Bullish Failure?

Posted by Graham Parlane on 9 July 2012

All

Last week I reluctantly suggested that equity markets and ‘risk’ could turn north in response to the Eurozone developments of the previous week. Those thoughts were made on balancing weak data against the possibility of central bank responses which I thought would bolster sentiment.

However, after a week where we saw China surprise and cut interest rates, the UK expand their quantitative easing program and the ECB cut interest rates, global equity markets have failed to take solace from the central bank moves and ended last week lower than they started. The very weak global manufacturing PMI’s and the tepid U.S jobs report certainly overshadowed the stimulus moves. That, I’d imagine, is not a good sign.

In the wake of last week a number of ‘risk on’ instruments are displaying potential ‘topping’ signals.

NZD/USD – Dennis Gartman often likes to return to a trade in the 50%-61.8% box of the previous move. The NZD/USD in this instance traced out a ‘shooting star’ reversal week right from the 61.8% bounce of the last fall. No joy from central bank actions + sharply falling commodities (our dairy prices fell nearly 6% last week) suggest downside is again back in vogue. The AUD/USD is almost identical.

NZDUSD – Click here to view chart

S&P500 – The daily chart of the  ‘big board’ in the U.S. paints a similar picture. Whilst the index stays under Thursday’s high the technicals look bearish.

S&P500 – Click here to view chart

There are two obvious game changers lurking in the background. Any certainty that the FED will come riding over the hill with QE3 will change the dynamic as will a wide ranging agreement from European policy makers. Until then it appears that the doom scenario may again hold sway.

G.

Tags: AUD, AUDUSD, China, ECB, Equities, Eurozone, FED, Futures trading, FX trading, NZD, NZDUSD, S&P, USD