Friday, 28 November 2014

The big picture with monthly charts



Today was the last trading day of the month. Let's take a look at the where the monthly charts stand to asses the BIG picture. A few interesting developments occurred... 

US EQUITIES

The S&P 500 spent over a decade consolidating the massive 1982-2000 bull market, before breaking out from the green line and resuming the bull market. The RSI on the monthly chart is also strong.

Yes, a consolidation here would be healthy but consider that we have 2 bullish cyclical trends in 2015:
  1. Presidential Cycle. The 3rd year is the most bullish of the four, with 16% avg. gain and 88% positive years
  2. Decennial Cycle. Years ending with a "5" (eg. 2015) have historically performed better than the other 9, with a 21% avg. gain and 83% positive years.



TREASURY BONDS

The USB (30-year treasury bond) monthly chart is shown below. Bonds have been in a 30+ year bullish channel. But now there are signs that this channel can roll-over. Notice how the RSI is showing bearish divergence. We are also right at RSI resistance (blue line). 




CURRENCIES

A few months ago, the USD broke out of a 10-year base. It can consolidate here, but the big picture is healthy for the dollar. This is bad news for commodities & foreign currencies.



This month, the YEN just broke a 30-year topping formation with bearish RSI divergence. As bad as the decline over the last 2 years has been, there could be a lot more downside left. This is good news for the Nikkei, but bad news for Gold.


GOLD

Gold broke a 14-year uptrend a few months ago. Today, the monthly chart closed below an important support line. The big picture is bearish for gold.


At the same time, GDX also closed below an important 20-yr support line. Notice the long-term bearish RSI divergence.


INTER-MARKET

We've looked at asset classes in isolation above. Now let's look at ratios between asset classes.

The SPX:EEM ratio shows a huge rounded bottom base with bullish RSI divergence. As we've shown before, this ratio has a strong inverse correlation with GDX.


Similarly, the SPX:GOLD ratio has also formed a long, rounded bottom with bullish RSI divergence. The base has broken out in recent months. 



CONCLUSION

The monthly charts above show a long-term bullish picture for US equities and the Dollar, but a bearish picture for Treasury Bonds, Yen and Gold. This is confirmed with ratio charts.



Saturday, 15 November 2014

Market Analysis Nov 15th

It's been a while since I did an update. Let's take a quick look on where various asset classes stand:

US EQUITIES

MDY (Weekly) is the ETF for mid-cap stocks. It's currently facing 5-month resistance after a fierce rally. A short-term pullback looks due. Eventually, I expect MDY will breakout to new highs.



SPY (Weekly) is also at resistance as seen below. A pullback here would be very healthy



BONDS

While US Equities are facing resistance, the 10-year Treasury Bond (UST) is at base support. A rally in bonds here is likely, which would help gold.



CURRENCIES

Euro (Weekly) is very close to a decade-long support line. The smart money is aggressively long the Euro, making it highly probably that we see a rally soon.


USD is very loved by the dumb money after a sharp rally. We can see a $5 (-6%) pullback to retest the 10-year base breakout on the monthly chart below. This would be very healthy, helping to cool off sentiment.



EFA:SPY (Weekly) Ratio has a strong inverse correlation with the USD. It is currently testing all-time lows as support. A bounce here is likely.



GOLD

If US Bonds and Euro are about to rally, we should expect Gold to look bullish as well. The charts for gold and gold miners do give confirmation.

Here are monthly charts for Silver and 3 gold miner indicies: HUI, GDX and XAU. These charts go back to the 80's and show that this space is on MAJOR support.


And here are the weekly charts for Gold, Silver:Gold ratio, GDX and GDXJ. Again, we see major support being held.



COMMODITIES

Below are weekly charts for CDNX (Canadian Venture Exchange), REMX, URA and USO. All these indices are on major support. Given these and charts from other asset classes, expect commodities to rally here.





Thursday, 16 October 2014

Market Analysis Oct 16th



I'm back from my break!

A lot happened in the markets over the past 6 weeks. Let's take a look where all asset classes stand.


EQUITIES:

SPX (Weekly) fell after hitting 5-year channel resistance with bearish RSI divergence


IWM (Small Caps) have been underperforming the SPX (Large caps) by -7% this year, which is a red flag for equities. Here is IWM (Weekly). Small caps broke down from a 1-year topping formation with bearish RSI divergence, similar to the breakdown in 2011. Expect to see further downside from here


TZA is the 3x inverse of IWM. Notice how TZA is retesting a base breakout on its weekly chart with bullish RSI divergence.


VIX (Weekly) is also signalling a warning after breaking out of a large wedge and hitting its highest level since 2011. 


Similar to Oct 2007, Utilities have been outperforming this year while Financials and Homebuilders have been lagging. Source: Charlie Bilello, Pension Partners


All this is happening while investors are extremely optimistic on equities, similar to '07 and '11.



BONDS:

High-yield corporate bonds are correlated with US equities and are giving the same bearish message. Here is the JNK:USB (Junk:Treasury) bond ratio breaking down from a topping formation.



And here is HYG (High-yield bond ETF) breaking down from a 5-year rising wedge


TNX (Daily). The 10-year Treasury Yield had a very wild day yesterday after it broke down from a falling trendline. Recall that this is positive for Gold and negative for US equities.



CURRENCIES

The USD had a parabolic rally with 12 consecutive weeks of gains. It's finally taking a pause here.


Sentiment analysis says it all.

The Smart Money (Hedgers) are very bearish on the dollar while the Dumb Money (Optix) is very bullish.


The opposite is seen on the Euro - with smart money being bullish; dumb money bearish.


GOLD:

Major breakdowns occurred across the board for commodities in Sept. They are now back to major support. Let's start with Gold and Gold miners

Gold, Silver (Weekly) are both on multiple support.


As expected, the Gold:Silver ratio (Weekly) is also on support.


Over to the gold miners, we see that GDX (Monthly) is at 18-year support


GDX, HUI (Weekly) are possibly forming a double bottom here


GLDX (Weekly) is testing the bottom of its 1-year trading range

The HUI:GOLD ratio (Weekly) is retesting its 3-year falling channel breakout as new support.


Finally, the Smart Money (Hedgers) are very bullish gold while the Dumb Money (Optix) is very pessimistic on gold



COMMODITIES

Both REMX and URA (Weekly) are back on long-term falling support lines. Given their steep declines over the past 5 weeks, expect at least a bounce here


Similarly, XME (Weekly) is on falling support as well.

CCI:SPX (Weekly) has been rallying after retesting a falling wedge breakout. 

That's all for now. Hope you found this analysis useful.  

Sunday, 14 September 2014

Break

Just a heads up that I am at a remote area for the next 2 weeks and so access to internet will be limited. 

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. 

Saturday, 6 September 2014

The Last Stand



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.


GOLD

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.



CDNX (Daily) is highly correlated with GDX as the chart below shows. Notice how CDNX is currently retesting a wedge breakout while being on RSI support. It also needs to rally ASAP!




COMMODITIES

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%!








CURRENCIES

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.  




BONDS

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. 



SENTIMENT

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...



SUMMARY

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.