Macro Week in Review/Preview August 27, 2011

Last week’s review of the macro market indicators looked like the entire rubber band of the market was getting a little stretched but expected it to continue. Gold looked to continue higher as Crude Oil continued to sell off. The US Dollar Index appeared comfortable continuing sideways while US Treasuries moved higher. The Shanghai Composite and Emerging Markets look ready for more downside. Volatility looks biased higher leading to the expectation that Equity Index ETF’s SPY, IWM and QQQ continue lower. Remember that a stretched rubber band can result in two outcomes: a snap back, or the rubber band breaks and the real carnage results. Stay nimble.

The week began with Gold rising but peaking Tuesday while Crude Oil did continue higher. The US Dollar Index continued in its channel but Treasuries fell before coming back late in the week. The Shanghai Composite Index and Emerging Markets moved in a range sideways. Volatility held higher but equities managed to hold and move higher by Friday. What does this mean for the coming week? Lets look at some charts.

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

Gold Daily, $GC_F

Gold Weekly, $GC_F

Gold started the week higher then fell over $200 in a few days before rebounding Friday. The daily chart shows that the fall found support at the 20 day Simple Moving Average (SMA) and previous support area at 1748. It also worked off the overbought condition on the Relative Strength Index (RSI). The bad news on this timeframe is that the Moving Average Convergence Divergence (MACD) indicator has crossed negative, now diverging with price and the RSI. On the weekly timeframe Gold retested the channel breakout before moving back higher. The RSI on this timeframe is still elevated but moving lower and the MACD is solidly up, but it settled out of the Bollinger bands for the fourth straight week. Gold looks ready to consolidate in what is likely to be a broad range moving into next week. Look for the bulk of the action to be between 1748 and 1800 with moves up to 1825 and down to 1700 possible, but a less defined uptrend, for now. The longer term trend is still strongly higher.

West Texas Intermediate Crude Daily, $CL_F

West Texas Intermediate Crude Weekly, $CL_F

Crude oil continued its move higher but has now created a lower high and may be building a symmetrical triangle on the daily time frame. The RSI has now leveled and but the MACD is improving as it taps the falling 20 day SMA. The weekly chart shows the continued bear flag following the breakdown below the rising channel. Although the RSI is kinking higher the MACD continues to stay negative as it rests on the jumble of SMA’s. The trend is still lower and look for that to continue next week if the current range is broken. A move below 80 leads to a large downside trip to 77 and 73.80 lower. It would take a move above 88.50 to reverse the trend.

US Dollar Index Daily, $DX_F

US Dollar Index Weekly, $DX_F

The US Dollar Index continued in the lower range of its 4 month long bear flag. The RSI and MACD on the daily timeframe are getting as flat as all the SMA’s with the exception of the 200 day SMA that is still falling. On the weekly timeframe the bear flag is prominent between 73.50 and 76 as it approached the Fan line. The RSI on this time frame is in bear territory and may be heading lower while the MACD approaches the zero line from slightly above. Something has got to break here but until the 73.50-76 flag is broken look for more movement sideways. A break lower, with the current trend, has targets at 71.33 followed by 68 and 60.

iShares Barclays 20+ Yr Treasury Bond Fund Daily, $TLT

iShares Barclays 20+ Yr Treasury Bond Fund Weekly, $TLT

Treasuries, as measured by the ETF $TLT, fell from their top but just barely. The daily chart shows that it found support near the rising 20 day SMA and previous consolidation area before a bounce up. The RSI is vacillating lower while the MACD has crossed negative, suggesting more downside on this time frame. The weekly chart suggest more of a bull flag with volume declining. The MACD on this timeframe is still solid with the RSI pulling back from being overbought. The flag may continue but look for treasuries to move lower next week with support nearby at 104.81-105 and then a retest of the triangle breakout on the weekly chart at 102.00.

Shanghai Stock Exchange Composite Daily, $SSEC

Shanghai Stock Exchange Composite Weekly, $SSEC

The Shanghai Composite appears to be carving out a new range lower between 2500 and 2625 or higher. Currently the daily chart has a RSI that is pointing higher but near the mid line and a MACD that just crossed positive, supporting more upside. the weekly chart confirms this with a RSI that is kinked higher and a MACD that is relatively flat. The bigger insight from the weekly chart is that it is continuing to hold near the 50% Fibonacci retracement of the move higher from 2008 into 2009 in a bear flag. The trend is lower and the falling SMA’s on both timeframes confirm this. Look for any further move higher next week to be short lived and meet resistance at 2695-2700 and a fall back and under 2500 a confirmation that the flag is broken and it is moving lower.

iShares MSCI Emerging Markets Index Daily, $EEM

iShares MSCI Emerging Markets Index Weekly, $EEM

Emerging Markets, as measured by the ETF EEM, had an unusually stable week printing a doji candle on the weekly chart. This translates to a bear flag on the daily chart with all of the SMA’s driving hard lower. The RSI is moving sideways but the MACD improving and crossed positive. On the weekly timeframe it continues a 3 week bear flag with the RSI kinking higher off of the 30 technically oversold line and the negative MACD improving slightly. All the SMA’s are rolling over on this timeframe as well as the flag is working it back into the Bollinger bands. look for more consolidation in the coming week with a bias to continuing the downside move. Support comes in under 39 at 35.91 and it would take a move above 42.54 to reverse the trend higher.

VIX Daily, $VIX

VIX Weekly, $VIX

The Volatility Index is building its own bull flag between support at the 20 day SMA at 34 and the previous high from 2010 at 48. The RSI is in bullish territory but pointing lower with the MACD crossed lower, suggesting a fall. And the weekly chart confirms that as well with the RSI falling and the MACD now leveling and declining slightly. But with the bull flag it will take a break below 31 to confirm a future move lower. Until then expect more of the same elevated volatility in the 34-48 range. A move above 48 can run fast to 56 and then 70.

SPY Daily, $SPY

SPY Weekly, $SPY

The SPY bounced off of the lows from last week tagging the falling 20 day SMA. The RSI is pointing higher on the daily time frame and the MACD has crossed higher supporting more upside. The weekly time frame shows a bear flag sitting on the fall back to the 61.8% Fibonacci level from the move lower from 2008 to 2009. The MACD is negative and growing while the RSI has bounced off of the technically oversold line at 30. The trend remains lower despite the up move. It would take a move above 121.50 to reverse the current trend. Until then look for more downside or at least consolidation below the 121.50 level and a move below 111.15 a catalyst for more downside and support lower at 102.5-104.50.

IWM Daily, $IWM

IWM Weekly, $IWM

The IWM also bounced off of the lows from last week and touched the falling 20 day SMA. The RSI is pointing higher on the daily time frame as well and the MACD has crossed higher supporting more upside. The weekly time frame shows a bear flag sitting on the 200 week SMA and just above the fall back to the 61.8% Fibonacci level from the move lower from 2008 to 2009. The MACD is negative and growing while the RSI has bounced off of the technically oversold line at 30. The trend remains lower here as well despite the up move. It would take a move above 73.70 to reverse the current trend. Until then look for more downside or at least consolidation below the 72 level and a move below 65.50 a catalyst for more downside and support lower at 62.92 and 58.68 lower.

QQQ Daily, $QQQ

QQQ Daily, $QQQ

The QQQ bounced off of the lows from last week tagging the falling 20 day SMA. The RSI is pointing higher on the daily time frame and the MACD has crossed higher supporting more upside. The weekly time frame shows a bear flag sitting on the neckline of the inverse head and shoulders at 50.03 as it intersects with the 100 week SMA. The MACD is negative but improving while the RSI has bounced and rising. The trend remains lower despite the up move. It would take a move above 54.26 to reverse the current trend. Until then look for more downside or at least consolidation below the 54.26 level and a move below 50.03 a catalyst for more downside and support lower at 46.60. This is the strongest of the equity index ETF’s.

As the unofficial last week of Summer begins look for Gold to bounce around in its uptrend while Crude Oil slows at resistance and turns lower. The US Dollar Index seems content to move sideways while US Treasuries are biased lower. The Shanghai Composite and Emerging Markets are biased to the downside with risk of the Chinese market running a little higher first. Volatility looks to remain elevated keeping the bias lower for the equity index ETF’s SPY, IWM and QQQ, despite the moves higher, with the QQQ looking to have the best chance to break the bear flags higher. Use this information as you prepare for the coming week and trade’m well.

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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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