Equity markets continued to stabilize Tuesday after big losses last week as a number of conflicting developments left investors continuing to search for direction. On the positive side, Ford (NYSE: F, Stock Forum) continued to build on yesterday’s positive earnings news with the announcement that October sales were up year over year, and above Street expectations. It also was a big day for takeovers as Warren Buffet’s Berkshire Hathaway (NYSE: BRK, Stock Forum).A launched a $100/share, $44 billion takeover bid for railroad Burlington Northern (NYSE: BNI , Stock Forum) while toolmakers Stanley Works (NYSE: SWK , Stock Forum) and Black & Decker (NYSE: BDK, Stock Forum) agreed to merge in a $4.5 billion stock deal. Mr. Buffet’s deal appears particularly significant. A renowned value investor stepping up to the plate in a major way even after the big bounce of the last six months suggests that some investors still see value out there; the move could be viewed as indicative of a long-term recovery trend. It also suggests that sentiment supporting the belief that the global economy has turned the corner continues to grow.
The main question that continues to hang over markets, however, is how fast might a global economic recovery proceed, And have equity prices factored this in, or have expectations – previously too despondent – become too optimistic for now? News overnight of a second round of UK bank bailouts appears to have tempered recovery expectations somewhat, leaving equity bulls and bears in balance once again. This can be seen in the Dow Industrials (US30 CFD), which have stabilized in the 9,700-9,800 range over the last couple of days with next resistance near 9,900 and support near 9,600.
It appears that investors may now be looking toward the big economic news scheduled for later in the week to set the tone for the rest of the month and perhaps the rest of the year. Tomorrow a US FOMC interest rate decision is scheduled. Investors may key in on any comments related to the pace of economic recovery in the US and any statements related to its emergency liquidity programs, particularly on how or when these programs may be removed. Later in the week, UK and ECB interest rate decisions and employment reports for the US and Canada may also be closely scrutinized.
Commodities update: resources drive ahead on US dollar drop
Commodity markets have been generally positive today with precious metals leading the way higher along with grains, which suggests that renewed USD weakness may be playing a key role in supporting this rally along with recent crop reports. Gold has broken through the $1,075/oz level and has been trading above $1,085. The next potentially significant resistance may appear in the $1,125-$1,140/oz range based on measured moves from previous trading ranges. Silver has also been on fire today, storming through $17.00/oz with next resistance near $17.50 then $18.00/oz on trend. Selected grains have also been moving up today with soybeans leading the way breaking through $10.00/bushel, followed by corn, which has been trending toward a test of $4.00/bushel resistance.
While copper and crude oil have also been advancing today, they have remained short of key resistance levels and continue to trade in the $77.00-$80.00/bbl and $2.90-$3.00/lb ranges respectively. Natural gas has been under pressure again today, possibly due to warm weather, sliding below the $4.25/mmbtu level.
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This commentary is based upon technical analysis. Technical analysis is the study of price and volume and the interpretation of trading patterns associated with such studies in an attempt to project future price movements. Technical analysis does not consider any of the fundamentals of an underlying company, and as such is inherently uncertain and should not be the only factor considered by an investor in making an investment decision.
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