SPY Trends and Influencers: Monthly Edition July into August 2012

Last month in this space my Monthly Macro Review/Preview heading into the back half of the year suggested downside for Gold ($GLD) and consolidation for Copper ($JJC), while Crude Oil ($USO) looked lower with Natural Gas ($UNG) rebounding, reversing their long term positions. US Treasuries ($TLT) and the US Dollar Index ($UUP) looked ready to continue higher. The Shanghai Composite ($SSEC) and Emerging Markets ($EEM) looked to continue to consolidate or move lower while the DAX ($DAX) consolidated with an upside bias. Volatility ($VIX) could go either way but looked to remain above the lower range experienced in the last six months with the VIX in a wide range between 15 and 28. Despite the strength of the Dollar Index and Treasuries, the Equity Index ETF’s $SPY, $IWM and $QQQ were set up to continue higher in the coming months. There was also a caution that it is not likely that Treasuries, the Dollar Index and Equities all continue higher for long, so look for signs of a breakdown. How does an additional month impact the longer term picture? Let’s look at some charts.

As always you can see details of individual charts and more on my StockTwits feed and on chartly.)

SPY, $SPY

The SPY confirmed the Piercing candle for last month higher, a bullish signal. The Relative Strength index (RSI) continues in bullish territory but moving sideways with a Moving Average Convergence Divergence indicator (MACD) that is positive, both supporting further upside movement. The confluence of the Fibonacci Fan Line and the full retracement at 142.28, lies above as resistance and above that, new highs. The Measured Move higher takes it to 162.22, very near a 123.6% Fibonacci extension of the move off of the 2009 lows. The 20 month RSI nearby gives it room to run higher as well. Support lower on a pullback is found at 126.48 and below that the mood shifts to a downside bias and support at 114. Continued Upside.

The monthly outlook suggests the upside for the US Dollar and US Treasuries will continue while Crude Oil and Gold look to consolidate with Gold biased lower and Crude Oil higher. Copper looks like Gold, consolidating with a bias lower while Natural Gas is biased higher but at resistance. The Shanghai Composite looks to continue to move lower while Emerging Markets consolidate and the German DAX looks to continue to move higher. Volatility looks to remain stable and low. This backdrop supports a a weaker Equity market going forward. But the relationship between Equities and Treasuries and the US Dollar Index has been moving in a correlated fashion, not as expected. This can continue of course until it does not. The point is to be aware that the current correlation is not normally expected. The charts of the Equity Index ETF’s themselves show that the SPY and QQQ are set to move higher with the QQQ the strongest. The IWM appears to be ready to consolidate gains. 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.

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