S&P Following Up of the Short Term

This is just a brief follow up since tomorrow morning I will be busy and today’s inconclusive price action with another small range body (Spinning Top) does not add anything new to the short-term potential scenarios I have discussed in the weekly technical update.

For the immediate time frame price remains range bound between the immediate support at 1398.23 and the immediate resistance at 1423.73.

Theoretically, despite being close to a potential break out the daily Spinning Top is suggesting weakening of upside momentum, but it is unlikely to expect a meaningful pullback ahead of the FOMC.

It seems that the market remains, so far, careless to Risk off news from Europe and a potential, at least, short-term reversal of the EUR, the approaching FOMC meeting may be the reason behind this benevolent attitude.

Therefore, at the moment there is no clear edge within the potential EWP options that I showed this Sunday.

Also, it is strange that at today’s EOD we have VIX up Equity up and bonds up.

Below in the 30 min SPX I show the same ideas:

sp-short-term-bullish

Additionally, the scenario of a ZigZag with a wave (C) unfolding an Ending Diagonal is still possible as long as 1410.90 is not breached.

If this ED pattern plays out it could have a bearish outcome by ending the assumed wave (B) off the September 14 high since we would most likely have negative divergences in the final wave (V) of the ED.

sp-short-term-bearish

Conclusion:

Regardless of a potential pullback I maintain a bullish bias (until technical evidence shifts to the bears camp) since the pattern off the November lows is not complete yet.

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EURUSD (Await fresh signal)

eur-usd

Testing support at 1.2875.

• EUR/USD has weakened after failing to break
the resistance at 1.3140 (17/10/2012 high).
Monitor the test of the key support at 1.2875. An
hourly resistance is at 1.2973 (07/12/2012 high).
Another support can be found at 1.2834
(intraday low).

• The underlying trend is negative (see the
succession of lower highs since May 2011 peak).
Therefore we expect limited upside potential
given the strong resistance at 1.3172 (17/09/2012
high) and the overall overbought conditions.

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Global Market: Short Term View

SPX Long Term

My preferred wave count is similar to the idea I posted some weeks back on the DAX and that I suspect the SPX is inside a 5th wave for an ending diagonal so likely to chop higher into Jan-Feb period next year before a meaningful high. It would need a seriously strong break below the 200DMA on the SPX before I would switch to an alternative bearish idea, whilst this market continues higher I still prefer the bullish option over the bearish option.

Although I am certainly no perma bull and calling for SPX 2000 or anything like that, recent price action over the last few days suggests the market is simply correcting the advance from the Nov 2012 lows and likely to push higher once the correction has finished.

shor-term-sp-500

When you look at other US markets we can clearly see the same sort of shape, especially markets such as the NYSE. The last decline from the September 2012 highs was a 3 wave decline as we can clearly see the NYSE is pushing higher as I suspect it would, but is lacking the new high it needs to complete its idea.

More Information Click Here

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S&P 500, Inverse “Head and Shoulders” Pattern Continues to Play Out as Heavy Week of Economic Data Begins

The first week of the month is always the most interesting, with global purchasing managers indexes, U.S. ISM’s, and employment data released.  Overnight we see continued weakness in Europe’s economic data and perhaps some more “green shoots” in China.   Europe is sporting “beige shoots” at it is reaching the stage where things are so bad it is difficult to go down further.

  • Euro-zone manufacturing activity contracted for the ninth consecutive month in November, albeit at a slower pace than in October. Markit’s Eurozone manufacturing Purchasing Managers Index (PMI) rose to 46.2 in November from October’s 45.4, though it stayed below the 50 mark dividing growth from contraction for the 16th straight month.
  • The new export orders index was revised up to 46.4 from the preliminary reading of 45.9 two weeks ago, and it now reads more than a full point higher than the October reading.
  • Manufacturing accounts for around a quarter of the euro zone’s private economy and is dwarfed by a services sector that fared badly in November, the data two weeks ago showed.

China seems to be “recovering” not due to the private sector, but government led:

  • The final reading for the HSBC Purchasing Managers’ Survey (PMI) rose to 50.5 in November from 49.5 in October, in line with a preliminary survey published late last month. It was the first time since October 2011 that the survey crossed above 50 points, the line that demarcates accelerating from slowing growth.
  • An official PMI survey of China’s non-manufacturing sectors also ticked up, to 55.6 in November from 55.5 in October, led by expanded activity in construction services. But growth in air and rail transport and food and beverages both slowed.
  • Growth accelerated for large firms for the third month in a row, but medium and smaller companies saw a retrenchment, with the decline more pronounced for the smaller firms, the NBS said in a not accompanying its official manufacturing PMI survey. “The improving numbers are mostly because of government investment,” said Dong Xian’an, economist with Peking First Advisory, referring to the official PMI.

As for the U.S. we have ISM Manufacturing this morning at 10 AM; consensus for 51.7 – flat with last month.  Construction spending also hits at 10 AM – expectation 0.4% growth.

Wednesday ADP employment which hopefully with some recent changes is “somewhat” closer to government data on a month-to-month data (before revisions) – expectations of 125K versus 158K.  Sandy should be an issue.  ISM Non Manufacturing, expectations of a drop to 53.6 versus 54.2.

Friday is the much watched (Jack Welch) employment report – expectations of only 80K versus last month’s 171K, again Sandy impacts here.  Unemployment rate expected up to 8.0% versus 7.9%.


As for the technical picture, we have a gap up this morning on any myriad of “positive” news items – China PMI (despite China stock market falling yet again), European PMI not getting worse (European markets acting WELL), or Spain asking for bailout funds for its banks (no surprise, but algos read the headline and futures popped).  Evidence continues to mount for a continuation of an inverse “head and shoulders” bottom move; if this continues there should be a move to the mid 143os to upper 1440s (depending on what you use for the head and neckline – up for some interpretation).   Now if that happens this would create the first “higher high” in the S&P 500 since the correction began in mid-September, but if that is all the move has in it would be a particularly nasty spot to reverse since everyone would say “a new high” and the trend is changed.   But we’ll see – this market has become famous since 2009 for “V shaped” moves that continue in one direction (not the boy band) without relent so the talk of “performance chasing” and “underinvested longs” and “repeatedly scarred shorts” should be relentless over S&P 1435.

At the time I write this the S&P 500 is gapping up to the 61.8% retrace of the entire two month correction.  As posted Friday, the ability for the market to move sideways to consolidate gains was a positive – so the corrections in this move up have come mostly via time rather than price.

sp-500-Head-and-Shoulders

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S&P 500, Dow Jones and EURO

Yesterday SPX fulfilled the script of a narrow range body, it’s the common candlestick (in this case a bearish Hanging Man) that usually follows a white Marubozu. It means consolidation of the previous gains and hesitation.

This pattern could evolve into a bearish reversal pattern ” Evening Doji Star” if today we get a gap down and go. But this is not my preferred scenario.

Regarding the overall count from the September 14 high, I don’t even change a comma, since I remain firmly confident that the current “countertrend” rebound will top in the target box that I have been highlighting in the last few days. Critical overhead resistance is now not far away, either 1397 or a kiss back at the previous trend line support off the October 2011 now converted into resistance.

Once/if price confirms my preferred scenario the last wave (C) down, which could match the length (89.1 points) of the previous down leg; wave (A), is expected to complete the EWP off the September 14 high, hopefully with positive divergences.

For the short term the 10 d mas = 1375.17 could be the demarcation between a mild pullback and something more bearish.

sp-500-price

Regarding the labelling of the current rebound so far we have a 3-wave up leg or a corrective variant (DZZ) therefore we have 3 options:

  • The “oversold” bounce is over ==> the wave (B) is done.
  • Price has established the wave (Y) of a larger Double ZZ.
  • Price has established the wave (A) of a larger Zig Zag.

So we need to see the internal structure of a pullback in order to increase the confidence on a count.

For the immediate time frame yesterday’s down leg after completing an Ending Diagonal suggests that there should be at least one more down leg.

sp index

As I mentioned yesterday I am watching:

1. EUR: “Since in my opinion the internal structure of the rebound off the November 13 lod is clearly suggesting that in the near future price has more business to the down side. So far bulls here are struggling to reclaim the 200 d ma, which coincides also with a strong horizontal resistance, while slightly above there is the steep declining 20 d ma. Barring “good news”, with the current weak structure, which could be shaping a bearish Flag, price should reverse in the range of the Trend line resistance in force since the October 17 high and the next horizontal resistance at 1.2876″.

So far price is maintaining the sequence of higher lows hence if price breaks above 1.2840 (trend line resistance off the October 17 high) then within the corrective pattern in progress price could extend the move towards the next resistance located at 1.2876.

euro

2. VIX: we now have to watch the trend line support and the possible “sell equity signal” that would be issued with en eod print above the Bollinger Band of the Envelope > 15.50.

Yesterday’s doji + oversold Stochastic are favouring at least a bounce attempt, although ahead of Thanksgiving holiday it may not be a reliable indicator.

sp-500-vix

I wish a wonderful Thanksgiving to US readers.

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Fiscal Cliff Navigation Tactics

Nov 20, 2012

  1. Earlier this year, Goldman Sachs’ Peter Oppenheimer said that compared to bonds, US stocks were the cheapest in 50 years.
  2. If Peter is correct, that could be good news for your gold stocks, because there is an ongoing correlation between the Dow and most gold equities.
  3. Unfortunately, Goldman also believes that the fiscal cliff situation could drive stock markets 8% lower by year-end.
  4. You are looking at the daily chart for the Dow, and you can see that it made a small top in mid-September. It has declined about 8% from the high.
  5. Gold stocks are more volatile than the Dow. GDX declined about 18%, during the period in which the Dow fell 8%. There is a lot of symmetry between these two charts.
  6. If the Dow is set to fall another 8% from the lows of last week, GDX could fall another 18% from its recent lows. That would put GDX at about $37, and below the May-July lows.
  7. Some of the largest gold companies are already trading near their summer lows, which is somewhat alarming.
  8. If you own a home, it is wise to purchase home insurance. If you own gold stocks, carrying some cash and short positions is a form of insurance. That’s the daily chart of DUST, which is effectively a triple-leveraged bet against GDX. The performance is calculated on a daily basis. I’m a buyer, moderately, in the $28 and $22 areas.
  9. What would happen to gold stocks, if Goldman Sachs is correct about the Dow falling another 8%, and then they called for an even harder fall, instead of a rally?
  10. The situation could get quite ugly. A small position in DUST may help gold stocks investors to professionally manage fiscal cliff fear.
  11. Gold recently sold off along with the other so-called “risk on” markets, but it bottomed quickly. The daily chart shows a nice head and shoulders bottom pattern in play.
  12. The daily gold chart looks superb. The H & S pattern sits near the demand line of a beautiful rising channel.
  13. HSR (horizontal support & resistance) at $1758 is the initial upside target, and then $1800. A “price pop” to the $1825 price zone could be a game changer for gold stocks.
  14. Silver looks even better than gold. Yesterday’s price action was important, because it took silver above the neckline of a head and shoulders bottom.
  15. At this point in time, gold has yet to rise above its neckline, so silver is clearly the leader.
  16. Silver seems eager to race to $35.50, and if gold can rise above $1800, that could catapult silver into the $40 range.
  17. There’s more good news. Ben Bernanke makes a speech in New York today, and he may give more hints about ramping up QE3. Currently, QE3 is being “diluted”, because the Fed is selling short term Treasuries.
  18. There are rumours that the Fed may cut back on that practice, or even halt it, before the end of the year. If “Big Ben” speaks boldly about ending the dilution of QE3, gold and silver could spike higher, very quickly.
  19. Most investors in the gold community like speculative resource stocks. If you are looking for action, my favourite play right now is the “Global X Gold Explorers” fund.
  20. At about $8 a share, the GLDX ETF is something that is probably priced “just right”, for action-oriented investors. In contrast, GDXJ is trading at about $22.
  21. It’s a lot easier to look down from $8, than it is from $22. Aggressive investors should considering accumulating GLDX on every 25 cent decline, inside the highlighted $7-$9.75 “price box”.
  22. I like both GDXJ and GLDX, but there’s no question that GLDX is a lot easier to handle, emotionally.
  23. A move above $1800 in gold could be the catalyst that takes GLDX above $10. From there, the target would be $13, which is about 50% higher than today’s price!