Risk Break Out?
From Nic Lenoir of ICAP
The market continues to chop around aggressively in the 1,055/1,100 for the S&P future.
Copper has broken out which is one of the markets we had our eye on. The next big resistance beyond 317 is 328/329 (huge overlap and 61.8% retracement). The next two mornings we walked in to strong bids in the commodities space and higher equity prices in China. The Shanghai composite has lost 33% from the highs of the summer 2009, so the market has a lot of room to bounce and that's why maybe copper which is highly correlated to economic and market activity in the region has taken the lead breaking out. Note that the Nikkei has not recovered much from the lows so far but has held the key support at 9,090. I would be tempted to play long in that market at least since I see the future moving up to 10,600 if the bounce continues.
However more broadly the Bovespa which has been a key indicator representing the commodity/Emerging Market trade has not yet validated a market wide break out for risky assets, and we currently are right on the resistance formed by the 100- and 200-dma as well as the neckline of an inverted H&S. We would need confirmation of a break there to really feel strongly about the possibility of a prolonged move towards more risk appetite. Similarly AUDUSD has almost come back to test the 200-dma and the 0.8980/0.9060 zone should be relatively strong resistance. If bypassed then clearly expect quite a few more days like today.
With Fixed Income already pricing a double dip watch for weaknes there if the breakout occurs. The Bund almost saw the key resistance at 129.50 overnight and rejected it strongly, now we focus on a break of 128.10 which would mean further acceleration lower.
Good luck trading,