Hang Seng Index:
Today the markets are a little bit indecisive, as prominently evidenced by the massive dive by the US markets in late trading. HSI volume at this time of day is soaring, and it’s trading higher than its falling open but below its yesterday close. One and a half hours worth into trading, however, the volume is HUGE at about 1/3 to 2/5 of a normal trading day, when we have only done about 1/3 of the trading time. The afternoon session is normally more heavy on volume than the morning, so this is rather indicative of what is happening, and the 18 000 level seems like temporary elastic resistance. Again, following yesterday’s speculation on this blog, things are not looking up for the HSI despite a 4.2% rally yesterday. People are shifting volumes, so stay light on your feet!
We failed getting a clean break above the 20 week EMA yesterday, and even above the 4hr ditto which both came in at around the 1670 level. Price is trading off the 72hr SMA like clockwork for the last 18 hrs following failure to break that 1670 level and gold is trading highly technically with the fibs off the 1815-1533 level proving to be extremely solid. The 1675 top note? 50%. 1600 post-fall bounce? 23.6%. Currently trading at? Initial rejection of the post-drop rally? Both at 1642 = 38.2%.
Bulls have a lot to play for here with strong resistance but intense rewards and many stop opportunities should gold hit the 50% and leave the MA’s behind, while bears can be confident in having a strong set of technical indicators providing resistance, touches for further falls and signals to get out as well. A strong fall would leave bears and bulls flying freely after the 1540 levels, but that is a post for another day.
This little currency seems to be perfectly at home below 77 to the dollar. It’s had tripple strong rejections at 76.97 during the past week, and then fallen back to around 76.17-76.27 and traded off before rising again. Any push above 76.90 if you’re quick enough to spot them should be a buying opportunity, and get out at the first hourly close above 77. I keep expecting this to provide further falls, possibly touching 75.95 or lower, since volatility is dead at the moment (Noda can’t claim “excessive currency moves”) and if the ECB provides more stimulus/rate decreases there is simply no stopping the asset flight away from the euro. In addition, the passing of the tax package in Japan to fund reconstruction is a long term positive and shift of policy and could indicate that there will be policies to match to spur growth. At least capital spending will increase, and you remove one big factor of uncertainty. Search Bloomberg for videos interviewing Jesper Koll, head of Equity Research at J.P.Morgan for other reasons why one should be long yen.
What a mess… well, ok, things worked smoothly in Greece overnight, but that’s just a side show, as are the bond sales out of Spain/Italy today. Here’s what’s worrying: Thursdays German vote on the EFSF. And for everyone thinking that “it’ll pass, no worries, we’ll get on with it, things are fine”, here’s where they’re wrong: The EFSF proposal is another muddle-through decision! It absolutely cannot, under any circumstances whatsoever, run into problems in Germany or everything discussed this weekend that sent the markets up will be eradicated. What would be a problem? Merkel’s coalition has 330 seats and the vote needs 311 to pass. She can’t even keep her finance minister in line, that’s for starters, so who would honestly bet on anything short of chaos with other parties? Any vote short of 325 would be reason for the euro to nosedive to US$1.32 on future worries on getting votes for the EFSF expansion/leverage, since it shows that these politicians can’t keep public German sentiment at bay. Then good luck expanding/leveraging the EFSF in the coming months, or feeding it to Portugal, or actually just get anything out of Germany that shows they’re willing to put more money on the line to save the euro. Funny when they’re asking a pound of flesh from everyone else. (Although there are probably a few more pounds than healthy in Greece…)
In the meantime, if the EURUSD trades below 1.355 before the vote, and it comes in at 325 votes or less, you know what to do! It might be good to try shorting a few equity indices as well. I’d say go short even if the vote comes in positive and the currency is trading below 1.35, it feels weird discussing bailouts like it’s a positive for the respective currency…