Daily Archives: August 10, 2010

Dow, Dow-Gold Ratio & Junk to ‘Investment Grade’ Debt Ratios

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The following is excerpted from NFTRH96 (August 8, 2010):

Dow Big Picture Status

Dialing out to the monthly view shows all appears to be well with the
Dow. America’s most watched index held an important support level after
faking a breakdown at the end of Q2. Also of note is that the Dow
remains above our long-watched EMA 20, which supported the entire
cyclical bull market (2003-2007).

On the bear side, there is the possible formation of an H&S top not
unlike the one that confirmed into Armageddon ’08. Risk remains high for
both bulls and bears until the Dow either declines below support and
the downward sloping neck line or breaks to new highs for the recovery.
In short, the Dow – along with many other markets – is not yet showing
its hand. The scale in my biased view, tilts toward bearish however.

Dow

Dow-Gold Ratio

The DGR did however, show its hand when the upward recovery AKA bear
flag AKA post-crash rebound known here as Hope ’09 failed and broke down
out of the channel.  As with many other markets, the Dow is currently
rising in relation to gold to test the breakdown. If DGR breaks up into
the channel and breaks the resistive moving average, NFTRH will be
forced to reconsider its stance. As yet however, no resolution and the
current stance remains favored.

Dow-gold

Junk Debt to ‘Investment Grade’ Debt Ratios

As frustrating as the market’s would-be topping process has been of
late, bears will take negative divergence where they can find it. While
nominal HYG (highly speculative junk debt) is at new highs, its ratio to
the relative quality of investment grade corporate bonds (LQD) is
flashing a non-confirmation as this is a sign of smarter (less dumb?)
money slinking toward the sidelines of the speculation trade.

Hyg

This ratio is a leading indicator and its lower low and status below
resistance is considered a bearish divergence to the higher low and
proximity above support of nominal HYG. In other words, the dumbest
speculators appear to be taking HYG higher.

The above are a few of the important indicators included in this week's NFTRH
We also took an extensive look at the gold stock sector, with a
historical view of what does and does not constitute good buying
opportunities in the sector.  Updated status, and implications of the
gold-silver ratio and gold's consolidation vs. the euro and several
other currencies was reviewed as well as the current state of the US
dollar and long term treasury bonds, both important determinants of the
probabilities for near term events with regard to the
deflation/inflation debate.

EURUSD Breaks Support (by Springheel Jack)

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EURUSD finally broke support on the rising wedge overnight, and not
before time. I am expecting to see a good sized retracement now. My
target is in the 1.28 area, though technically of course, the target is
1.22. I've mentioned before that rising wedges often evolve into
channels or broadening wedges, and I'm expecting this one to evolve into
a broadening ascending wedge, and have drawn in the rising support line
on the chart:

100810_EURUSD_Daily_Rising_Wedge_Broken

GBPUSD, which has resolved into a clear broadening ascending wedge now,
is retracing back towards the 1.55 area. I'm somewhat doubtful about
this pattern breaking down and support there may well hold:

100810_GBPUSD_Daily_BA_Wedge

AUDUSD broke the rising wedge on the daily that I posted the other day.
Nice catch braddurden for pointing it out. I'm seeing some support at
0.90 but I think it's more likely we see a fall to the main rising
support trendline in the 0.87 area:

100810_AUDUSD_Daily_Rising_Wedge_and_Support

Oil completed the bearish gartley pattern I posted, though it was
Keirsten who first pointed it out of course, and reached the top
trendline of the rising channel. I'm seeing some support in the 79 area,
but am expecting a fall to rising support in the 75.50 area:

100810_Oil_Daily_Rising_Channel

Dr Copper has broken support overnight and looks likely to return to
rising support in the 310 area, and to the extent that copper is a lead
indicator for equities, it is currently pointing firmly down:

100810_Copper_Daily_BA_Wedge

So far, so bearish, but where does that leave equities? Well, that's all
about the rising wedges. In the short term the second of two rising
wedges on the ES 60min broke downwards last night. The first wedge broke
down last Friday and played out to target at 1104 ES. The second wedge
has the same target and with a bit of help from EURUSD, should have no
trouble making it there:

100810_ES_60min_Rising_Wedges

If ES can make it back to 1104, then the main rising wedge on ES will be
broken, and that is very much the main prize here of course.
Technically the rising wedge target indicates back to the July ES low,
but more likely in my view we will retrace either to the 1070 or 1084.5
area, or to the 1040 ES area to make the RS on a big IHS that should be
obvious on the chart below. I have listed the full range of targets on
the daily chart and I am hoping that channels or patterns formed during
the descent will make it easier to call this on the way down:

100810_ES_Daily_Rising_Wedge

For a number of technical reasons, as I've explained in previous posts,
I'm expecting this to be merely a retracement in a larger bullish
picture. In EW terms I think we have just finished wave 1 up of a new
move up on equities from the July low, and we will have to retrace a
long way before I start to reconsider that seriously. That's not because
I think the recovery is real or that current economic policies are
putting us on the road to sustainable prosperity, but while the rotten
fundamentals will bring down this market sooner or later, I'm doubtful
about that happening in 2010.

For a good picture of the current EW picture from the bull side, my friend Pug posted a publicly viewable summary
last night that I think is well worth a read, and the scenario I have
outlined today fits very well with his alternate scenario.

JAG Kickin’ It Again

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Just a follow-up to my short-JAG idea.

0810-jag
 

This is a really terrific chart.

As a follow-up to my market positioning……the good news is that my 230+ shorts are doing super (with the exception of IT, which I covered at a loss). The bad news is that the big fat SPY long position (which balances out the shorts by about 15%) is a loser, and I trimmed it somewhat. I am still keeping it as Fed Insurance, but I'm kinda ticked that the day after I finally succumb to "insurance acquisition", we are down double-digits on the ES!

56 Short Setups with Stop-Losses (By Ryan Mallory)

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Its been a while since I posted my shorting watch-list but figured you all might be interested in some of the stocks I am watching currently. Not all of these stocks are prime for shorting at this specific moment, but should we get a catalyst to the downside, these stocks should do a good job leading the way. It makes for a great cheat sheet once this market does decide the party is over (for the bulls) and you are caught with your pants down and just need something to go short in.

Here are the requirements for inclusion on this list:

1) Price and volume pattern is intriguing

2) Stock has been heavily sold-off in the recent days or weeks, but
still remains on the list for a possible short off of a weak
rally

3) Stock is one of intrigue to me so I keep it around in the
case that there is a setup that is too good to pass up.

Most of them right now fall under #1 as many of the stocks have very
favorable short setups, currently. The stop-losses for ALL of the
stocks have been updated. Don't be a stranger if you have any
questions.

Here are 56 Short Setups.

Checkout Ryan's Blog at SharePlanner.com


Leisa here…..link to Ryan's picks in FINVIZ.