Macro Week in Review/Preview February 19, 2011
- Posted by Greg Harmon
- on February 18th, 2011
Last week’s review of the macro market indicators looked to bring a continuation of the bull market for US and Chinese equities and continued low volatility. Emerging markets will give a clue early in the week whether they can break the down trend. The US Dollar Index would continue higher with US Treasuries continuing lower. Gold may pullback again but looks higher longer term, but Crude Oil looks to be heading lower.
The bull market played out as anticipated for US and Chinese equities this week, with continued low volatility. The emerging markets did decide on higher and moved up all week. Gold moved higher all week and Crude did start lower, but reversed at the end of the week. The pieces that did not work out were the US Dollar Index and US Treasuries. The Dollar Index did start higher but moved lower throughout the week. US Treasuries started higher though and then reversed to find lower levels. What does this mean for the week ahead? Let’s look at the charts.
Gold on the daily chart continued the daily trend higher and looks good for even more upside, after moving through both the 50 and 100 day Simple Moving Averages (SMA’s). It ended the week right at previous resistance at 1387. The Relative Strength Index (RSI) has moved back into bullish territory and is still rising. The Moving Average Convergence Divergence (MACD) indicator has continued to increase as well. The next stop high is 1400 and then previous resistance art 1420. The weekly chart shows a continued rise off of the bottom rail of a rising channel and through the 1376 resistance. The RSI continued to rise off of the mid line and the MACD continues to improve. The next resistance on the weekly chart is at 1420 and then the mid point of the channel at 1472.
After testing the 100 day SMA Crude Oil then moved higher to the support/resistance level at 88.50 to end the week. The long shadow on the candle Friday suggests indecision and occurred with the RSI at the mid point of 50 and leveling. The MACD however is improving and about to cross higher. The weekly chart shows a stall at the bottom rail of the channel between 88.50 and 93. The RSI on the weekly chart lost the rising trend but remains in bullish territory. The MACD is tight and possibly crossing lower. Crude needs to prove that it wants back in the weekly channel and above the 88.50 resistance. If it does that then 90 and 93 are resistance higher.
The US Dollar Index rejected at resistance of the 76.85 Fibonacci level and the 100 day SMA and headed lower from there. It looks headed to test support of the long term up trend at 77.06. The RSI falling and pointing lower and the MACD decreasing and about to cross negative suggest it could happen soon. The weekly chart also looks lower rejecting off of the 20 week SMA and printing a bearish engulfing candle. If 77.06 does not hold then the next support lower is at 76.45. The RSI and MACD on the weekly chart are also supportive of a further move lower.
US Treasuries, as measured by the TLT, tested the falling 20 day SMA and trend line but could not break though. The down trending channel is still in tact. The RSI is starting to turn lower at the top of the bearish range, never having gone bullish, and the MACD is now leveling. Downtrend channel resistance is now at 89.70 and perhaps if the hammer printed Friday is confirmed it can then try resistance at 90.20 or 91.26. The weekly chart shows that there is support form the 8 year uptrend nearby at 88.73, with support lower at 85. Also the RSI is turning near the technically oversold line and the MACD is improving. The trend remains lower until it breaks the downtrend line. What happens at the area near the 8 year up trend will determine if the down trend is ending or about to accelerate further.
The daily chart of the Shanghai Composite shows a continued move higher and then a flagging higher toward the end of the week near resistance at 2965. The year of the Rabbit is off to a great start. The RSI is working off an overbought condition and is the MACD is rolling a bit. If it can break the flag higher then the next resistance is at 3150. The weekly chart shows the Composite testing the upper rail of a symmetrical triangle at 2903. if it can get through it then the next level of resistance is at 3050. The RSI is rising and the MACD is crossing higher suggesting it might break through. If it does reject off of the rail then there is potential support at the 2785 Fibonacci level and all of the SMA’s on both the daily and weekly charts. The trend is higher on this until proven otherwise now.
Emerging Markets as measured by EEM, continued their broad based consolidation after finding support at 44.70. The daily chart shows the RSI making another attempt to break into bullish territory with the MACD crossing higher bullishly and turning positive. But as it is moving higher the volume is diverging, moving lower. The short term trend remains lower within the consolidation until it can break above 47.40. The weekly chart shows the consolidation in a bit of a tighter view. Price is now at the 20 week SMA and the Bollinger bands are getting very tight, foreboding a move soon. The RSI is glancing off of the mid line, remaining in bullish territory and the SMA’s are sloping up. Only the MACD is suggesting the break will be down, but it is rather flat. Look for a break of the mid line on the daily RSI as an indication that a break of the channel is imminent, otherwise expect more broad consolidation.
The Volatility Index continues to trend lower with all the SMA’s sloping down. The 20 day SMA crossing the 50 day SMA is worth watching as it may be signaling a bottoming with support at 15.50. The MACD is relatively flat but is crossing up but the RSI, near the mid line, appears to be stalled in bearish territory. he weekly chart shows a second doji, suggesting indecision or a change, at the 15.67 support. the next level of support on a move lower is at 12.40. The MACD on the weekly chart is very flat and the RSI is bouncing off of a ceiling at 50. The trend remains lower as noted by the SMA’s on the weekly and will remain so until it rises above resistance at 20 and then 21.25.
The SPY continues its steady uptrend printing small body candles along the way. The next level of resistance is now at 138.50 after breaking 134.12 this week. The RSI continues to hold at a elevated, but not extreme, level in bullish territory and the MACD is positive but relatively flat. All of the SMA’s sloping higher and nearly parallel indicator the strength of the trend higher. Moving to the weekly chart paints a similar picture. The trend higher, hugging the top of the Bollinger bands, has pulled all but the 200 week SMA into a positive slope. The RSI has trended higher throughout the run up and is in technically overbought territory but not nearly extreme. With the MACD positive the trend can still run higher. One caution flag exists however in the slightly diverging volume. During the entire run higher the volume has very marginally been moving lower. Look for a continued trend higher, with any short term pullback finding support near either 131.46 or 130.
IWM is also continuing its trend higher with all the SMA’s sloping higher. The Bollinger bands are now expanding allowing even more upside as the RSI is just breaching the technically overbought area with arising MACD. The next resistance comes at 84 followed by 86 on a measured move similar to the December through mid January run. The weekly chart looks even better with all the SMA’s except the 200 week SMA sloping higher, a RSI just at the technically overbought area and as MACD that is positive and increasing. Look for this trend to continue higher as well with any slight pullback finding support at 81.57.
The same story is seen with the QQQQ. The SMA’s are all sloping higher with a RSI near the technically overbought level but not extreme and a positive MACD. The MACD may be showing signs of rolling over so it is worth watching. The weekly picture is the best of the three equity ETF’s. All of the SMA’s are sloping higher with the 200 week SMA recently joining. The RSI is firmly bullish and the MACD is positive and increasing. The next level of resistance is expected at 60 followed by the Fibonacci extension at 61.08. Any pullback is expected to find support near 56.50. Look for this trend to continue next week as well.
So next week looks for Gold to continue higher and crude Oil to decide it it wants 100 with a break of 88.50. The US Dollar Index will look for support and US Treasuries to maintain support both to avert disaster. The Chinese market looks higher with Emerging Markets continuing to consolidate with a bias higher if they finally break the range. Volatility looks to continue to be muted facilitating a continuation of the trend higher in the US equity ETF’s. Use this information about the major trend and its influences as you continue to prepare for the week ahead and trade’m well.
If you like what you see above sign up for deeper analysis and trading strategy by using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits page.
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)
Dragonfly Capital Updates
- Macro Week in Review/Preview May 24, 2013
- A or B You Decide – It Matters….Maybe
- Premium Earnings 5-24-13
- Lessons From Japan
- Drew’s Tips – Hollow Red Candle
- A Lead for an Earnings Trade in Salesforce.com
- Premium Earnings 5-23-13
- Could Be A Good Spot For a Pullback
- Don’t Forget the Euro, It Gets Jealous!
- Premium Earnings 5-22-13