This past week was a very interesting one in the markets: almost all major trendlines on the charts I posted last weekend got destroyed. I am watching to see what type of follow-through we get here.
Sunday, 14 September 2014
Saturday, 6 September 2014
There's no denying it.
Commodities & foreign currencies got hit hard this week while US$ exploded higher. The exact opposite of what I've been looking for in the past several months.
GDXJ fell 6% on Thurs alone and ended the week down -7%.
While this type of weekly action has happened several times in the past year (without affecting my outlook), what makes it so important now is that the long-term (monthly) charts are signalling structural changes. Take a look at the 2 charts below.
We see that Gold (monthly) is in the process of violating a 14-year uptrend while the US$ (monthly) is breaking out of 10-year price & 6-year RSI downtrend. However, these are monthly charts and we still have 17 trading days left in Sept.
I emphasize that commodities & foreign currencies must make their last stand here. Let me present why there is a very likely possibility that this week was the capitulation bottom for these asset classes and that they look poised to rally.
Here is the weekly RSI for GDX, GDXJ, GLDX and SIL. Notice how all 4 of these ETFs are on RSI support. A likely place to see a rally.
OK, now I want to show some daily charts in this space.
Gold (Daily) is on dual price support here. It needs to rally ASAP.
Both GDX and SIL are on price & RSI support on their dailies.
Gold:XAU (Daily) is at resistance. The miners (XAU) need to outperform gold here ASAP for this clean H&S top formation to hold. Miners outperforming gold is a sign of strength in the gold space.
Commodity vehicles such as DBA, DBC, GDX, USO, KOL, JJC and JJN did not breach major support levels shown on the charts below. For Nickel, it was actually a great week despite the carnage elsewhere with JJN gaining 6%!
While the US$ has been making a parabolic upside move in the last 2 months, foreign currencies such as EUR, GBP and JPY have been making a parabolic fall. Not only are these types of moves unsustainable, we are close to, or at major support for these foreign currencies.
US Treasury bonds have had a strong positive correlation with both the Yen and Gold. Currently, the 10-year bond (UST) is on support while the 10-year yield (TNX) is at resistance (as shown on the 3 charts below show). UST must rally here ASAP.
Corporate junk bonds continue to signal caution for US equities. HYG (Weekly) fell this week after retesting the 5-year wedge breakdown. Also, JNK:USB (daily) ratio is retesting the neckline of a broken top.
The chart below was posted by @InsiderBuySuperstocks and was created by Sentimentrader.com.
After the parabolic melt-up in the USD and melt-down in Euro, take a look where sentiment stands. The Euro and Yen only have 20% bulls while US$ has 80% bulls! Not only that, energy and metals across the board have very few bulls.
The Smart Money is at their second highest net long position on the Euro in the past 2 decades!
Meanwhile, the Dumb Money is very optimistic on the US$. You choose who you want to side with...
On the long-term (monthly) charts, Gold is in the process of breaking 14-year support while US$ is breaking 10-year resistance. However, there are still 17 trading days in Sept for gold & commodities to make their last stand.
Shorter-term charts (daily, weekly) are showing that gold, commodities and foreign currencies are on clear support. The dumb money hates these assets and is deeply in love with the US$. Seasonally, Sept is also gold's best month of the year.
Furthermore, Treasury bonds (which have a strong positive correlation with Gold and Yen) are on support as well. Put all these factors together, and commodities & foreign currencies have a very strong chance of reversing the damage on the monthly charts.
Good luck out there.
Sunday, 31 August 2014
Here's a quick tour of all major asset classes. A couple interesting events are taking place - namely in the gold miners and US Dollar.
$SPX (Weekly) is making another run for multi-year channel resistance while carrying negative RSI divergence.
$TNX (Daily) - 10year Treasury Yield continues to act weak after breaking down from a 1-year topping formation with negative RSI.
$UST (Daily) confirms the picture above. This week, the 10year Treasury Price retested the neckline of a rounded bottom base with bullish RSI divergence.
$HYG (Weekly) - The Corporate High-Yield ETF is retesting a 5-year falling wedge breakdown.
$JNK:$USB (Daily) - This week, the junk to long treasury bond ratio retested the neckline of a broken top. Notice the bearish RSI divergence of this ratio as well. Just like HYG, this ratio is giving a warning for US equities.
Friday was the last trading day of August and the monthly chart for the USD is breaking 10-year resistance. A retest of this breakout line should be expected.
EUR (Weekly) is looking very ugly: In a free-fall with no major support until 128 (-2%).
YEN (Weekly) also is very weak, with further room to fall.
Seasonally, September is gold's best month of the year. And while the US Dollar has had its best 2-month rally since early 2013, Gold and Gold miners have held up relatively well and did not breach their June lows.
Gold, Silver and Silver:Gold (Weekly) all held price and RSI support this week
The gold miners also made good progress this week. Here's GDX (Weekly close) rallying after retesting dual support
GLDX (Weekly) held support at the 2-year base neckline.
This week, HUI (Weekly) starting doing what I've been waiting for. The well-defined 2-year base neckline inched towards a breakout. Watch for follow-through this coming week.
CDNX (Weekly) - The Canadian Venture is highly correlated with gold and coal miners. It's weekly chart has been very clean & impressive: A 3-year falling wedge breakout & retest was followed by a double bottom base breakout & retest. The recent lows a couple weeks ago took us to RSI support and we bounced from there. Watching the purple pennant to resolve to the upside.
Commodities seem to have found support in recent weeks.
Here are DBA and DBC weekly charts on both price & RSI support:
Natural Gas (weekly) has been rallying off a 5-year support line.
JJC (Weekly): Copper slipped 2% this week but is still holding a 3-year wedge breakout
KOL (Weekly): Coal continues to hold support at the 2-year base neckline.
CCI:SPX (Weekly) ratio gained 1% this week after retesting the 3-year falling wedge breakout in the previous week.
Saturday, 23 August 2014
I've got my Matcha tea - let's take a tour through the major asset classes.
TNX (Daily): 10-year treasury bond yield broke down from a major top a couple weeks ago. It continues to act bearish.
UST (Daily): 10-year treasury bond price looks like it will retest its downtrend breakout as new support before moving higher.
HYG (Weekly): The high-yield corporate bond is retesting its 5-year falling wedge breakdown as new resistance. Notice the correlation with the SPX - not a good sign for US equities.
JNK:USB (Daily) Ratio is testing the neckline of a confirmed top as new resistance. Watch for this to possibly put the brakes on US equities.
The only chart in the currency space I'm watching right now is the US Dollar on a monthly timeframe. The dollar is at 10-year resistance while sentiment is at levels where a pullback has occurred. Perhaps this is the moment the dollar takes a break and lets commodities run. With next week being the final week of Aug, watch where this chart closes on Friday.
GOLD & GOLD MINERS
In addition, Gold and Silver are also retesting 2-year former downtrends as new support. RSI is also on support with bullish divergence from price.
With Gold and Silver both on price & RSI support, it should come as no surprise that the Silver:Gold ratio is also on price & RSI support:
Gold miners are also on major support. Below is GDX on a weekly closing basis. It's sitting on dual support
GDXJ (Weekly) was held by 1-year support this week. It's also being helped by bullish RSI divergence and strong accumulation.
CDNX (Weekly): We've noted several times before that the Canadian Venture Exchange is highly correlated with Gold and Coal miners. This index bounced off RSI support this week. Very encouraging for commodities & miners.
HUI (Weekly): Again, this is the index that worries me. I need to see a breakout above the indicated blue resistance before taking aggressive long positions in the gold miners.
On to the basic materials.
JJC (Weekly): Copper bounced nicely this week after retesting the 3-year falling wedge breakout. Note the 3% gain in copper this week occurred while the US Dollar gained 1%, making the move even more impressive.
JJU (Weekly): Aluminum continues to consolidate very nicely after breaking out of a 3-year falling wedge.
JJN (Weekly): Nickel has been the strongest performing basic materials this year, gaining over 60% (trough-peak). Nickel is consolidating nicely here. Watch for an upside breakout.
DBC (Weekly) is currently sitting on both price & RSI support.
CCI:SPX (Weekly) Ratio is retesting a 3-year falling wedge breakout. Look for commodities to outperform US equities here.
BASIC MAT'L MINERS
Miners of basic materials have been leading their underlying commodities. This is the sector that has been absolutely crushing it in the past year.
AA (Daily): Aluminum producer, Alcoa, has stair-stepped itself to an over 100% gain in less than one year. RSI has never dipped below 50 this whole move - a very bullish sign.
NOR (Weekly): Another aluminum producer, Noranda, made a 100% move in 3 months starting in Dec. It now looks like a giant cup & handle base is nearing completion.
AKS (Weekly): Steel producer, AK Steel, has almost tripled in the past year after building a nice rounded base for much of 2013. This past week, it broke through significant long-term resistance at $10.
X (Weekly): Similary, US Steel has more than doubled in the past year.
FM (Weekly): Copper producer, First Quantum, has nearly doubled in the past year and has broke out of a multi-year wedge. For the past 2 months, FM has been forming a bullish falling wedge consolidation. Watch for an upside breakout
PKX (Weekly): This Chinese iron & steel producer has broken out of an 8-year downtrend in early July.
SLX (Weekly): The Steel ETF has been basing for an upside breakout
While commodities & miners are retesting breakouts or consolidating after nice rallies, USD is facing 10-year resistance with elevated sentiment. I'm looking for some commodities to start their rallies & others to resume, while the dollar takes a pause. Treasury bonds (which are correlated with gold) confirm this outlook.
That's all - enjoy your weekend and the rest of your summer!