S&P 500 Finishes Lower; Chart Indicates Test of 1065.25 Likely
The September E-mini S&P finished lower on Thursday.
Although the low of the session was reached near the opening, buyers failed to
produce enough interest to drive this market higher into the close. With the
fundamental news still supporting a down slide, todayâ€™s early rally was most
likely triggered by oversold short-term conditions.
Shortly after the release of slightly higher than expected
initial claims data, the September E-mini S&P 500 sold off and tested
1070.50. The subsequent rally from this level stopped at 1084.50, forming an
intraday range of 1070.50 to 1084.50. This range has created a retracement zone
at 1077.50 to 1075.75. This area held as support during the latter half of the day
but the market was unable to generate much buying interest into the close.
A failure to hold the retracement zone could trigger further
downside momentum, fueling a possible break into the first main downside target
at 1065.25. The downside retracement zone which has to hold on the daily charts
is 1065.25 to 1050.50. Combined with oversold indicators, watch for a possible
technical bounce if this zone is tested over the near-term.
December Gold surged to the upside as expected. After
breaking through a pair of downtrending angles this morning, upside momentum
was building which was underpinning the market. The strong rally also took out
stops a little over a key 50% price level at $1215.00, indicating that the next
target is now $1228.00.
With gold and equities competing for the same investment
Dollar, continue to look for more upside if stocks weaken into the close.
September Treasury Bonds finished lower despite the rise in
the initial claims number. The inability to break the equity markets hard may
have given traders an excuse to take profits after a strong performance earlier
in the week. Todayâ€™s action should in no way be interpreted as a sign of
weakness. The Fedâ€™s action earlier in the week is a strong sign that the
economic recovery is being threatened which means yields should continue to
The U.S. Dollar continued to mount its strong recovery
against the major currencies on Thursday. The Dollar Index rose sharply, led
primarily by a strong gain in the Dollar/Yen and reasonable advances against
the commodity-linked currencies.
The weekly Dollar Index chart is in a position to post its
strongest weekly gain since early May. The current rally was set up when the
index held the .618 retracement level of the entire November to June rally from
75.03 to 89.22. Based on the short-term range of 89.22 to 80.17, look for this
current rally to advance to perhaps 84.69 over the near-term.
The U.S. Dollar finished higher versus the Japanese Yen
after Japanese Prime Minister Kan voiced his strong opinion about the recent
movement in the Forex markets.
In what amounts to be a form of â€śverbal interventionâ€ť, Kan
called the recent swings in the currency â€śroughâ€ť, and said they â€śare a little
too rapidâ€ť. These are the strongest comments from the Japanese government which
usually only says it is concerned about the movement in the currency and
excessive volatility. Some traders believe the strong language used by Kan is a scare tactic
which only represents an attempt to limit gains in the Yen and in no way should
be interpreted as a precursor to an actual intervention.
Some traders rushed out to sell the Yen based on the
comments, but the majority of market participants are said to believe that an
intervention is unlikely for mostly logistic reasons. The likelihood of an
intervention is small because they seldom work and the size needed to actually
have an influence on the market would require the cooperation of the U.S.
and other key central bank players.
Some Forex traders also believe that the recent rally in the
Yen has been orderly and based on sound economic reasons. As long as the
currency doesnâ€™t swing violently or is influenced by excessive speculation, the
chance of the Japanese government garnering support from other nations for an
intervention remains remote.
The concerns voiced by Japanese officials are not without
merit however. Their primary concern at this time is to protect the economy. By
expressing strong opinions which may weaken the Yen, the government is doing
its best to protect Japanâ€™s
export driven economy.
Another reason why an intervention may not work at this time
is because the desire to buy the Yen is being triggered by safe-haven demand
because of fear that the global economic recovery may be stalling. Declines in
the Euro Zone and U.S.
economies could fuel worries that the worldâ€™s economy is headed toward a
double-dip recession. The action by the Fed earlier in the week has contributed
to this growing pessimism. If a slowdown is confirmed, then investors may begin
to buy the Yen more aggressively.
Technically, the September Japanese Yen rallied to a 15-year
high on Wednesday before sellers stepped in to trigger a profit-taking break.
The follow-through break overnight helped form a minor top at 1.1805, but
failed to garner enough upside momentum to trigger a clean closing price
The strong break and subsequent follow-through, however, has
put the Yen in a position to post a weekly closing price reversal. The key
number to watch is last Fridayâ€™s close at 1.1695. The Yen closed below this
number today, but a close under this level on Friday will be a strong
indication that this market is gearing up for a 2 to 3 week retracement.
Trading may get volatile overnight and during Fridayâ€™s day
session because of the struggle between fundamental and news driven traders who
believe a move by the Japanese government to weaken the Yen is inevitable.
These traders may get support from technical traders who believe that the Yen
is overbought, but trend traders may prevail if demand for risky assets
continues to decline, triggering an extension of the flight-to-quality rally.
The importance of this developing weekly closing price
reversal in the September Japanese Yen cannot be overemphasized at this point.
This type of pattern has been known to generate 50% retracements over a 2 to 3
week period which means that a correction to 1.1176 is possible over the
short-run. Once again keep the focus on how this market behaves at 1.1695
tomorrow. The action at this level will dictate how serious traders are about
turning the Yen around and could offer clues as to what the Japanese
governmentâ€™s next move is going to be.
The Greenback closed up against the commodity-linked
currencies, extending it winning streak versus the Australian and New Zealand
Dollars. Fears of a global economic slowdown fueled by this morningâ€™s
unexpected rise in unemployment claims, pressured equities which helped curtail
investor demand for risky assets.
Some of the weakness in the Aussie was triggered last night
after the Australian unemployment rate unexpectedly rose to 5.3 percent in
July, compared to the median forecast of 5.1 percent. Further downside action
was fueled by the U.S. Weekly Initial Claims Report which showed an increase of
2,000. This number pegged total claims at 484,000, the highest level since
Technically, the Kiwi and Aussie are slightly oversold on
the short-term charts, but the daily charts indicate further downside action is
The New Zealand Dollar is nearing an uptrending Gann angle
at .7048 which could produce a technical bounce, but ultimately downside
momentum is likely to pressure this market into a 50% level at .6977.
The Australian Dollar broke an uptrending Gann angle this
morning, triggering stops. Look for an acceleration to the downside if the late
July swing bottom at .8904 is violated. Although its primary downside target of
.8644 is pretty far-off at this time. This pattern should not be taken lightly
since it suggests that a major fundamental development may take place which
drives this market sharply lower over the near-term. A combination of an
uptrending Gann angle and the 50% level of .8644 suggest that this price may be
tested on August 13th. Bad news from China may be the catalyst which triggers
a free fall.
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