SPY Trends and Influencers: Monthly Edition September into October 2014

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A monthly excerpt from the Premium subscriber version covering all 13 markets.

Last month in this space my Monthly Macro Review/Preview had the monthly outlook going into September looking bright for equities. Elsewhere it suggested that Gold ($GLD) and Copper ($JJC) might see more sideways action in September. US Treasuries ($TLT) looked to continue higher and the US Dollar Index ($UUP) was showing short term signs higher looking to join them. Crude Oil ($USO) was at risk of losing support lower while Natural Gas ($UNG) looked to have bounced and staved off any further downside for a while. The Shanghai Composite ($FXI) was heating up in its consolidation with an upward bias and Emerging Markets ($EEM) looked to continue the move higher as the German DAX ($EWG) looked ready to rebound higher. Volatility ($VIX) was picking up but still looked to remain at low levels. With that backdrop, the Equity Index ETF’s $SPY, $IWM and $QQQ were set up to continue higher in the coming months. The charts of the SPY and QQQ were showing they looked strong while the IWM continued to be in a range, but not giving up any ground. How does an additional month impact the longer term picture? Let’s look at some charts.

SPY, $SPY
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The SPY probed higher in September, making a new all-time high before pulling back a bit into month end. The pullback brings it back just under the 138.2% extension of the major leg lower during the 2008 financial crisis. The pullback also helped to work off some of the technically overbought condition in the RSI. The MACD is strong but not rising as fast as it had. These all combine to support a slowing of the trend or a pause. Notice that the Bollinger bands continue to point higher and the price action has only retraced half of Augusts narrow range. No need to panic or sell everything here. In fact the price is still being attracted to the Upper Median Line of the Andrew’s Pitchfork. The round number 200 is definitely giving the SPY some pause and may do so for some time to come. The Elliott Wave analysis suggests that it may be entering Wave IV of the Major Motive Wave higher. Wave IV, a corrective wave, would be expected to be flat after Wave II was a down wave in 2010. There is support lower at 192.30 and 184.70 followed by 175. To the upside the high at 201.90 is the only barrier and the next Fibonacci Extensions are at 202.72 and 213.40. Possible Consolidation in the Uptrend.

The monthly outlook suggests the consolidation for Gold and Copper may be coming to an end with a downside resolution while Crude Oil trends lower in its broad consolidation and Natural Gas reverses higher. The US Dollar Index appears strong and ready to continue higher while US Treasuries also continue to look strong. The Shanghai Composite is the strongest of the foreign markets and looks to continue higher while the German DAX consolidates under its round number of 10000 and Emerging Markets look to continue to move lower. Volatility can go either way and is testing the top of the lower range experienced since the beginning of 2013, but with the VIX in a range between the 10 and 16 not a factor at present. These factors give a positive bias to the equity index ETFs SPY, IWM and QQQ. As noted on the individual charts though the QQQs look strongest and could easily continue higher while the SPY may consolidate and the IWM continues to consolidate while watching for a downside break as a risk. Use this information to understand the long term trends in Equities and their influencers as you prepare for the coming months.

For complete analysis of the 13 markets summarized here join the premium service and read Macro Month in Review/Preview August into September 2014.

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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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