More Dollar Strength Ahead

Tuesday, August 31st, 2010

As we move into the fall it sure looks like we are going to enter another bull phase in the US Dollar. As evidenced by the chart below the technicals seem to be pointing to a minimum move back up to the 87 level. The Dollar index needs to break above its recent highs to confirm that this move is in effect or its just another set-up.

A move back to the upside is also consistent with my view that we are going to see more deflation ahead. This should also correspond with a reversion to risk and a continued move out of equities and risky assets in general over the next few months.

Posted in Market Predictions, Market Psychology, Trading | No Comments »

Big Week of Economic Reports

Monday, August 30th, 2010

This is a jam packed week filled with big economic reports:

Tuesday: Chicago PMI, Consumer Confidence, Case-Shiller Home Price Index and FOMC Minutes
Wednesday: ADP Employment, ISM Manufacturing Index
Thursday: Jobless Claims, Pending Home Sales Index
Friday: Employment, ISM Non-Manufacturing Index

The economic numbers seem to be getting worse and worse over the last 3 months and expectations are very low for many of these reports. If the reports are better than expected I think we can expect to see the markets hold up and maybe even trade slightly higher. If they come in worse than expected I think there is a possibility of a big sell-off taking us to new yearly lows.

It would not surprise me to see a few beat expectations and few disappoint to the downside. It really is all going to come down to Friday’s employment number. Goldman Sachs came out today and revised their estimate for private job growth to zero which if true won’t be taken kindly by the markets.

Either way I think the stock market is firmly entrenched in a down trend and has some tough sledding ahead of itself moving into September and October.

Posted in Economics, Risk Management, Trading, Trend Following | No Comments »

Euro/Yen Signaling Major Market Weakness

Monday, August 23rd, 2010

The Euro/Yen cross has been one of the best indicators of risk and stock market direction for the past few years. It is now moving towards making new lows since its peak in 2007.  This can’t be seen as a positive sign moving into the next few months which are typically the worst for equities.

Here is the chart and notice the break towards new lows today:

Posted in Market Psychology, Risk Management, Trading, Trend Following | No Comments »

Line In The Sand…S&P 1107

Tuesday, August 10th, 2010

After today’s market action I think the line in the sand is 1107 on the S&P 500. If we break and close below that level I’d put the odds at a double top at 80% with large bearish potential going into the fall. There are bearish divergences set up stemming from the Dow breaking the June highs and no other broad market average following suit. The Russell 2000, the bank index, the semiconductor index, and retail are all lagging big time and they all led the rally both from the lows last year and from the February lows this year.

In addition and probably more importantly bond yields continue to collapse. This in my opinion signals a double dip, slower economic growth, and a return of the bear market. I am looking for an August top and decline into the end of the year with a possible rally late in December albeit from much lower levels.

Here is a chart of the S&P 500 and note the double top forming and the bear flag that is about to break to the downside:

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Dollar Bottoming???

Monday, August 9th, 2010

The Dollar has dropped about 10% since its mid-June high and looks to be on the verge of bottoming. The daily sentiment index reading is 6% bulls which is extremely low and typically at a level where bottoming action takes place. Also, it is getting close to support at the 80 level. Tomorrow, the FOMC announces its decision on interest rates and everyone has been selling the Dollar in anticipation of more stimulus and/or quantitative easing part 2. I don’t think we will get either in the short term which should give the Dollar a boost.

If the Dollar does make a meaningful bottom here it could also serve as a bearish sign for equities and commodities. They both tend to rally as the Dollar declines and fall as it rises.

Here is the chart:

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S&P 500 Still In A Holding Pattern

Saturday, August 7th, 2010

Regardless of the weak jobs number on Friday the S&P 500 held above its uptrend line. The index continues to trade in an upward sloping band that is bullish until it breaks to the downside. Right now, odds favor a test and a break of the June 21st highs and a potential run into resistance at the 1140-1150 level. As long as the S&P continues to stay in this band it will have an upward bias. I suspect later this month we will have a break to the downside but until then stick with the trend. Here is the chart with the uptrend lines and channel bands:

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Do Necklines Matter?

Saturday, July 3rd, 2010

Here is a great chart that I found that shows the last 10 years of “head and shoulders” set ups. The question is whether it breaks the neckline or not that matters…take a look and see for yourself:

Source: dshort.com

Posted in Market Predictions, Research, Trading | 1 Comment »

I See Some Dandruff…Head and Shoulders Top Confirmed

Wednesday, June 30th, 2010

The S&P has confirmed a head and shoulders top that projects down to 840. Check out the chart below:

Posted in Market Predictions, Trading | 1 Comment »

The Next Big Play: Nat Gas

Thursday, June 10th, 2010

With the massive offshore drilling disaster that just won’t go away Americans need to find a new source of energy and quickly. Natural Gas has been touted by Boone Pickens for the last few years and it now seems that the Obama administration has finally taken note. Last week in a press conference he made a noted change in policy referring to Natural Gas as a more likely energy source going forward. That signifies a significant shift in policy towards natural gas. As such, I think natural gas could be the next big market mover.

I would look to get long the natural gas futures or the UNG, which is the natural gas tracking stock. I also like Chesapeake Energy Corp as direct beneficiary. Here are the charts of natural gas and Chesapeake:

Posted in Trading | 1 Comment »

Technical Backdrop

Monday, June 7th, 2010

It’s interesting because I want to write about the technical issues facing the market and my blog is having its own technical issues. I am currently not able to post any images and my programmers are working on it.

The S&P is sitting at a critical juncture just above 1040 and if it breaks it is very possible that we see 960-980 in a hurry. There is support every 20 points lower from 1040-960. There is no real strong support until 950-960 and below that it drops down to 880. I don’t think we will get to 880 on this move, but its possible. I’d bet we see that level later this year.

The Euro continues to break down and there is strong support around 1.1750 and below that in the 1.10 area. I also suspect the 1.15 level to provide some support.

Copper, one of the best leading indicators of global growth, also continues to fall apart and make new yearly lows. There is some support at 2.64 and 2.46-2.50 below that.

Basically, everything is firmly trending down very strongly and until we hit some of these support levels and start to show some signs of stability we are going to continue to grind lower.

The only markets showing any upside strength are gold, natural gas, the Dollar index, and bonds. I continue to favor bonds, natural gas, and the Dollar index as the best play on the long side.

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