Why is the market moving counter to economic data?

Markets appear to be ignoring softer China numbers and euro zone data as European shares turn up — and growth commodities like copper and crude oil are following the broader markets.  Meanwhile, the “safe haven” money flow is slowing, shifting pressure away from gold and silver and onto the U.S. dollar. 

Image courtesy Shiny Things: http://www.everystockphoto.com/photographer.php?photographer_id=35481While the gold bugs are jumping and cheering, some traders are scratching their heads. Why are markets running counter to the current economic data? The answer is more technical than fundamental today as the “risk on” asset positions have been pounded for the past straight weeks with little to no correction activity.

The bulls have an opportunity to mount a correction now that the EU summit is over. Although the sound bites from the meeting are positive, in my view a little more of the same lip service could help out the bulls. 

The market is has pretty much priced in the seriousness of the already well-known headwinds facing the euro zone, global as well as emerging market issues like China’s deteriorating industrial output.

Baring another shoe dropping today, the door should be open for a corrective bounce as the market approaches the Greek elections in June — when new developments can produce enough negative headlines to allow the bears back into the driver’s seat.

A quick look at crude oil: traders find price is now testing resistance that was once supported at $91.50. If WTI breaks below support of $89.20, we could run and test a weak near-term support level at $86.70 that may not hold.

In that event, seek out the 18% Fibonacci extension level at $84.56 and look for the energy-weighted Market Vectors Russia ETF (RSX, quote) to break support as well.  

Turning to gold we find prices pulled back from the $1,600 level and across the May 18, 21 and 18th price action formed a solid evening star candlestick formation. Price the next dropped and then today has begun to test the candlestick formation. If price break below $1,534 low of yesterday’s trading, price could very well look for 18% Fibonacci extension level at $1,460.30.