Weekend Update

We have been arguing since last week that we are looking at some sort of make-or-break situation across markets right now, albeit at very high levels. On Friday we saw the SPX 1430 level being violated to the downside and we closed the week just below 1430 at 1428.59. Technically (at least) the door toward SPX 1390-80 is wide open now, 1340-50 being crucial support.

SPX Near-Term Outlook
The thing is, a decline doesn't have to happen first thing this coming week. It is possible that we will stay in the known range for another week or two before we get any move of substance. Just as SPX 1430 was violated, the previously roughly 50-50 chances for a move toward SPX 1510-20 are starting to favour a move to the downside starting before SPX 1510-20 can be reached. Unless we trade through the SPX 1470-1472 area very quickly, new highs beyond SPX 1500+ by now should be seen as a low-probability bet. Any bounce failure around 1444-47 should be interpreted as immediately bearish, the same applies to a daily close below 1421.

DAX battle Line
The DAX is in a similarily ominous set up whereby any close below 7330 suggests further bearishness. A break of DAX 7175 on a daily closing basis would take it below the uptrend channel that started forming in June. A possible correction could take us toward the 2011 breakdown level at 6990, which would also represent the level of the 38% fibonacci retracement based on the extent of the most recent advance since June. In the very short term, the battle will be at the mentioned 7175-90 level. If that holds another attempt at 7300 cannot be excluded.

AUD remains in a range against the USD at the moment. We are seeing that the line in the sand at 1.0235 is in full play. Recently we have been spending a bit more time below that level and the reality is that by now it requires a weekly close at least above 1.0300 in order to be able to see some sort of upward chances in AUD/USD. This means that the bearish scenario is starting to gain traction again. Whatever happens early next week can be crucial. Any rally to the 1.0280-1.0320 area should be seen as a potential selling opportunity. Let's see how well this weekend's Chinese data go down...

EUR/USD is looking stable as long as it does not drop below 1.2925 on a daily closing basis. Any potential advance seems capped at around 1.3310 for the week. It is hard to see it get there anyway, the first hurdle being nearby at 1.3060. On a downside break first support can be expected between 1.2780-1.2830. The all important 1.2550 level is still out of reach for the moment.

USD/CAD has been stabilizing over the last several sessions and has still not initiated any directional move of significance. We are a little bit in no man's land there and a weekly close above 0.9830 is needed from here in order to let us expect more immediate action towards the upside. On the other hand only a move below 0.9680 on a weekly closing basis would suggest that CAD will go to even higher levels against the USD.

USD/SEK has traded very well over the last couple of weeks and is now quite overbought in the short term. This means a quick correction is actually wanted so it can generate a little bit of upside momentum before it gets on the next move higher. Anything above 6.60-6.61 remains pretty bullish in the short term. Spikes into 6.58 will surely by some be seen as a good buying opportunity, if they happen. The nearby target remains at 6.80 and last week's price action showed us that we might get there quicker than many think. We have briefly discussed the targets that would open up beyond 6.80 at 7.00+ last week and will pick up on it again once we see the pair near 6.80 again.

Precious metals have started to look a little exhausted this week and came off into the close of the week. If current levels in Gold around $1750 and Silver around $33.40-80 hold there might well be another run higher in the short term. Otherwise a correction looks inevitable. Important support in Gold comes in at around $1640-50 and in Silver at $32.20 as well as $30.00-30.40. Without a break through $35.20 we have to assume that the advance in Silver got stopped.

Why So Tired?
So why is everything looking "tired" or "heavy" or "exhausted". Well, it's because most of us feel like that. The sum of the parts leaves its mark on the charts. It's also true that nobody seems to know with certainty at the moment for how much longer the can will get kicked down the road. US elections are coming up and it is increasingly looking like a close call. Romney could walk away as the winner and it is not hard to guess that most market participants would interpret that as immediately bearish, as Romney is expected to be more tight on money matters than Obama has been so far. Not to mention that it is likely that Bernanke would lose his job as a consequence of a potential Romney win. Is it this we are all chewing on at the moment? It could be.

The rest of the world seems equally undecided. While Schaeuble to many sounded tough in Tokyo, he was quite outspoken when he made the case for Greece remaining inside the Eurozone on his visit in Singapore today. It has been like that for most of this year, a bit more socialism here and little less there. Well, as long as the bond markets of the still solvent nations are holding it all together, a bit more or a bit less socialism remains an option.