Submitted by Nic Lenoir of ICAP
After pretty much two weeks waiting since what we thought was the last meaningful turn in risk appetite (towards risk appetite), I think the markets have reached a possibly key pivot area.
I will start with commodities where the pivot is the clearest on the day. Copper has retraced 61.8% of the recent sell off, and posted a quite nasty indecision candle on the day. If we gap lower tomorrow and close below 319 this would be a major evening star. Also note that today's pivot also corresponds to the level at which copper broke through the support of the bullish channel in place since March 2009. Gold similarly has hit an intermediate resistance at 1,120/1,125. As long as we do not post a daily close above that level there is risk to retest at least 1,074 before having a shot at further upside, and if we venture below 1,060 then we are headed for 980/1,008 which is the massive support zone (if broken this invalidates further upside for the medium term).
Fixed income is still holding on but we have two beautiful H&S in progression for the bund and the 10Y future. A break below 122.90 and 117-16 respectively should trigger quite a bit of downside, which remains our preference.
Equities are also on a relatively key pivot. Dax is a bit short of the 5,725/5,740 resistance be have a potential a-b-c correction completed with c=a here, and S&P futures resolutely refused to trade past 1,100 today. The key resistance is 1,100/1,107. A break of 1,092.50 would confirm we will drop to 1,080 and possibly 1,066 which is the key support.
Could we have a market in which commodities, equities, and bonds drop? Well, for one thing it would hurt the correlation high frequency platforms out there which could be fun for a change. The part that is hard to reconcile is the USD as EURUSD is already quite depressed so it is hard to iagine immediate downside here at least technically, and the dollar index has posted a perfect a-b-c with c=a since the lows, so something has to give. Our strongest conviction would be fixed income and copper here. Who knows, after all a weak USD with weak fixed income and weak equities would simply be a SELL US trade which happens every now and again. It only takes a leap of faith to believe commodities would sell-off in that environment. We will know shortly, and such an environment would have the stamp of deleveraging all over it!
Good luck trading,