Macro Week in Review/Preview January 28, 2011
- Posted by Greg Harmon
- on January 29th, 2011
Last week’s review of the macro market indicators looked to continue the bloodbath for Gold, the US Dollar Index and US Treasuries. Although Crude Oil looks to be heading lower there is a lot of support nearby. The Shanghai Composite and Emerging markets look headed lower too. The divergence in the US equity Indexes, with the large cap SPY doing better than the QQQQ which is doing better than the IWM also looks to continue, with the SPY looking higher, the QQQQ mixed and the IWM looking lower.
The week started off the week mostly as expected. Gold, Crude Oil, the US Dollar Index and the Shanghai Composite all moved lower. US Treasuries were flat and then fell after testing their downtrend. The SPY moved higher right out of the gate Monday and dragged the IWM and QQQQ higher as the week progressed. All of that reversed Friday with was widely attributed to unsettled events in Egypt. But may have been signaled from reactions to earnings of late. What does the price action suggest might happen in the coming week? Let’s look at the charts.
Gold had a rough week. It broke the 100 day Simple Moving Average (SMA) Monday and went on to test the daily up trend line, where it held. The Relative Strength Index (RSI) may have found a bottom as well at the technically oversold line and has bounced, with the Moving Average Convergence Divergence (MACD) indicator leveling. The move Friday, triggered for whatever reasons, printed a piercing candle, a potential bullish reversal. On the weekly chart Gold probed outside of the two year up trend-line but recovered, printing a bullish hammer back above that trend-line. The RSI touched the mid-line and looks to be leveling. It appears that the Gold sell off may be coming to to an end. If it continues to hold the next stop on the upside is 1352 from the daily chart and 1376 from the weekly chart. If it loses support of the trend-lines it is a long way down to support at 1280, the 200 SMA, from the daily and 1255 from the weekly chart. Be cautious but ready to be long.
Crude Oil continued its fall this week but then Wednesday started putting in a bottoming pattern with a series of broadening range candles ending outside of the lower Bollinger band. It played out to the upside on Friday with a strong move higher back above the 88.50 support/resistance area ending near the 20 day SMA at 89.86. The RSI has risen back to the mid line and is pointing higher and the MACD has improved and looks to be heading for a cross higher. On the weekly chart the print of a bullish hammer, back within the recent channel, after touching the 20 week SMA bodes well for the coming week. Look for Crude Oil to head back higher to at least test the resistance of the rising trend-line on the daily and the top of the channel on the weekly chart at 93.
The US Dollar Index seems to have found support when the RSI on the daily chart touched the technically oversold level. The MACD was giving a clue with the rounding of the indicator towards an improving state, as the price was near 77.60. The weekly chart also indicates a potential reversal printing a doji just above the 78 support level. Look for the US Dollar to continue to improve next week with resistance to the upside coming at 78.65 and then 79.
US Treasuries, measured by the TLT, tested the downtrend line at 92.05 on the daily chart, near the 20 day SMA, but could not get through. The RSI is also still bumping along the ceiling of 50 unable to break it higher. The weekly chart also shows a test of the down trend on the consolidating move, and printed a doji, signaling indecision. Watch the trend lines for guidance going forward. If they hold then the next leg down could take TLT to as low as 84. If it breaks and holds above them this week the next resistance is at 93.30 to 93.44 from the daily chart and 94 from the weekly. I anticipate that the trends hold.
The Shanghai Composite continued down in the descending wedge bouncing off of both rails this week on the daily chart as it tested the previous consolidation channel from August to October of 2009, between 2590 and 2695. It is now on the top rail and interestingly the RSI is approaching a test of the mid line and the MACD has turned higher crossing on Friday. This suggests that it may break the wedge higher. The weekly chart shows a weak tweezer bottom and a potential move higher. The RSI is moving higher and ready to test 50. If this continues then expect resistance at the SMA’s and then 2965 from the daily chart and 3050 from the weekly chart.
The Emerging Market ETF had a major technical breakdown this week on the daily chart. The price went through the 100 day SMA like a knife through butter, finishing out of the Bollinger bands. The RSI cracked the mid line, retested it and then rocketed lower. The volume on this move was enormous and it reversed the MACD to have it continue more negative. The weekly chart gives a clue as to where the fall may end, at a retest of the break out of the channel at 43.40, or possibly at 44 before that, but it does look to keep moving lower in the short run. The MACD cross on the weekly and the RSI heading strongly to the 50 level support a move lower.
The stable and steady Volatility Index continued lower and then had a major spike on Friday. That spike took it out of the Bollinger band and through its 100 day SMA. There is resistance at 21.25 and then above at the 200 day SMA at 23 and it may get there, as the RSI and MACD are supporting a move higher. The weekly chart also shows support for a move higher. There is resistance at 21.25 from the weekly chart as well and with the RSI moving towards 50 and the MACD cross, this chart also suggests a move higher next week.
The SPY had a good start to the week and got to an overbought RSI again by Thursday. It reacted Friday with a swift move lower and now has the RSI approaching the mid line at 50. The MACD is supporting a continued move lower. Support can be found at 126 and then 124.25 below. The weekly chart also hit overbought RSI and moved lower, but the chart clearly shows that the uptrend continues. Expect a pullback to continue but find support at one of the levels above or 127 from the weekly chart, before it can continue the uptrend.
The IWM retested the 79.10 area this week and ended up rejecting lower there on Friday. The RSI and MACD suggest that it can continue lower and if it does there is support at 77 and the 76.75 area. The weekly chart printed an inverted hammer, often a bullish reversal signal, but more reliable when the previous down move has been in a long trend. The move lower has come from an overbought condition on the weekly RSI that may be leveling, but the MACD is about to cross bearishly suggesting that on this time frame the price can continue lower as well. Support on the weekly chart comes at 75.60 and then the neckline of the inverted head and shoulders at 74.23. I expect that the correction will continue but not exceed the neckline.
The QQQQ also ran up early in the week and then fell sharply through the 20 day SMA Friday. The RSI is heading lower and the MACD crossing suggest that the down move can continue. Support can be found at 55 and then the previous high at 54.26 from October 2007. the weekly chart shows the continued pullback from an overbought condition on the RSI and the rolling MACD suggest it may continue lower on this timeframe as well. Support can be found on the weekly at 54.26 as well and then the neckline. I expect that 54.26 will provide support to the QQQQ this week.
So next week looks to be a decision time for Gold, and a continuation higher for Crude Oil. The US Dollar Index looks to move higher this week and US Treasuries looking lower. The Shanghai Composite is also at a decision point but emerging markets look to move lower. Volatility looks to rise in the short term, making it easier for the equity index ETF’s to continue their recent down moves within the uptrend.
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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
Gregory W. Harmon CMT, CFA, has traded in the Securities markets since 1986. He has held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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