Monthly Archives: September 2010

Stalled under 1150 SPX (by Springheel Jack)

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SPX has just been drifting sideways this week really. I've been looking for anything in the way of short term patterns but haven't found much. We do have a fairly solid looking declining resistance trendline though and that is worth noting. Here it is on the ES 60min chart:

100930_ES_60min_Trendlines

I'm beginning to think that we may see the next significant interim top here rather than in the 1170 – 1180 area. I've a couple of reasons to think so. The first is that we have been stalled here a while, and now that 1130 SPX has broken, this is the last really significant resistance level on SPX below 1200 SPX. Looking at the SPX weekly chart we're also at a significant level on the weekly RSI.

During the October 2007 to March 2009 bear market, RSI on the weekly chart never rose above 55. When it did rise above it in June 2009, to about 58, it was a signal that the bear market was over, and it was also the level of a significant interim top. We may be seeing a similar signal now, on both counts, though the move down over the summer didn't quite make the 20% decline necessary to qualify as a cyclical bear market.

100930 SPX Weekly RSI

The second reason I'm wondering about a significant interim top here is that while SPX has been stalled below 1150, USD has kept falling, and emerging markets have kept rising. I've been watching a rising wedge on the EEM 60min chart and we are now almost at the next likely reversal level. This is a key chart for overall market direction and you'll note that EEM bottomed in May rather than July, leading the SPX and indicating that the SPX summer decline wasn't likely to last. Also worth noting on this chart is that EEM has now exceeded the April high:

100930 EEM 60min Rising Wedge

Vix bottomed a while ago and I have a sloppy rising channel on the 30min chart:

100930 Vix 30min Rising Channel

Looking at oil, I'm seeing a likely rising channel with the lower trendline of the previous rising channel as the upper trendline of the new channel. If so then the next upside target is in the 79.6 area, though as I write oil is stalling at the previous September high at 78:

100930_Oil_Daily_Rising_Channel

Today is the last day of September and of the third quarter. The Stock Trader's Almanac says that this is generally a day of institutional portfolio window dressing and heavy selling, with the Dow down 8 of the last 12 years. There was a 4.7% rally on 30th September in 2008 though, so this isn't necessarily a down day of course.

Greg Giraldo, R.I.P.

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I love to laugh. My affection for good comedians runs very deep. Some of my favorites include George Carlin (patron saint of Slope), Richard Pryor, Patton Oswalt, David Cross, and Emo Phillips. As with most things in life, 90% of everything is crap, and it's the same with comics. For every George Carlin, there's going to be nine comedians I can't stand, like Jeff Foxworthy or Larry the Cable Guy.

I also love it when people follow their dreams. Greg Giraldo was given a full scholarship to Harvard Law School. He graduated and was hired by the huge firm Skadden, Arps. He worked for a year and decided he hated being a lawyer. He wanted to be a comedian. So – – corny as it sounds – – he followed his bliss.

Today Greg died of a drug overdose. When I heard the news, I immediately remembered on a recent roast that Lisa Lampanelli (who was at a roast, as she often was, with Giraldo) kept citing the fact that Larry the Cable Guy made $250,000 per show. She said it three times and then said, "I just wanted to see how many times I had to say it before Greg Giraldo killed himself."

I'm afraid that now we have the answer. It's sad.

You’ll Never Take Me Alive, Copper!

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I've often heard it said how one commodity – copper – mirrors the equity market very closely. I took a look at this tonight, and since 2002, this has indeed been the case. Here is some recent history comparing copper, shown in black (on an adjusted continuous contract basis) with SPY, shown in blue.

0929-COPPERcompare

One interesting thing I circled in the picture above is that copper called the market's bottom nearly three months in advance, by bottoming out on Christmas 2008. Equities made their final bottom on March 9 of the next near.

It's interesting to note the Fibonacci retracement levels of copper as well. I've circled the four major instances where copper seemed to head south after hitting the Fib level at about 3.75. Food for thought.

0929-coppertop

If You Can’t Stand The Bullishness, Look at the Charts! (by Goatmug)

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I can't stand it anymore!  After this record advance in September everyone is bullish.  Investor sentiment is bullish, CNBC is bullish, even I am bullish (actually have been since late July).  Perhaps I simply am a rebel and must feel like I'm marching to a different drum beat, but upon waking this morning I embarked on a mission to prove or disprove the case for the rampant optimism I'm seeing everywhere.  While I'd normally provide chart upon chart of manipulated macro economic data I simply started drawing lines on 3 year weekly charts.  I'll keep the commentary to a minimum, but leave you with a string of charts that highlight significant markets I follow.  Please note, I will indicate several areas I'm watch for a breakout, but to be honest we've seen a pattern of breakouts through important levels where everyone is watching just to see significant reversals.  I'm putting these levels in my system so I can be alerted and watching for continued momentum.

SPX (The 1150 level still seems to be resistance) – no breakout yet.

  SPX

XLE (Energy) – Watching $56.50 here.

XLE

XLI (Industrials)- XLI looks like it has poked its head above resistance.  There is that long term downward sloping trendline still overhead, but this tells me that XLI could run another dollar or so before testing this.

XLI

SMH (Semi-conductors) – $28.75 would be interesting as this has not broken out yet

SMH

XLF (Financials)  – I posted this chart last week and it has been very helpful in showing that there is no breakout in financials.  There was a punch through to $15 and a quick reversal back inside the trendline.  Of all the charts I'm posting, I think this is one of the most useful.

XLF

LQD – Investment Grade Corporate Bonds-(Breakout has obviously occurred.  In fact, we should expect a drop back into that long term channel, however corporate bonds have been the beneficiary of much of the government's attempts to force investors to increase their risk and drive them out of CDs and money markets.  Traditionally, we'd expect the equity markets to rally when LQD goes lower, however that typical correlation has been on hold since May 2008 when all asset values collapsed and enjoyed a subsequent rise from the ashes.  

LQD

 

LQD with SPX overlay –Has LQD rallied too far and does a correction in bonds suggest more upside for the $SPX?

ScreenHunter_10 Sep. 29 10.49

SLV – (Silver) - Sure, this is clearly a breakout!  SLV is above its previous peak of $20.65.  I'm still not selling my holdings of physical silver here, but I'm certainly not adding any SLV at this level. 

SLV

JJC – (Copper) – Yes, breakout has happened.

ScreenHunter_11 Sep. 29 11.02

EEM – (Emerging Markets) – Yes, this too is clearly a breakout.  Since late July I've advocated holdings in emerging markets based on the comparison of GDP growth rates in these countries to our weak US growth and also the specter of QE2 which is targeting the devaluation of the dollar.  It appears there is significant room to run here.

EEM

TLT (20 Year Treasury Bonds) –  Risk on or risk off, the Fed's intervention in the treasury markets will in my opinion  put a floor on TLT for some time.  While interest rates SHOULD be rising here it is clear that this operation is more of a budgetary mechanism to ensure we can actually pay our bills.  The Fed and Treasury Department cannot allow rates to creep higher or else we face significant issues.

TLT 
 
 

TRADING SUMMARY –

Well, that's it, I hope this summary of charts gives you a view of areas that we should be watching for the upside or a reversal.  Many key areas are close to upside breakouts and we're seeing continued momentum in precious metals and emerging markets.  XLF (financials) continues to look weak and this is going to be a key indicator for me to watch (it always is).  It is almost as though XLF is telegraphing to us that something is going on and the story just hasn't hit the headlines yet.. 

IS THE BULLISHNESS WARRANTED?

The obvious answer his is – perhaps!  In terms of economic reasons I doubt it, but that was not the focus of this post.  For me, this exercise has confirmed that we really are in a significant area here that could propel us to much higher levels.  I would not be amazed to see a move through these levels, but I'm also aware that we are simply at the top of the trading range we've endured for almost one year.

The bear in me looks at these overhead resistance levels as good areas to enter shorts and allow for some room for a bust-through and reversal.  The tinfoil hat wearing trader in me thinks we could see more positive action ahead. 

Be Careful –

GOATMUG