Intraday Market Thoughts Archives

IRAQ, GREECE, EGYPT, All cradles of civilisation acting as key catalysts to major market tops. THE LAST TIME THE Dow-30 had 8 straight weekly gains was from March to late April. That winning streak was interrupted in early May coinciding with the MAY 6 FLASH CRASH. This week, the Dow-30 will have its first weekly decline after 8 straight weekly gains....

SIX MONTHS FROM NOW (when QE2 is over) we may look at the 12,000 top in the Dow-30 and 1,300 top in SP500 and say "Yes, this was Egypt". Last May we saw at the Market top and said: "This was Greece". Markets ALWAYS need a catalyst (even though it may not a directly relevant to market fundamentals) and this may be it, as it risk lifting oil prices despite already rising bond yields and high unemployment.

US TREASURIES COMPETE WITH GOLD AND OIL ON SAFE HAVEN BUYING as both rally alongside US dollar on intensifying violence in Egypt and implications for MidEast policy & oil flow.

I expect the US dollar to retain these gains while metals to began a gradual retreat back as equity indices deepen their declines. We mentioned this week that the last time the Dow-30 had 8 straight weekly gains was from March to late April. The winning streak was interrupted in early may coinciding with the Flash Crash.

HERE IS THE SP 500 CHART WARNING I POSTED ON MONDAY:

http://chart.ly/h5pxfc6

Understand the Cycles, Stay Ahead of the Curve, Take Action

CHINA WANTS TO SEE AN APPRECIATION IN THE VALUE OF ITS ACCUMULATING JPY HOLDINGS, therefore it can do that PARTLY VIA RAISING RATES. If NOT, JPY could continue to fall as GLOBAL BOND YIELDS RISE on INFLATIONARY FEARS (hawkish central bank talk, rising energy prices and actual rate hikes from EM).

US TREASURIES COMPETE WITH GOLD AND OIL ON SAFE HAVEN BUYING AS BOTH Rally alongside usd on intensifying violence in Egypt. ****** USD STABILISES on 3.2% US Q4 GDP emerging from primarily from a healthy combination of rising consumption (PCE +4.45% highest in 4 years) and improved net exports (next exports +8.5% from 6.8%). UNIV OF MICHIGAN 1-year inflation expectations index was revised to 3.4%, its highest since Oct 2008 4%, showing a clear pick up in expectations from the 2.2% low reached in September. This suggests that annual core PCE price index (Feds preferred inflation measure) will most likely have bottomed at 0.8% y/y in January and should give the FOMC hawks (Plosser & Fisher) reason to dissent starting in March. STERLING THE BIGGEST LOSER after slumping UK consumer confidence (see prev IMT). CLEAR FAILURE to regain $1.60 should gradually send flows back to $1.5660 and into $1.5580 support. USD initial inability to follow-up on post GDP bounce was partly attributed to Moody's report indicating a potential revision of US credit rating w/ in 2 years. But the aforementioned technical exhaustion dynamics underline that the US index remains well supported about the all important trendline of 76.

FOLLOW MY CONTINUOUS TWEETS ON DEVELOPMENTS IN EGYPT Twitter.com/alaidi as crowds gather near presidential palace & police shots reportedly directed at crowds. Further uncertainty in Egypt may raise the question of Event Risk on oil and possibly weigh on USD. *** GBP biggest loser after UK consumer confidence slumped to 22-mth low & biggest decline since 1992. BUT USD INABILITY TO RALLY despite decline in Oil and Gold is partly due to Moody's report indicating a potential revision of US credit rating w/ in 2 years. ALL EYES ON US Q4 GDP expected at +3.5% from 2.6% in Q3, but WATCH PERS EXPENDITURE, which could rise by as much as 4.0% showing the highest increase in 4 years (since Q4 2006). Such robust expectations suggest the US recovery is ongoingalbeit sketchy in terms of jobsbut may also mean the consensus sets the market up for a possible disappointment as it raises the bar of expectations. USDJPY longs and $GBPUSD shorts seen major movers on upside surprise, but any disappointment to weigh on OIL. GOLD seen breaking below 1300 to test the 200-day MA at 1288, while Silver expected to deepen losses into next week near 23.

ALL EYES ON US Q4 GDP due tomorrow expected at +3.5% from 2.6% in Q3, but watch personal expenditure, which could rise by as much as 4.0% showing the highest increase in 4 years (since Q4 2006). Such robust expectations suggest the US recovery is ongoingalbeit sketchy in terms of jobsbut may also mean the consensus sets the market up for a possible disappointment as it raises the bar of expectations. USDJPY seen as the preferred yen cross to gain, with interim resistance at 83.40, followed by 83.80 and downside holds above 82.20 support. NORWEGIAN JAN UNEMP RATE due at 8:00 GMT exp at 2.7% from 2.8%. USDNOK showing possible attempt to regain 5.8050, a break of which to extend gains at 5.86 based on daily stochastics. SWEDISH DEC Retail Sales exp at 4.6% from 5.3%. USDSEK does NOT appear as bullish as USDNOK but is worth a look for the bulls in the event of major disappointment. GOLD HAS FINALLY dropped below 1320, with 1285 considered as the next key target and silver being at 23 (as discussed in Sunday Workshop). ALSO KEEP AN EYE ON EGYPT around Noon GMT with the possibility of anti-presidential demonstrations to escalate after Friday Prayers. Talks that some Generals are calling for Mubarak's ouster (similar to what happened in Tunisia after 23-year of BenAli rule).

GLOBAL YIELDS BACK ON THE RISE, which partly helps explain the broad JPY decline. Aside from S&Ps downgrade of Japan, the broadening yield rallyshould further weigh on the Japanese currency. Expect USDJPY to regain 83.80s and tomorrows advance US Q4 GDP may well be the fundamental catalyst. Another of my short term calls is favouring USDCAD into 1.0025-30 as a preliminary target. GBP STRENGTHENS on better than expect CBI figures but GBPUSD remains well under the 1.6020 resistance. While UK 10-YEAR GILT YIELDS have pushed higher, we focus on the spread between GILTS/TREASURIES, whose yield differential stands at 0.28, which is BELOW the 0.29% seen in the chart here discussed on Sunday workshop. http://chart.ly/4dw75re See Aussie call in prev IMT

**** If you havent done so, please consider VOTING FOR ME ON TWITTER for the SHORTY AWARDS at http://shortyawards.com/alaidi (Please state a reason so that your vote counts).THANKS

S&P CUTS JAPANs sovereign debt rating to AA- from AA while keeping a stable outlook Yen has been hit across the board, but it is the USD that is broadening its gains, dragging the high yielders lower. AUDUSD DROPS more than a full cent, now at 0.9888, while GBPUSD off by over a half a cent to 1.5888. Although none of the FOMC members dissented at the decision to maintain QE2, there is escalating speculation that Philadelphia Feds Plosser and/or Dallas Feds Fisher will demand the end of QE2 as early as the March FOMC meeting. The fact that the FOMC mentioned rising commodities in yesterdays statement suggests the central bank may be scrutinizing any bottoming of disinflation. This means that each and every speech by voting Fed members will be closely watched for any new attention towards inflation, in which case will boost US yields and possibly support USD. One reason why US yields rallied after yesterdays FOMC decision (despite full consensus) was the mentioning of rising commodity prices. You can find details on GBPUSD H&S in part 7:15 mins. of my video http://bit.ly/cwG0W5 as well as SILVER TECHS. Aussie H&S remains intact w/ 1.0030 unable to be broken and 0.9860 as prelim support, folowed by 0.9820.

FED SHOWS NO DISSENT over monetary policy as it leaves rates unchanged. Here is Video Market Anlaysis on the FOMC PREVIEW, as well as charts on SILVER & GBPUSD. Note the RIGHT SHOULDERS remain in 1.0030 in Aussie and 1.6080s in GBPUSD.

http://youtu.be/5Dynp_VP_s8

Markets go into this evenings FOMC with the expectation of an upgrade in the Feds language while keeping the $600 bln asset purchase program intact until June. This combination of improved outlook and sustainable liquidity injection has contributed to maintaining the relentless rally in US equities. There is talk that the Fed may signal a bottom in disinflationary pressures after the headline version of personal consumer expenditure (its preferred inflation gauge) edged up 0.1% m/m following 4 straight readings of 0.0%. Yet, as long as the more important annual core PCE remains near its all time lows of 0.8%, there is no risk of any hawkish directive any time soon. Despite the introduction of 4 new members to the 2011 FOMC line-up (Plosser, Fisher, Evans and Kocherlakota), only Plosser may be expected to dissent against prolonging QE2 but not in Q1. EXPECT A CHOPPY SESSION ahead of the decision but with the risk of a fresh run-up in EURUSD testing 1.3740s. I STILL SEE BOTH Dow-30 and S&P500 ending the week lower, with as risk-seeking currencies unable to garner gains. AUDUSD is one example (failing to hold at parity before retreating to 0.9900s.

STELING BOOSTED BY THE UNEXPECTED ADDITION of 1 more hawk at the Bank of Englands Monetary Policy Committee. Martin Weale joined Andrew Sentence in voting for a 25-bp rate hike. GBPUSD seen testing 1.5920, but the downside bias of the past 24 hours remains intact as long as the $1.6060 resistance maintains the right shoulder. Similar formation seen in AUDUSD, whose right shoulder near 1.0030 is expected to trigger fresh selling. EURUSD momentum powers ahead, with a 70% chance of seeing $1.40 next week. Immediate resistance now stands at $1.3850. Remaining medium term bullish w/ EURJPY (one of my 7 trades mentioned in Sunday Workshop) eyeing 113.80. Equities are likely to show the habitual buying on FOMC days before profit-taking may ensue after the 19:15 GMT announcement. An improvement in the FOMC language may further boost yen crosses and maintain the status quo in favor of broad EUR stabilization.

MERVYN KINGs SPEECH on INFLATION indicated the BoE governor is no rush to raise rates. Here is the UPDATED CHART on the Gilt/Treasury yield spread the chart from Sunday's workshop http://bit.ly/fl4EW9 The H&S formation remains intact (as seen in the left chart). King said: With the standard rate of VAT rising to 20% this month, and recent further increases in world commodity and energy prices, inflation is likely to rise to somewhere between 4% and 5% over the next few months, before falling back next year. He mentions dismal recovery in private consumption, deep fiscal consolidation, high debt levels and high interest rates to homebuyers. We may see prolonged buying in US equities during the Wednesday session before profit-taking ensues after the FOMC decision, which could drive up bond yields on an improved outlook signalled by the Fed.

EUR BOOSTED BY STRONG DEMAND OF the EFSF EUR 5 bln bond issue thanks to reportedly strong demand from Asian investors (Japan govt buying 20% of the issue). The EFSF is the Eurozone bailout fund, designed as its own bond issue and not representing ant individual sovereign nation. But EUR may run into increased resistance as USD shows gradual sign of stabilization. GBPUSD eyes prelim target of $1.5660 ahead of Mervyn Kings speech at 19:40 GMT (bounce seen capped at $1.5860s). Aussie is still seen testing 0.9870, which should clear the way for 0.9720. My bearishness in the Aussie is moving into a higher level of confidence as global equities begin to falter (see what was said about the last time Dow-30 rose 8 consecutive weeks). Gold gradually making its way close to $1,300, with 1,285-89 as the prelim target. Silver seen testing $22.70. ARABIC SPEAKERS can watch Ashraf's interview on Alarabiya TV discussing UK GDP, interest rates and the 2 types of inflation (Cost Push & Demand Pull)

http://youtu.be/C4PgpIxSNv0

Ashraf's interview on Alarabiya TV (Arabic) earlier today discussing UK GDP, interest rates and the 2 types of inflation (Cost Push & Demand Pull)

http://youtu.be/C4PgpIxSNv0

GBP DAMAGED AFTER SHOCK GDP CONTRACTION of 0.5% in Q4 vs forecasts of +0.5%. 10 yr UK gilt yields dropped 13 bps and UK-US 10- yer differential drops by 8 bps to +0.20, lowest since Jan 7th. LOOKING BACK AT MAJOR CABLE DAILY DECLINES, these have averaged around 250 to 280 pips (from day high to low) . The LAST TIME CABLE fell by more than 300 was on May 13. THE TIME BEFORE THAT was on May 6 (Election Day & FLASH CRASH DAY). Ive already mentioned yesterday that the last time the Dow had 8 consec weekly gains was right before the week of the Flash crash. So you can make your own conclusions. Rarely has GBPUSD fallen by more than 250 pips in one day without following up w/ further losses in subsequent days. With Mervyn King speaking later today at 19:40 GMT, he could cause further losses in GBP as he reiterates his case against interest rates hikes, which many have begun calling for following the 3.7% CPI seen 2 weeks ago. BOTTOM LINE: GBPUSD seen extending losses towards the 1.5720 (55-day MA), with next key target standing at $1.5660 (100-WEEK MA). Subsequent target is the major trendline support at $1.5570.80. i will be on ARABIYA TV today at 12:40 GMT; 16:40 Dubai Time. **** If you havent done so, please consider VOTING FOR ME ON TWITTER for the SHORTY AWARDS at http://shortyawards.com/alaidi (Please state a reason so that your vote counts). ******

Watch Ashraf's detailed 10 mins interview on BNN about the ECB's hawkish talk, Ireland's changing political fortunes, UK inflation, this week's FOMC meeting and even this evening's Aussie CPI. http://watch.bnn.ca/#clip406236

AUSSIE FALLS across the board after Aussie CPI dropped to 0.4% q/q from 0.7%. I warned about these figures at my day-long Sunday workshop. As I argued in my BNN intervuew, I see Aussie falling by as much as 4% in the near term.

THE RACE TO 1300. S&P500 or Gold? S&PX WEEKLY CHART & the RSI tops. http://chart.ly/h5pxfc6 S&P500 pushes towards 1290 but 1300 is not expected. The S&P500 had its first weekly decline last week after posting 7 consecutive weekly gains, which was the longest since 2007. The last time the index had a peak-to-trough decline of more than 4% was in late November-early December. Dow-30 continued to push ahead as last it week it posted its 8th straight weekly increase. The last time the Dow-30 had an 8-week winning streak was in March-April, after which index dropped 13% coinciding with the week of the Flash Crash. This same time last year (Jan 20th) G5 equity began an 8-9% selloff that lasted 6 weeks. THE CATALYST WAS was Paul Volckers announcement to curtail banks proprietary trading operations. Both the S&P500 and the Dow-30 have exceeded all major technical measures (week and daily moving averages as well as key retracements). Aside from the Mar-Apr 2010 period when the Dow-30 gained for 8 straight weeks, it was back in Nov 2003-Jan 2004 when such an interrupted winning streak occurred. The time before that was in Jan-Mar 1998. As for a winning streak longer than 8 weeks, we must revert back to 1995 when the Dow-30 rallied for 10 straight weeks (Mar-May 1995). Fundamentally, WEDNESDAY's FOMC FOMC DECISION isnt expected to hint at curtailing the $600 bln QE2 program. The expected improvement in the FOMCs outlook (language) may help boost bond yields and allow USD some stability. Catalysts for any pullback in equities could well be downside surprises in earnings. But China tightening does remain at the top of the list of catalysts for the next leg down in gold, silver, copper and oil to the favour of the USD. FOLLOW ME ON TWITTER so as NOT TO MISS THESE UPDATES. Although I sent these updates by email to my subsciribers, you can get them the minute theyre released by following me on Twitter.com/alaidi http://twitter.com/alaidi

GOLD FELL BELOW its 55 and 100-day moving averages for the first time since July. The next Chinese rate hike (hike in interest rates and not just reserve requirements) is likely to occur on the Chinese New Year (Feb 3rd). The metal remains vulnerable to breaching below $1290/oz, which would denote a confirmed a break of the Oct 2008 trendline resistance. Key subsequent downside targets stand at $1,238 (55 WMA) and $1,125 (100 WMA). Only a breach below $1,100 would imply serious reconsideration of the secular bull market. AUSSIE PPI CAME IN weaker than expected (as warned at Sundays Workshop),which should means Wednesdays CPI will also be weaker than exp and cause fresh downside for the currency. AUDUSD managed to recover on the heels of renewed USD selling butselling the bounce remains the order of the day for AUDUSD as long as no close appears above 1.0040. THANK YOU who made it to the yesterday's Workshop. Great to see travelling from Tokyo, Moscow & Montreal. Those who want me to mail them an updated version of the yield spread charts or anoteh rother sldies, please feel freel to ask.