Macro Month in Review/Preview July-August 2011

Last month in this space my Monthly Macro Review/Preview suggested that the monthly charts had shifted to showing very little upside in any area. Can they rebound, sure. But they looked biased lower. Gold looked to consolidate in the uptrend while Crude Oil moves lower. The US Dollar Index was biased lower but in a range with US Treasuries also in a range. The Shanghai Composite looked to move in a consolidation range while Emerging Markets were biased lower in a range. The Volatility Index looked to remain stable but US Equity Indexes were all starting to point lower, with QQQ the strongest followed by IWM and SPY.

Gold moved higher through the month before consolidating while Crude oil consolidated in a tight range. The US Dollar tested higher in the range but finished lower and US Treasuries stayed in their range until the end of the month. The Shanghai Composite held lower in the range while Emerging Markets held their range. Volatility crept up while the Equity Indexes held in upper half of their ranges. How does the 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.)

Gold, $GC_F

Gold remains in its 10 year uptrend surging higher in July toward the rising trend line at 1680 and the Upper Median Line of the Andrew’s Pitchfork. The Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) indicator both support more upside, with the MACD reversing the decline from June. Pullbacks to the 1500 area may still occur but with the surge a new base a 1575 is now in place, and a target of a touch of the Upper Median Line and possibly the rising trend line may occur with in a few months.

West Texas Intermediate Crude, $CL_F

Crude Oil continued its move along the Upper Median Line of the bearish orange Pitchfork, and away from the Median Line of the bullish green Pitchfork, but held at the 95.36-96.07 Fibonacci level. The RSI is leveling but the MACD is still declining, supporting more downside. Look for a break below the Fibonacci area to result in a move lower toward the 88-90 level in the coming months. At current levels, it may consolidate, even through the orange Upper Median Line before that occurs.

US Dollar Index, $DX_F

The US Dollar Index continued its bear flag out of the symmetrical triangle in July. The topping tails on the last 3 candles suggest a move lower may commence soon and the falling Simple Moving Averages (SMA) support that. The RSI meandering lower and a negative MACD also support a move lower. A fall out of the flag to new lows could get ugly fast, but it is still not out of the question that it may retest the breakout at 77.30.

US Treasuries, $TLT

US Treasuries, measured by the TLT, resumed their move higher off of the touch of the bottom rail of the symmetrical triangle after a pause in June. They finished the month piercing the the 95.50 to 97.30 center band with a rising RSI and a MACD that is crossing higher. This looks ready now to test the top rail at 102.50 in the coming months.

Shanghai Stock Exchange Composite, $SSEC

The Shanghai Composite continues to move in a tight range between 2950 and 2550 but being pressured lower under the falling resistance line from 2009. The MACD has been flat as a tortilla since mid 2010 but the RSI is showing signs that it may want to move lower, to be confirmed. Look for the Shanghai Composite to continue to meander sideways in the range with a slight downward bias from the resistance line in the coming months.

iShares MSCI Emerging Markets Index, $EEM

Emerging Markets, measured by the EEM, continued their consolidation near the highs from late 2007 into early 2008. the top rail of the consolidation channel at 48.20 is gaining more strength as it continues to act as resistance. The RSI looks to continue to roll lower and the MACD to continue back to the zero line as the volume decreases. This suggests more consolidation with a slight bias of a move to lower off of the top of the range.

VIX, $VIX

The Volatility Index launched higher in July, but in a controlled manner. Now near the last SMA it is also near the levels from before the Financial crisis. On the edge now of a break higher, with a move above 28 signaling a change from low to increased volatility, watch closely for signs of a pullback. If that happens then it will have made a third lower high, creating a descending triangle and a move back to 16.45.

SPY, $SPY

The SPY continued its move lower off of the top on a monthly basis, but holding above the 126 support. The RSI continues to roll lower and the MACD continues to fade back to the zero line, both suggesting the possibility of more sideways or downside motion. 126 is the key to the SPY. A move below it will confirm more downside and potential to test 120 or 114. A hold long enough to turn the RSI and MACD could lead to a move higher and a target on a Measured Move (MM) to 162.

IWM, $IWM

The IWM continued its move lower off of the top on a monthly basis, but holding near the 81.26 area, highs from before the Financial crisis. The RSI continues to roll lower and the MACD continues to fade back to the zero line, both suggesting the possibility of more sideways or downside motion. 77 is the key to the IWM. A move below it will confirm more downside and potential to test 72.50 or 66. A hold long enough to turn the RSI and MACD could lead to a move higher and a target on a MM to 108.

QQQ, $QQQ

The QQQ continued to hold its highs on a monthly basis, over the 54.26 area, highs from before the Financial crisis. The RSI continues to hold but the MACD continues to slowly fade back to the zero line, suggesting the possibility of more sideways or downside motion. 54.26 is the key to the QQQ. A move below it will confirm more downside and potential to test 50.50 or 46. A hold long enough to turn the MACD could lead to a move higher and a target on a MM to 78.

Gold looks ready to move higher in the coming months along with US Treasuries while Crude Oil and the US Dollar Index are biased to the downside. The Shanghai Composite and Emerging Markets are set to slowly drift lower in a sideways consolidation. Volatilty is on the edge of a break higher at a critical level. A move above 28 signals regime change while a fall back, more of the same. his is reflected int eh Equity Indexes as well with the SPY, IWM and QQQ all consolidating with indicators starting to point negative, but holding in their ranges. A catalyst that pushes them higher could lead to a major rally. The QQQ is the strongest of the Indexes as of teh end of July. 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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