The BOJ held its policy steady last night and met analyst expectations. What they did not do was indicate any need increase policy or make a move to help reduce market volatility. It was the lack of effort to reduce volatility that caused all the volatility. . . which is funny because I think if the BOJ had made an additional move that would have caused some volatility. The Nikkei ended the day down more than 1% but the move is really miniscule when compared to the massive 3, 5 and 7% drops the index has seen over the last month or so. At this time the Nikkei index is still above support at 13,000.
Needless to say the yen reacted strongly to the news as well, climbing sharply versus the dollar. The USD/JPY fell by more than 2 handles to near the two month low. The volatility is of concern for short term traders but the indicators may be pointing to a longer term buy for this pair. European shares followed in the footsteps of their Asian counterparts, shedding roughly 1.5% across the board. European markets found some support after our markets opened but did not recover the days losses. The euro tried to gain against the dollar but fell back from long term resistance.
At first it seemed like the S&P, Dow and NASDAQ were going to trade down for the day. The S&P futures were indicating an opening about 14 points lower than yesterday's close. This put the index opening just above the 30 day moving average and an important near and long term level of support. Early trading carried the index below this level, briefly, where some buying kicked in sending the index back above. The indexes climbed to touch the break even mark before moving back down to the day's low. Violence in Turkey was part of today's problem and bears some of the blame for the late day sell off.
There are many signs of possible continuation in the market today. The S&P 500 is showing signs of a long term bounce and so is the DOW and the NASDAQ. There is also the possibility that prices will just keep falling too. Looking at the charts of the DOW we can see the same test of support and bounce after the NFP as on the SPX. Bearish momentum is subsiding in the near term and stochastic is showing an early buy signal. Of course you have to believe in the long term trend for that signal to really count. Near term resistance, which may prove to be long term resistance, exists around the recent highs near 15,500. Keep a close eye on the 30 day ema and support at 15,000.
The NASDAQ is in the exact same position as the blue chips and broad market. The index is retesting the support bounce seen last Friday with the NFP release. Be on the look out for a bounce or a break from the current level. If the techs can break above their near term resistance at 3,500 then this index could run up another 300 points. If not then the downside targets exist There is a lot of fear in the market concerning Fed policy, the state of the economy and now the BOJ. The fears of tapering are slowly diminishing, we'll have to wait and see if the index and indexes can break above their respective resistances. Economic data that could impact market direction include the mortgage index tomorrow and jobless claims/retail sales on Thursday.
Today's economic data was light but positive. Wholesale inventories rose by an as expected 0.2% while sales of wholesale inventories rose by a much greater than expected 0.5%. The previous months sales data was also revised up. This could be another good sign for the economy and the market. If inventories are rising while sales are on the increase then manufacturing must be on the rise as well. This may not result in new jobs but it should result in at least less lay-off's. Market breadth at the open was largely negative, nearly 100% down in the first 10 minutes. The tide change at 10AM when wholesale inventories was released.
The BOJ Moves As Expected
The BOJ wasn't expected to make a change and they didn't. And the Japanese market did not like it. Sometimes tough love hurts. From what I have read the market was disappointed because the BOJ did not address market volatility. This seems like a move driven on expectations and emotions rather than fundamentals or trend. The yen's reaction was to strengthen versus the dollar but a look at the charts does not support this move. The USD/JPY is trading below the 30 day moving average and the 100 support level which will provide upside resistance. However, the pair is also bouncing from a long term support around the 95 level with an early stochastic buy signal like the ones on the index charts above. Applying a Fibonacci Retracement to the chart reveals some interesting price action at the 23.6% level. There may be some more volatility in this pair near term but longer term it looks like a retest of the 100 level is likely and the 103.75 level is possible. Support at this time is 95.
Gold Moving Lower
Gold broke down below the $1390 and $1380 levels, trading as much as $21 in today's session. I have been waiting for a retest of the lows around $1326 and this could be it. The spot price is not too far away, just $40-$50. One or two down days could bring gold to that level. The Gold Index has been tracking the price of the base metal may be about to test long term support. The index MACD is close to neutral in the long term but the peak progression analysis points to lower prices at this time. In the short term bullish momentum is about to turn bearish as the index approaches support while at the same time stochastic has plenty of room to move down. The $110-$111 level will be important to watch, a break below here will likely result in a 100% retracement of the 2009-2012 bull market.
Lululemon, the yoga apparel giant with the see through pants problem, reported earnings Monday night. The company made a huge miss, blamed on the pants fiasco, and reported $0.32 eps versus $0.72 in the previous quarter. Shares took a big hit in after hours trading and then another this morning when the company announced that the CEO was leaving. The stock fell more than 16% in total with a huge spike in volume, more than 15% of shares outstanding.
If we think of Lululemon as the end of the earnings rotation then we can also think of Oracle as the beginning. The software and network giant reports earnings next Thursday and is preceded by Redhat on Wednesday and Adobe on Monday. These companies all reported better than expected last quarter with semi-positive outlooks for this quarter. Oracle is the only one with an earnings estimate consensus greater than last quarter but none are expected to earn less. Oracle gapped down with last quarters earnings release and has since recovered the loss and closed the window. The stock is now trading above a long term support and the short term moving average. The last few days has seen the stock test that support and bounce higher. Indicators are neutral and suggest range trading with an upward bias at this time. There was a lot of options volume at the $34 strike for this months expiration (next week) and next month.
Competitor Redhat has not been faring as well. The stock had been up toward the top of the longer term trading range a month or so ago but has since fallen to below short term support. I scanned back through the headlines and could not account for the decline. Redhat is expected to earn around $0.22 per share versus the previous quarters $0.25.
Since reaching the top of its range relative to the current rally the VIX has fallen. Friday morning the index gapped lower, today's S&P gap lower resulted in an opposite gap higher for the VIX which closes Friday's window. Tapering fear brought volatility to a near boil but now that those fears seem to be subsiding, if slowly, the VIX appears to be settling down as well. Look to the 15 level as support for the VIX. A break below would be bullish while a bounce could result in further downside for the general markets.
Financials Topping Out?
The banking index may be topping out. It has made a series of three tops that could easily become a head&shoulders. The $60 level would be the neckline and is the line to watch. The long term trend is still up and the indicators are bullish, however, in the short term indications are weak and without true direction. With Oracle releasing earnings next week we can expect to hear from the big banks a few weeks later. Fear, speculation and economic data will weigh on the sector until then. The short term stochastic is forming an early buy signal like the broader market but with the potential top in place I am much more cautious with this sector. A break above $62.50 would be bullish for this index while a drop below $60 bearish.
The Banking Index
The S&P closed the day in the negative but off of the day's low. It seems as though there are buyers along the long term trendline and maybe even short term traders along the 30 day EMA. The news from Turkey did a lot to depress today's trading. Hopefully it will end soon for the poor souls affected. I am looking for data to help drive direction, Thursday's unemployment release could help confirm direction.
Until then, remember the trend!