The weakness we saw in S&P 500 futures over the last few weeks materialized today

Per-Erik Karlsson from Avantage Financial GMBH at 10/29/09

The weakness we saw in S&P 500 futures over the last few weeks materialized today and trading down through 1060 at the start of the US session after the weaker than expected US housing data brought sellers out in full force. We have warned that equities looked overdone and the weakness in the background of S&P 500 futures developed over the last few weeks materialized over the last few sessions in a dominant way and next key support is 1038 followed by 1020. The rising trend line from March 09 lows are coming in at 1035 today and a daily close below this trend line would signal an end to the rally from March. Also noting that the 23,6% Fibonacci retracement of this March to October rally is all the way down at 996, meaning it could easily fall quite a bit lower. Have been seeing more and more disappointing data over the last weeks, which is in line with our expectations. We have been looking for this to happen for some time. We continue to think the recovery will be much slower than what is priced in at the moment. Seems like the recovery is starting to pause and we point out that we remain very skeptical towards the fast paced recovery and think we will see more weak data out from most countries over the next few months as the stimulus packages are winding down . As we have mentioned over the last week, the Gold chart is showing weakness and a close below 1043 would indicate a potential top has been made (at least for the short term). JPY is the big story today and gaining strongly across the board as equities sell off. We generally think JPY has limited scope for a very strong rally as BOJ will most likely step in and prevent the JPY from moving much below 87 vs. USD. Remember that Toyota was out last week saying that if JPY got stronger they had to move their production abroad. We can mention it again as we have done over the past few months, Japan has really weak looking fundamentals with ageing population, weak domestic spending, huge public debt and now a strong JPY. That is not a good mix to have in our opinion and it is unlikely that JPY can sustain a substantial rally when the fundamentals are that bad. It is normally that JPY benefits from risk aversion and we don’t want to step against that trend just yet, but at lower levels in both AUDJPY and EURJPY we would favor longs. We continue to favor shorts in NZD as the latest rally has made the NZD overvalued in our opinion. Seems like the correction in EURUSD finally kicked in yesterday and most likely to test the key support at 1.4670 now to determine if the pullback is just a stop out of weak longs or if it is a true reversal. We expect to see buyers on a test of 1.4670 at least on the first approach down towards that level. made The weakness that we spotted in Crude and Nat Gas materialized over the last few sessions and a decent correction down towards some good support levels in both contracts were seen, so could see a new run higher now. Same with Wheat and Soybeans, both got hit hard last two days and basically made bearish reversals. Both are approaching some minor support levels in both contracts that should halt the slide somewhat. However we are looking for short setups in both contracts. We mentioned the VIX being very cheap Friday when it was trading below 21 for the front month contract. Today we are above 26 and moving towards 27. Now the move looks a bit out of hand and maybe worth looking at some options play for a correction back below 25 in the near term.

Technical’s 

Euro: Failed to get above 1.51 and the correction was triggered when it broke below 1.4850 yesterday and looking to test the key support at 1.4670, where the longer term rising trend line comes in. 

Cable: Made it up to 1.6693 (within in 57 pips of our target) before the ugly UK GDP figure sent GBP dropping like a stone Friday. The break below 1.65 now opens for test of 1.60 near term. 

USDJPY: Was rejected at 92.50 last week and trading down below 91.50 this morning, which opens for a test of 89.88 

Swissy: The break above 1.0155 opens for a run towards 1.04.

AUDUSD: The upper end of the long defined trend channel held it corrected lower towards 0.9110 support last few days. A daily close below 0.9100 would signal a top and open for a move towards the lower end of the trend channel, which is coming in at 0.8850 today.

USDCAD: Our upside target of 1.0590 was hit quite quickly and the next key resistance is now 1.0900.

EURJPY: Didn’t make it to 138.72, which was the key resistance, but stopped above 20 pips shy of this level. Monday’s reversal opens for a run back towards 134 and possibly 131 near term. 

GBPJPY: Reached our 153 target Friday, basically hit the September high to the pip at 153.26 and fell back hard on weak UK GDP data this morning. After breaking 150.50 it looks very much toppish and next support level is 148.47. 

AUDJPY: Reached 85 this Friday, but profit taking and weaker equities sending it briefly below 84 today. Looking slightly toppish and following the recent strong rally the pair has now made two down days in a row, which has not happened since start of October. We expect to see a correction towards the reaction high from August at 82.13 over the next weeks.