Broad buying pushes US equity market to rally strongly

Rivkin Investment Team

3 Aug 2010

US equity markets rallied strongly on Monday, with the Dow Jones gaining 208.44 points (+1.99%) to close at 10,674.38, while the S&P500 added 24.26 points (+2.20%) to finish the session at 1,125.86.

The buying was very broad based, with all 30 Dow stocks and 474 (94.8%) of the S&P500 constituent stocks closing the day in the green. In addition, all ten sub-sectors which comprise the S&P500 closed the day higher, led by the oil and gas (+3.51%), basic materials (+2.92%), and financials (+2.40%).

As evident on the chart below, prices are back retesting the June highs at 1,131.23, which coincides with the 50% retracement level of Wave A (pink). While higher levels appear likely in the very near term, we don’t believe this rally is the start of anything significant, and continue to look for a high at or slightly above current levels. The 61.8% Fibonacci retracement level is found at 1,151.41, a level where corrective moves often terminate.

The ASX SPI200 (September 10) futures gained 64 points in overnight trade, to be currently at 4,569, suggesting a strong start to our trading day.

Looking at the currency markets, and the US dollar was weaker across the board, with the US dollar Index declining by 0.601 points (-0.73%) on Monday to close at 80.938, the lowest level since mid April. It has been a straight line lower for this Index over the past two months, with prices now some 8.92% below the June 7th high of 88.708. Technically, prices have now retraced to within the 50% to 61.8% Fibonacci retracement zone of the entire November 2009 (low of 74.17) to June 2010 advance (high of 88.708). If this current decline is merely a correction of the November 09 to June 10 rally, we would expect buying pressure to emerge at or around current levels.

The Norwegian krone was the best performer against the USD over the past 24 hours, gaining by 1.88%, followed by the Swedish krona (+1.59%), British pound (+1.26%), and Australian dollar (+1.05%).

Commodity prices continue to rally, with the CRB Index gaining 2.5 points (+0.911%) to close at 276.85. Spot gold is currently trading at US$1,180.35 an ounce, while crude oil for September delivery is at US$81.40 a barrel, the highest level since mid May.