Market lacks direction
July 22nd, 2010 by Katy Loi
The Dow closed down 109 points overnight spurred by Federal Reserve Chairman Ben Bernanke’s comments in a testimony to the Senate Banking Committee on the uncertain economic outlook. Concerns are that he did not suggest any extra measures to boost growth however, he reinstated that central bankers will act as required. The initial reaction by the markets was mixed, as the equities market sold off and treasuries rallied. The U.S. dollar index moved higher and to the session high, while crude oil prices sold off; both of which added downside price pressure to gold. Bernanke, gave more detail on the Fed’s commitment to maintain low interest rates.
Trading in gold was light ahead of the stress test results for European Union financial institutions, due out Friday. Any signs of EU bank weakness coming from the stress test results are likely to quickly put a bid back in the gold market, on renewed safe-haven buying. Reports overnight said better physical demand in Asia recently is also keeping the gold market supported. Technically, gold market bulls still have the overall near term technical advantage as trading has turned choppy recently despite prices being in a five week old downtrend on the daily chart. Bulls' next upside technical objective is to produce a close above solid chart resistance at last week's high of $1,218.80. Bears' next near-term downside price objective is closing prices below solid technical support at $1,168.00.
This morning our market will open 41 points lower, potentially testing support at 4354 initially where the 20 day moving average sits. Beyond this, the next level of support will be 4329 which is a 50% retracement from the rally we have seen from early this month. The last 5 sessions has shown lack of direction as the market has been moving with a lot of focus on US corporate earnings. Domestically, a good sign is that the environment for Corporates is very conducive for growth where borrowing costs are low, companies and private equity are cashed up. Merger and acquisition activity has been quiet and may start to pick up as companies who raised new equity in the peak of the crisis will be encouraged to start deploying funds to return profits to investors. Technical resistance targets for our index are at 4411, then 4477 in the short term.
Contact your Freeman Fox Stockbroker on 07 3031 9960 or 1800 003 369 Ext 7.
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