Stock Prices And Commodity Prices Expected To Lift Today

If Tuesday stemmed the global flood tide of equity prices, today will be even better. Surprised at the extreme negative reaction to the World Bank report on recession, and its likely impact on commodity prices, central bankers kicked into action. Today, the European Central Bank unveiled a Euro443 billion one-year re-fi program at 1%, which will provide the funds needed to relieve pressures in the credit markets. Equity prices and commodity prices are now expected to lift.

Yesterday, however, as traders were tentatively awaiting the ECB and FOMC reports, there was little action in equity markets. At the close, the DJIA (8,322.91 -16.10 -0.19%), S&P 500 (895.10 +2.06 +0.23%), and the NASDAQ (1,764.92 -1.27 -0.07%) were flat.

The Toronto Composite (9,896.72 +62.54 +0.64%) managed a gain, but the Toronto Venture Board (1,074.18 -4.48 -0.42%) traded lower.

Earlier in the day today, Austral-Asian markets were strong however as traders sensed the central bank easing to come today. Japan’s Nikkei 225 (9,590.3 +0.43%), Hong Kong (17,892.2 +2.02%), Shanghai (2,922.3 +1.02%), Aussie All Ordinaries (3,802.2 +0.24%) and India’s BSE 30 (14,422.7 +0.69%) were all higher.

Later on the European equity bourses, prices are also higher. The French CAC (3,138.8 7:00AM ET +0.70%), German DAX (4,745.4 6:45AM ET +0.81%) and UK FTSE 100 (4,236.5 6:44AM ET +0.15%) were up, but tentatively so as it will not be until 2:15pm ET (ie, with markets closed in Europe) until FOMC reports.

In quiet US trading yesterday, all sectors and industries were unremarkable. The best performing sectors were Basic Materials and Financials (XLB+1.3%, XLF+1.2%), while the loser was Consumer Discretionary (XLY -1.2%).

The leading industry group was the Goldminers ($XAU +4.1%), while Retailers ($RLX -1.8%) were losers.

Cara 100s that gained the most were the usual high-beta group of Russia’s Vimpel-Communications, Peruvian goldminer Buenaventura, and Canada’s Teck Corp (VIP+8%, BVN+7.1%, and TCK+6.5%). These winners were the prior day’s losers (VIP -12.9%), (TCK -11.9%), and (BVN -9.2%). Yesterday’s losers were Boeing, with a nightmarish Dreamliner that can’t yet fly (BA-6.5%), and Myriad Genetics (MYGN-3.5%) and Indian bank HDFB (HDB-3.2%).

The $USD tumbled against all the major currencies yesterday (79.84 -0.94 -1.16%). The Yen (105.05 +0.75 +0.72%), Cdn Dollar (86.95 +0.31 +0.36%), the Euro (140.81 +2.24 +1.62%), and British Pound (164.56 +1.16 +0.71%) were all very strong against the Dollar as the Fed moved in to support the huge Treasury offering of 2-year notes. Today and tomorrow will be more huge offerings of 5- and 7-year notes.

In US bond market trading, the US Treasuries followed up the gains on Friday and Monday with another gain. Yesterday, the US long Bond were strong ($USB 117.20 +0.84 +0.73%). The yields for 30-year (4.373 -0.56 -1.26%), 10-year (3.640 -0.53 -1.44%), and 5-year (2.685 -0.24 -0.89%) pulled back even further from last Thursday’s strong gains. Treasury bill yields lifted even more to 0.195, as traders sold some in order to raise cash to buy the longer-term notes this week, reflecting the easing in credit markets and the less need to hold liquid paper.

$GOLD stemmed the losses of the prior day (925.40 +2.50 +0.27%). That was not much, but enough to spur buying among the miners ($XAU +4.1%).

With the weaker $USD, Crude Oil was stronger (69.24 +1.74 +2.58%).

The Euro was a tad softer this morning (1.4035 -0.0041 -0.29% 07:40am ET), but still higher than this time yesterday.

Spot gold, palladium, platinum and silver are presently stronger at: (926.73 +2.68 +0.29% 07:54am ET); (235 +2 +0.86% 07:52am ET); (1162.0 +3.0 +0.26% 07:54am ET); and (13.91 +0.06 +0.43% 07:54am ET), respectively, with silver again leading the move higher.

US equity futures for the DJIA are indicating a higher opening this morning (8293 +36 +0.44% 07:40am ET).

Sensing an end to the weakness, yesterday we trimmed a bit of our short exposure as the market failed to test S&P 880 (low of session 888.86, closing at 895.1 +0.23%), deciding to book partial profits, positioning ourselves to re-establish shorts on any post Fed meeting euphoria.

W.D. Gann often talked about price and time as being interchangeable, measuring the amplitude of each vector, respecting the overbalancing of time or price. After an extended impulse move (in this case an advance), once an ensuing reaction exceeds the largest % decline in either time or price (overbalancing), a trend a change is occurring.

From the March 2009 lows each sell-off lasted between 2 and 5 days, each decline retracing between -5.5 to -6.6% from the preceding high. As of Tuesday the current decline has now lasted 7 days, retracing -7.04% off the 956 high on June 11. By Gann’s definition, traders should anticipate at least a short-term change in direction.

Consequently, in any broad market move higher, traders should look to sell or establish short positions on rallies back to resistance, with stops placed just above the highs of the most recent peaks. Be prepared for increased intra-day volatility around the announcement of the Fed policy statement at 2:15 pm today. Additionally, Tuesday had the narrowest high-low range in over 4 months, so buckle your seatbelts. Markets inhale, then exhale; sideways price action gives way to trend days.

Adjust your tactics accordingly for the next few days, anticipating wider ranges, and trend days in either direction.

May the force be with you.

Have a great day.

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