y Greg Peel

The Dow closed up 12 points or 0.1% while the S&P slipped 0.1% to 1113 and the Nasdaq fell 0.4%.

I asked the question in yesterday's report “which way now?” and it seems Wall Street is not yet ready to come up with an answer. After three consecutive triple-digit gains in the Dow, a fourth was a bridge too far. A fourth would have been significant, given it has never happened before in history.

Instead we managed only a small gain in the Dow, while the S&P 500 slipped slightly to be sitting right a-top its 200-day moving average – a level which the index has failed to breach on three separate occasions since the market fell through the 200-day in May. The S&P did close above the 200-day on Monday night, but 2 points is not confirmation.

I also noted yesterday that were the S&P to tick up over 1117, it all but dismisses a potentially bearish head-and-shoulders pattern on the chart, at least on a short-term basis. But my esteemed Editor was quick to point out that there is another way to view the current head-and-shoulders situation. Have a look at this graph and no – do not adjust your sets:

This is the same one-year graph of the S&P 500 I published yesterday, only it's upside down and back to front. To the right-hand side we note that over the period of nuJ and luJ we've formed a very nice reverse head-and-shoulders. And those are bullish. Again, we just need to knock off 1117 to confirm.

And then apparently if we move through 1128 we've knocked off the 100-day moving average, which is taken by some as a clearer picture of the shorter-term trend without the noise from the European panic earlier in the year. Of course you could go on forever with this stuff.

Back in the real world, last night saw a very positive earnings report from chemical producer DuPont (Dow) which featured both Street-beating numbers and upgraded guidance. This has been the trend for the past few days of the earnings season, but then along came US Steel (Dow).

US Steel doubled its revenue in the second quarter but still managed to make a loss given high iron ore and coal prices (damn that BHP) and an unfavourable currency along with weaker steel prices. Management forecast an uncertain third quarter before an expectation of some improvement in the fourth. Shares in US Steel fell 6.5%, offsetting DuPont's 4% gain.

Offshore companies also had mixed results. BP made a substantial loss, although no one was surprised. But if European commercial banks are struggling at present, and requiring stress tests, clearly European investment banks are in better shape. After solid results, Germany's Deutsche Bank rose 3% while Switzerland's UBS rose a whopping 9%.

On the US economic data front, there was good news from Messrs Case and Shiller. Their 20-city house price index rose 1.3% in May on a month-on-month and seasonally adjusted basis despite May being the month new home sales numbers fell 36%. The twelve month gain in the Case-Shiller is now 4.6%.

But the Richmond Fed announced its manufacturing index fell to 16 in July from 23 in June (zero neutral) while the Conference Board announced consumer confidence fell to 50.4 in July against an expectation of 51, and down from 54.3 in June. This is not a 50-neutral index and the best way to gauge it is to note that the period 2004-07 averaged a reading of 98.

The result for the Richmond manufacturing index corroborated the trend in July which has seen all of the New York, Philadelphia, Chicago and Dallas Fed districts note a slowing in activity – not a contraction, just weaker expansion. On Monday night the US national manufacturing PMI will be released and if it is decidedly weak, it could be the data point that determines the 200-day MA of the S&P is again too hard a wall to penetrate. On the Friday night prior, we will learn the first estimate of second quarter GDP. Expectations sit around 2.5% growth, so any variation could well be a trigger either way (even though the first estimate is usually wildly inaccurate).

In the meantime, Wall Street sat balanced in space last night given the various pros and cons noted above.

There were some interesting moves last night, however, elsewhere in the markets. I have been noting recently that for stocks to rally investors have to move out of the safe havens of US Treasuries and gold and back into risk assets. I have also noted that it's this time of the year gold will usually consolidate at a lower level.

Last night the US Treasury's auction of US$38bn of two-year notes saw muted demand at record low yields. The Treasury is gradually winding down its bond sales from huge levels over the past couple of years to fund fiscal incentives but lower supply did not translate into higher demand. The benchmark ten-year yield rose five basis points to 3.05%.

There was little movement in currencies last night. The US dollar index was steady at 82.16 and the Aussie ditto at US$0.9025. But gold fell US$20.50 to US$1161.60/oz. Silver topped gold's 1.7% fall by falling 3%.

Technical players were once again in the frame, with a fall through US$1175 triggering a fresh wave. We can bring up 200-day MAs again and note gold's is at US$1144, but I would not be surprised if we saw gold take a good look at the old high of US$1030 before the Asian buying seasons begin in September.

That's on the assumption we have no more major scares between now and then. Gold would also be supported were the Obama Administration to decide to renew fiscal stimulus in light of a now stumbling economy, perhaps by reinstating tax credits for new home buyers or even extending the expiry of the Bush income tax cuts.

Base metals did little more than take a breather last night, with the biggest falls being lead and zinc at 2%. Oil dropped US$1.48 to US$77.50/bbl with the consumer confidence release a major driver. Oil has again showed that its wall of resistance is the US$80 mark.

The SPI Overnight was a bit more positive after a couple of lacklustre days in the physical market. It rose 19 points or 0.4%.

Tonight in the US sees durable goods orders for June, while earnings highlights include Boeing (Dow), Comcast, ConocoPhillips, Newmont and Visa.

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