Macro Month in Review/Preview September – October 2011

Last month in this space my Monthly Macro Review/Preview suggested the upside for Gold and US Treasuries will continue while the trend lower for Crude Oil and the US Dollar Index will also continue. The Shanghai Composite and Emerging Markets look to continue to move lower as well. Volatility can go either way but looks to remain above the lower range experienced in the last six months with the VIX in a wide range between the mid 20’s and 48. Despite that uncertainty, the Equity Index ETF’s SPY, IWM and QQQ are set up to continue lower in the coming months. As noted on the individual charts there is room for some short term upside without breaking the downward bias.

Gold consolidated and the US Dollar Index reversed moving up, going against the charts. US Treasuries held true to the charts and moved higher, a lot higher and Crude Oil continued lower. The Shanghai Composite and Emerging Markets did continue lower as anticipated in the charts. Volatility took the high road and continued even higher concurrent with a move lower in the Equity Index ETF’s, SOY, IWM and QQQ. A couple of markets moving unexpectedly. How does the month impact the longer term picture. let’s look at some charts.

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Metals

Gold, $GC_F

Gold made a Tweezers Top and tested the rising support line in September. It has a Relative Strength Index (RSI) that is working off a technically overbought signal and the Moving Avergae Convergence Divergence (MACD) indicator is falling, both supporting further consolidation or pullback. Support lower comes at 1580 followed by 1500 and then 1435. Any move higher should meet resistance at 1765 and then 1840. The chart suggests further pullback in the coming months for Gold within the long 10 year uptrend.

Copper, $HG_F

Copper has started a trend lower and is now below the Median Line of the bullish (green) Andrew’s Pitchfork and being attracted to the Lower Median Line. 2.90 is a key level lower and if it falls below that the next support comes at 2.55 and then the Lower Median Line comes into play at 2.22. it would take a move back above 3.57 to be bullish, making for a higher low. The steeply falling RSI and Crossed negative and growing MACD support more downside though for now. Look for lower prices for Copper in the coming months.

Fuel

West Texas Intermediate Crude, $CL_F

Crude Oil continued lower following the Upper Median Line of the bearish (orange) Pitchfork and toward the Lower Median Line of the bullish (green) Pitchfork. The RSI has broken the mid line and is sloping lower and the MACD has crossed negative, both suggesting more downside. It has been ping ponging among the Fibonacci levels that are tightly bunched, and now headed toward the 74 area with 71 as support lower. Below that there is support at 68 where the Pitchforks cross in March 2012 and then 58. Look for Crude Oil to continue its run lower in the coming months.

Natural Gas, $NG_F

Natural Gas has been in a consolidation range between 3.85 and 4.85 since March 2010 until it fell out lower in September. With the RSI pointing lower and the MACD ready to cross negative it looks ready to test support of the rising 13 year trend line support at 3.30 with support lower at 3.00 if it breaks through.

Currency & Debt

US Dollar Index, $DX_F

The US Dollar Index broke the consolidation higher and is back in the symmetrical triangle at resistance of the 20 and 50 month Simple Moving Averages (SMA). A continued move higher sees resistance at the mid line of the triangle at 81.28. The rising RSI and MACD that is crossing higher support more upside. Look for more upside to the US Dollar Index in the coming months with a move above 81.28 seeing resistance at 83 and then the top rail at 87.17. Any pullback should finds support at 77.95.

US Treasuries, $TLT

Treasuries, as measured by the ETF TLT, continued higher in September printing another long white candle. The MACD and RSI are strong, but not yet extreme, supporting more upside and the target of the move out of the symmetrical triangle is at 135.20 above. Look for more upside in the coming months with support lower at 108 and then 105 on a pullback.

Foreign Markets

Shanghai Stock Exchange Composite, $SSEC

The Shanghai Composite continued its move lower accelerating after breaking the trend line and finishing at the 100 month SMA. The RSI is breaking lower after flat lining for over a year supporting a move lower. It is on support but looks ready to continue lower with support at 2080 and then 1824 lower before strong support at 1750. look for more downside in the next few months.

German DAX Composite, $DAX

The German DAX fell dramatically the last two months and is looking for support after touching the 200 month SMA. it printed a Hammer, potential reversal candle, which needs to be confirmed, next month. But the RSI running lower and the MACD which has just crossed negative support more downside. look for the coming months to see more downside for the DAX with support lower at 4430 and then 3780 if if breaks the rising trend line support.

iShares MSCI Emerging Markets Index, $EEM

Emerging Markets, as measured by the ETF EEM, is also running lower. It printed a long red body candle that is moving quickly toward the Lower Median Line of the bullish (green) Pitchfork at 33.17. The RSI sloping lower and the MACD which just crossed negative both support more downside. Support lower comes at 32.50 and then 30.93 and 28.40. Any upside move has resistance at 35.91 and then 42.20. Look for more downside in the coming months.

US Equity Markets

VIX, $VIX

The Volatility Index is marching higher in a bullish Three Advancing White Soldiers pattern. Now at the peak from May 2010 it has resistance higher at 50 and then 60 and support lower at 34.50 and 30.80. The bullish continuation pattern along with falling equity markets suggest Volatility will remain elevated and may go higher in the coming months.

SPY, $SPY

The SPY continued lower and is through the Median Line of the bullish (green) Pitchfork in September. It stopped at a retest of the 61.8% retracement of the move lower from 2007-2009 and just over the 50 and 100 month SMA’s. The RSI is cracking the mid line and sloping lower while the MACD has just crossed negative. Both support more down side. Look for further downside in the SPY in the coming months with support lower at 109.20 and 105.50 followed by 100. Any bounce could find resistance at 116 or 119.90.

IWM, $IWM

The IWM is similar but a but worse off. It too continued lower and is through the Median Line of the bullish (green) Pitchfork. It stopped just under previous support at 65 near the 50 and 100 month SMA’s. The RSI is breaking the mid line and sloping lower while the MACD has just crossed negative. Both support more down side. Look for further downside in the IWM in the coming months with support lower at 59.40 and 55 followed by 53.50. Any bounce could find resistance over 65 at 73.50.

QQQ, $QQQ

The QQQ just started a move lower and went through the Median Line of the bullish (green) Pitchfork in September. The strongest of the Equity Index ETF’s. It stopped at rising 20 month SMA. The RSI is rolling and sloping lower while the MACD is just crossing negative. Both support more down side. Look for further downside in the QQQ in the coming months with support lower at the neckline of the previous Inverse Head and Shoulders at 50 and then 44 and 42.20 lower. Any bounce could find resistance at 54.26and then a move over 60 would signal a new bull phase.

The monthly outlook suggests that Gold and Copper will continue lower as will Crude Oil and Natural Gas. The US Dollar Index and US Treasuries look to have more upside in the next few months. All three foreign markets, the Shanghai Composite, the German DAX and Emerging Markets all look to continue to move lower as well. Volatility can go either way but looks to remain elevated and biased to move higher. The Equity Index ETF’s SPY, IWM and QQQ are set up to continue lower in the coming months. As noted on the individual charts there is room for some short term upside without breaking the downward bias. As long as Copper is set up to continue lower and the US Dollar and US Treasuries are biased higher the US Equity Markets will have a hard time rising. With all global equity markets also flashing lower it suggest a sluggish global economy which is another negative for the US Markets.
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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