S&P 500 GRAVITATES TOWARDS RANGE RESISTANCE.... The markets continue to move from risk-on to risk-off market modes over the last few months. Swings in the stock market appear to be a major factor in these mood swings. Chart 1 shows the S&P 500 range bound since late May. Support resides around 1040 and resistance around 1130 with 1085 in the middle. SPX has crossed the 1085 level at least nine times since late May. The swing within this range is clearly up as the index found support near 1040 and broke resistance with a big move last week. The bulls get excited during upswings and the bears start beating their chests during downswings. It is a tough market, but the bulls have the edge as long as the breakout around 1065 holds. Many other indices and sector ETFs also reversed their August downtrends with big breakouts last week. In the indicator window, MACD moved above its signal line last week and turned positive this week. Momentum continues to improve.
INDUSTRIAL METALS INDEX EXCEEDS AUGUST HIGH... Chart 4 shows the GS Industrial Metals Index ($GYX) pushing above its early August high this week and in an overall uptrend. Strength in metals is bullish for the stock market because it indicates healthy demand for �stuff� used by industry. Strength here could also foreshadow a breakout in the Shanghai Composite. More on that index below. First, notice how the GS Industrial Metals Index formed a higher low in early July as the S&P 500 dipped to a new low. Relative strength in the Industrial Metals Index foreshadowed the bottom in stocks. After the higher low and breakout, the Industrial Metals Index held support at broken resistance and surged above 390 this week. There are no signs of weakness in this index. Key support resides around 360 and a break below this level would reverse the current uptrend. Such a break would have negative implications for the stock market. For all you Fibonacci top pickers out there, note that the index is meeting some resistance near the 62% retracement mark. Chart 5 shows the DB Base Metals ETF (DBB) with similar characteristics.
SHANGHAI INDEX TRACES OUT ASCENDING TRIANGLE ... A continued rally in base metals and the materials sector could be dependent on a breakout in the Shanghai Composite ($SSEC). Chart 6 shows the index battling resistance around 2700 with an ascending triangle over the last four weeks. These are bullish continuation patterns that are confirmed with an upside breakout. The index pulled back rather hard on Thursday, but firmed on Friday with a close at 2663. This end-of-day (EOD) chart has not been not updated yet. I would mark support at 2580. A move below this level would break the triangle trendline and call for a reassessment. There is also some short-term concern with relative weakness over the last two weeks. Notice that the price relative turned lower in September. Chart 7 shows weekly prices with a nice bounce off support in the 2400 area. Notice that broken resistance and the 62% retracement combined for support here. The breakout surge in July was strong and now we are waiting for the ascending triangle to resolve itself.
OIL BOUNCES OFF CONSOLIDATION SUPPORT... Chart 8 shows the West Texas Intermediate ($WTIC) with a Diamond taking shape in 2010. Like the stock market, oil has been range bound the entire year with a large consolidation. Trading the consolidation means buying near support and selling near resistance. A break will take hold one day and the direction of this break is largely dependent on the stock market. As noted above, stocks and oil have been positively correlated this year. I would also hazard a guess that a breakout in the Shanghai Composite would also be bullish for oil. In fact, oil is up this morning after a report showing an increase in oil imports for China. Diamonds are neutral patterns dependent on the break. A break below 70 would be long-term bearish for crude, while a break above the upper trendline would be bullish.
With crude in a long-term consolidation and trading near support, we can use the daily chart to determine the direction of the swing within this consolidation. Chart 9 shows oil breaking the wedge trendline with a sharp decline in August, but firming around the July low with surges in late August and early September. Although not noted yet on this end-of-day (EOD) chart, oil is up over $1 this morning and trading around 76. A close above 76 would trigger a breakout to continue the current upswing. Again, keep an eye on the stock market for clues on oil. Chart 10 shows the US Oil Fund ETF (USO) trading just below resistance in early trading on Friday.
DOW FORMS SECOND DIAMOND PATTERN AROUND 10500... The Dow has been range bound since November 2009, almost one year now. Chart 11 shows the senior Average crossing the 10500 level at least eight times in the last nine months. After a higher high above 11200 in April, the Dow plunged to a lower low around 9600 in June. The bulls were not to be denied as the Dow moved back above 10500 at the end of July. Overall, this looks like one big consolidation within an uptrend. Moreover, the May-June decline looks like a falling wedge (pink lines). The Dow broke wedge resistance in July and broken resistance around 10000 turned into support in late August. Notice that the right half of the Diamond looks like a triangle, even though it is not very symmetrical. An upside break here would signal a continuation of the 2009 advance and argue for much higher prices.
Diamonds are not always bearish patterns. Chart 12 shows the Dow with a similar, but much longer, Diamond formation in 2004-2005. The Dow traded on either side of 10500 for almost two years before breaking Diamond resistance and embarking on a bull run in 2006-2007. Think about that one for a moment. The Dow is forming its second large Diamond pattern around 10500 in the last 7 years. Notice that broken resistance around 10700 turned into support and held in 2006. The indicator window shows RSI meandering above/below 50 throughout the Diamond consolidation. The red line is set at 60 and the green line at 40. The indicator moved further above 60 than it did below 40. This kept RSI with a bullish edge. In late 2006 and early 2007, RSI held 40 and broke 60 numerous times to signal improving momentum.
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发表于 2010-9-10 23:59
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