Macro Week in Review/Preview June 18, 2011
- Posted by Greg Harmon
- on June 18th, 2011
Last week’s review of the macro market indicators highlighted a set up for a bizarro week for any macro economic follower. Gold and Oil looked set to consolidate or go lower and the US Dollar Index and US Treasuries looked to continue higher. Both the Shanghai Composite and Emerging Markets looked lower. Despite falling equity markets Volatility looked to remain subdued. The US Equity Index ETF’s , SPY, IWM and QQQ all looked to have more downside with the weekly charts more ugly than the daily charts. Also all three were moving lower in the same pattern indicating a total equity market sell off, not sector or capitalization specific.
The week played out very much as the charts were hinting. Gold played a tight range while Crude Oil moved lower. The Dollar Index continued higher as Treasuries consolidated at their highs. Both the Shanghai Composite and Emerging Markets slid. Volatility remained relatively low but started to pick up mid week. Equity markets ticked higher early only to sell off and end the week lower. What does this mean for the coming week? Let’s look at some charts.
Gold Continued to consolidate around its lower rising trend line on the daily chart. The Relative Strength Index (RSI) on the daily chart held the mid line and the Moving Average Convergence Divergence (MACD) is starting to improve. The Bollinger bands are also starting to squeeze in. The weekly chart shows consolidation just under 1550 with a RSI that is pinned to the 70 level and a MACD that is fading a bit, but still positive. Look for Gold to drift higher next week, continuing the trend, with the possibility of a break out. Resistance over head is at 1555-1563 and then 1600. Any pullback should find support at 1511 and then 1485.
Crude Oil lost support early in the week and fell down toward the 200 day Simple Moving Average (SMA). As it is falling the RSI and MACD are both pointing to more downside on the daily chart and the Bollinger bands are expanding. The weekly chart shows a strong move lower closing near the low. The RSI has cracked the mid line and is gaining slope and the MACD is growing more negative. No good news in these charts. Look for Oil to continue lower next week with support nearby at 93 and 91.51 before the 88.50 level that has been significant in the past. Any upside now looks to stall at 97 and then 99.
The US Dollar Index drove higher touching the top of the Bollinger bands on the daily chart before pulling back slightly. The daily RSI is trending higher while the MACD is increasing, both suggesting more upside. The weekly chart shows a higher high before settling back at the 20 week SMA. The RSI and MACD on this timeframe also suggest more upside. Look for the US Dollar Index to continue higher and if it can hold above resistance at 76.40 then a possibility of a retest of the rising multi-year trend resistance at 77.80 soon. Any pullback looks to find support at 74.80-75.
US Treasuries, measured by the ETF TLT, moved in a tight range. The daily chart shows the RSI test and hold at the mid line and the flat MACD. The weekly chart shows a much stronger up trend. The RSI is rising steadily and the MACD is improving. Volume has been increasing on the move higher as well. Look for the TLT to have an upward bias next week and if it can get over the resistance at 97.30 it could trigger a big move to 100 and then the 102.5 resistance. Pullbacks will find support at the 95 – 95.50 area.
The Shanghai Composite broke its bear flag lower. The RSI on both the daily and weekly chart is trending lower. The MACD on the daily chart is about to cross negative and on the weekly chart growing negative. Both timeframes suggest more downside for next week. Support comes at 2571-2590 and then 2500 below that. The measured move from the bear flag would target the top of that support. Any move higher will see resistance at 2695-2700.
Emerging Markets, measured by the ETF EEM, continued the trend lower, with a new lower low this week. On the daily chart the RSI is trending lower and the MACD is growing more negative. The weekly chart also has a falling RSI and a MACD growing more negative. Look for more downside for Emerging Markets next week. There is support lower at 44.15 and then 43.10 and any upside would find resistance at 46 and then 47.20.
The Volatility Index broke out of the 15 – 20 range it has been in toward the end of the week and ran higher. The RSI and MACD on the daily chart suggest more upside to come. The weekly chart shows the spike which at this point is still below the previous spike, but with a RSI and MACD suggesting more upside. Now above the crucial 21.25 level, look for Volatility to continue to increase with the next critical level being a move over 24, which could trigger a bigger move up.
The SPY tested the top of the expanding wedge and then fell back holding support at the 127.10 area. On the daily chart the RSI looks to be leveling and the MACD is starting to improve. This would give you the impression that a bottom may be in…until you look at the weekly chart. On the weekly timeframe the SPY continued the break of trend support lower with increased volume, a RSI that is sloping lower and through the mid line and a MACD growing more negative. UGLY. Look for next week to bring more downside with support coming at 126.30 and 123.50, which would be a 10% pullback. Upside will find resistance at 128.22 and 128.88 before 130. Over 130 the trend is reversed.
The IWM consolidated around the long term support resistance level at 79.10. On the daily chart the RSI looks to be leveling and the MACD is starting to improve. This also suggest that the bottom may be in. On the weekly timeframe the IWM printed a doji star at the low of the previous week. Maybe the bottom is in. But the RSI is trending lower and through the mid line, maybe with a crick at the end, and the MACD leveling. Look for next week to bring more consolidation, with possible downside, with support at 77.85 and the 76.75-77 and 75.50 below that. Upside will find resistance at 80 and 80.60. Over 81.57 is bullish.
The QQQ tested resistance at 55.50 and then fell back to the support/resistance area at 54.26 before printing a bearish engulfing candle on Friday. On the daily chart the RSI looks lower and the MACD is leveling and volume has been increasing. On the weekly timeframe the QQQ continued the break of trend support lower with increased volume, a RSI that is sloping lower and through the mid line and a MACD growing more negative. UGLY. Look for next week to bring more downside with support coming at 53.40 and then 52.50-52.71. Upside will find resistance at 54.26 before 55. Over 55.50 is bullish.
Next week looks for Gold to drift higher while Crude Oil heads lower. The US Dollar Index is primed to continue its upside move while Treasuries consolidate with an upside bias. Both the Shanghai Composite and Emerging Markets should see continued weakness. The Volatility Index will be important next week and is poised to move higher. US Equity Index ETF’s, are mixed but generally biased to the downside. The QQQ is the worst looking with the SPY mixed but biased lower and the IWM looking as it may consolidate. Watch for a move in the Volatility Index over 24 to trigger coordination among the Index ETF’s and a a move lower. Consolidation in the weaker Indexes should bring the Volatility Index back under 20 and could lead to a trend change. Use this information to understand the major trend and how it may be influenced as you prepare for the coming week ahead. Trade’m well.
Editorial Note: My service provider is no longer providing open-hi-lo, but only close data for Gold, Crude Oil and the US Dollar Index on the daily charts. I will be making a decision about substituting ETF’s for these going forward vs using close only data. If you have a preference please leave your thoughts in the comments.
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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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