overnight trading to open lower at 0.6400. AUD/JPY declined steadily and starts the days trading around 80.50. AUD/NZD opens marginally higher at 1.2698 after range trading overnight.
US bond yields were mixed overnight as stocks fell and concerns lingered that Greece would not be able to adequately improve its fiscal position, increasing the appeal of short-term US government debt. The US sold $32bn of 7-year notes at a yield of 3.127% and at a bid-to-cover ratio of 2.85. The yield on 2-year notes lost 5bps to 0.867%, whilst the 10-year yield rose 1bps to 3.654%.
As mentioned earlier, base metal prices generally had another horrible session on the London Metal Exchange. The odd one standing out was nickel that actually managed a gain on the day. Other metals again fell in multiple percentages as investors retreated from the markets.
Crude oil prices held their ground, to the relief of many. Chartists are pointing out crude oil futures are curently supported by strong technical support and thus far it would seem this is enough to prevent prices from falling lower. WTI futures contract for March 10 gained 0.1% to US$73.71 a barrel (it’s not much, but in the light of another sell-off for base metals…)
Spot gold briefly broke through technical support at US$1075-1080/oz, but recovered. Spot gold ended the session at US$1,087.10 an ounce.
US wheat and corn rose 0.7% and 1.1% after a US government report showed that export sales of the commodities were at the high end of analysts’ expectations. Sugar gained 2.3%, while soybeans increased 0.4%. Palm oil futures were 0.9% higher.
In non-financial related news: one of the great novelists of the twentieth century, the eccentric J.D. Salinger, author of “The Catcher in the Rye” has died, according to his literary agent. And oh yes, Ben Bernanke has now been officially confirmed for another term at the Fed.
Greg Peel will be back in charge of the Overnight Report on Monday.
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