Macro Month in Review/Preview April into May 2012
- Posted by Greg Harmon
- on May 1st, 2012
Last month in this space my Monthly Macro Review/Preview suggested that Gold would continue lower with a chance of consolidation in the long term uptrend while Copper was ready to move higher. In the Fuels, Crude Oil looked good to the upside while Natural Gas continued to look like a natural disaster. The US Dollar Index looked better to the upside but might continue to consolidate while Treasuries were now biased lower. In the foreign markets the Shanghai Composite looked to continue lower with Emerging Markets moving sideways and Germany heading higher, something for everyone. The Volatility Index was biased lower but at the current levels was not expected to go much lower quickly but also not expected to rise soon. These influencers set the stage for the US Equity Index ETF’s, SPY, IWM and QQQ to continue higher and their charts agreed. How does an additional month impact the longer term picture. let’s look at some charts.
Gold continued its attraction to the Median Line of the Andrew’s Pitchfork, currently right at the 20 month Simple Moving Average (SMA). The last three candles are getting tighter, a kind of consolidation within the uptrend. The Relative Strength Index (RSI) continues to trend lower while the Moving Average Convergence Divergence (MACD) indicator grew more negative. Both support further consolidation or a move lower. The trend is clearly higher with all of the SMA’s running up at nearly 45 degree angles. It looks possible that the current consolidation could continue into August in sideways motion or longer if a pullback ensues. 1575 will be the key between pullback and consolidation. Any move now over 1770 looks to move to new all time highs as it would then approach the Upper Median Line.
Copper is consolidating under the 20 month SMA and at the Upper Median Line of the bearish (red) Pitchfork. Technically still in an uptrend since 2009 with rising volume and a RSI that has held bullish. The MACD is improving toward the zero line, also supporting upside. A move over the Upper Median Line and some space from it will give the Median Line of the bullish (green) Pitchfork more attractive power to drag it higher. It is clearly struggling at this level displaying the series of doji. Look for more consolidation until there is a move over 4, or under 3.55. The bias now is for an eventual move higher.
West Texas Intermediate Crude, $CL_F
Crude Oil remains on the verge of a very bullish trigger. At the Hagopian Trigger Line from the bearish Pitchfork a move over it will trigger buy signal and an attraction to the Median Line of the bullish Pitchfork, likely near the all time high. With just the 115.42-115.44 level as resistance it could happen quickly. The RSI is rising and bullish and the MACD is slightly positive and increasing. Both support more upside. Failure to break the trigger finds ample support at the 96 level.
Natural Gas, $NG_F
There is a little more to like about this chart with an extra month. The Hammer candle, a potential reversal if confirmed higher, gives some hope and the volume is decreasing with an RSI that has bounced off of the technically oversold level. Not time to buy but a few signs that a bottom may start to form. A move below 2.10 in May would end those thoughts. For now the trend is lower until it is proven changed and the 1999 lows at 1.65 are the next support. A move over 2.65 should get you thinking about getting long and over 3.00 is a buy.
Currency & Debt
US Dollar Index, $DX_F
The US Dollar Index continued the probe lower in consolidation moving toward the rising trend line support. The series of topping tails foreshadows a move lower. The RSI is firmly running sideways in the middle of the range with a MACD that is starting to fade back toward the zero line. Watch for a break below the trendline to head down toward support at 75 followed by 73. A move back over 80 has resistance at81.28. The bias now is for further sideways motion.
US Treasuries, $TLT
US Treasuries, as measured by the ETF $TLT, pulled back into their bull flag. With a target of 145 on a break over 122 the RSI is strong and bullish with a MACD that is diverging, positive but fading. The chart speaks of further consolidation in the flag but with a move under 112 leading to a change of bias to bearish.
Shanghai Stock Exchange Composite, $SSEC
The Shanghai Composite continues its consolidation run sideways within the downtrending channel. The RSI still cannot gather the strength to move over the mid line and out of bearish territory and the MACD remains flat in negative territory. The long term bias remains lower with support at 2180 and a break over the top rail at 2720 changing that to an upward bias. More consolidation within the downtrend channel.
German DAX Composite, $DAX
The German DAX printed a bearish engulfing candle for the month which if confirmed in May means the end of the recent upward move and a retrace to the 6000 level or lower. The RSI is curling lower within its trend higher showing a crack, and the MACD is averting a bullish cross positive. Several signs that a top is in. But the recent trend higher prevails until confirmed lower, and a move back over 7000 finds resistance at 7500 and then the top rail of the ascending triangle at 8000. Over that the trend would change from a broad long term consolidation to an uptrend.
iShares MSCI Emerging Markets Index, $EEM
Emerging Markets, as measured by the ETF $EEM, continued to hold over the Upper Median Line of the bearish Pitchfork, just over the 42.20 long term support/resistance. The RSI is technically in bullish territory but has been moving sideways at the mid line for months, while the MACD muddles along in negative territory. Resistance overhead is at 48.20 and a move there would likely start a new run higher to the Median Line of the bullish Pitchfork. For now it remains consolidating in motion toward the Lower Median Line of the bullish Pitchfork and Upper Median Line of the bearish Pitchfork.
US Equity Markets
The Volatility Index is consolidating after a 7 month run lower, at the long term important level of 16.45. The long upper shadows suggest that it will not turn higher soon. And it could certainly continue its move lower as was exhibited from 2004 to 2007. The flat SMA as support a stay at these levels. A move over 22 would reverse that thinking and suggest a new run higher. Until then the trend remains lower with a chance of consolidation.
The SPY consolidated at the high made last month. This is also just underneath the full retracement of the major move lower from the financial crisis. It is also right at the Measured Move higher from the October 2011 low (142) so consolidation is not unexpected. The RSI is bullish and strong with a MACD that is positive and increasing, both support further upside, and suggest this may be a pause not a top. Holding over the Hagopian Trigger Line, a buy signal, also supports the case for more upside. A move over 143 strengthens the bullish run and likely leads to the Upper Median Line of the bullish (green) Pitchfork attracting it higher. The next target would be a 123.6% Fibonacci extension to 161.96. It will take a pullback below 132 to start the process for a change of character and a move under 111, making a lower low, to turn it bearish. Until then any move lower should be considered a pullback in the uptrend.
The IWM also consolidated at the high made last month. This is also just under the April/May 2011 high. The RSI is bullish and strong with a MACD that is crossing positive and increasing, both support further upside, and suggest this may be a pause not a top. But not as strongly as the SPY. A move over 85.50 strengthens the bullish run and likely leads to the Upper Median Line of the bullish Pitchfork attracting it higher. The next target would be the Measured Moves higher at 87.50 and 99 followed by the price objective of the Inverse Head and Shoulders at 114. It will take a pullback below 73.50 to start the process for a change of character and a move under 63.40, making a lower low, to turn it bearish. Until then any move lower should be considered a pullback in the uptrend.
The QQQ also consolidated at the high made last month, an 11 year high. It has a bullish RSI and a MACD that is positive and increasing, both supporting further upside. A move higher has a target first at the price objective of the Inverse Head and Shoulders at 75. A move under 59.80 would start the process of thinking lower and under 50, a new lower low and turn bearish.
The monthly outlook suggests a lot of consolidation going on. Gold and Copper fit this with a bias for a breakdown for Gold but higher for Copper. US Treasuries and the US Dollar Index also fit the picture with Treasuries biased to a break higher. Crude Oil is one of the few strong charts among the influencers with Natural Gas biased to break lower or consolidate. The Shanghai Composite looks to consolidate with a lower bias while the German DAX looks biased higher but may consolidate here, with Emerging Markets consolidating with an upward bias. Volatility is even consolidating after a 7 month run lower. Despite all this consolidation, the Equity Index ETF’s SPY, IWM and QQQ are set up to continue higher in the coming months as they sit at resistance levels consolidating. Use this information to understand the long term trends in Equities and their influencers as you prepare for the coming months.
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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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