Macro Week in Review/Preview February 4, 2011
- Posted by Greg Harmon
- on February 4th, 2011
Last week’s review of the macro market indicators looked to be decision time for Gold, and a continuation higher for Crude Oil. The US Dollar Index looked to move higher this week and US Treasuries looking lower. The Shanghai Composite was also at a decision point but emerging markets looked to move lower. Volatility looked to rise in the short term, making it easier for the equity index ETF’s to continue their recent down moves within the uptrend.
Gold waited until Thursday to decide and did so with a vengeance rising $20 in less than 10 minutes holding it through the rest of the week. Oil did move higher but lost it gains as Friday rolled around. The US Dollar Index dropped hard early in the week but recovered to near unchanged by Friday whereas US Treasuries just kept falling. The Shanghai Composite rallied into the Chinese New Year while emerging markets continued their large range sideways consolidation. The Volatility Index instead stepped lower in small steps while the equity index ETF’s worked off last weeks Friday massacre. What does this mean for the coming week? 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 lifted itself up off of the mat after touching the 144 day Simple Moving Average (SMA) and the bottom Bollinger band last Friday. This also happened on the long rising uptrend line in green on the daily chart. It continued higher on Thursday up to the 100 day SMA and held there Friday to close the week. There is resistance above on the daily chart at 1366 and then 1387 above that. The Relative Strength Index (RSI) is testing the mid line at 50 but the Moving Average Convergence Divergence (MACD) indicator has turned positive and has crossed up. It needs to get through that resistance and have the RSI break 50 to re-establish the short term uptrend. The weekly chart shows clearly that the longer term uptrend is still in tact. Gold held the rising channel which now offers support at 1336. The RSI also bounced off of the mid line at 50 and is rising again. The Bollinger bands on the weekly chart look to be squeezing which could trigger a big move soon. Look for Gold to continue higher next week and test the 1366 level and possibly 1376 above that.
West Texas Intermediate Crude Daily
West Texas Intermediate Crude Weekly
Crude Oil again had trouble at the 93 level but found support at 88.50. The broad trend continues to be higher but the MACD is hovering near the zero level and the RSI is right at the mid line and pointing down, suggesting that there may be some additional down side risk, possibly to support near 86. The weekly chart shows the consolidation in the range between 88.50 and 93. The RSI is still trending higher but may be cracking that trend, with a MACD that has been very flat. A break of the channel higher will encounter resistance at 100, and lower will find support at 84. Look for a bias to continue the consolidation with a chance to the downside to start next week.
US Dollar Index Daily
US Dollar Index Weekly
The US Dollar Index bounced hard off of the 3 year uptrend line at 76.94 this week. The MACD supports a further move higher and is about to cross higher. The RSI also bounced hard off of the technically oversold line at 30 and is rising. Look for it to head higher to resistance at 78.65, near the 20 and 100 day SMA’s, with 79 above that. The weekly chart printed a bullish Hammer candle to follow last week’s doji. The Hammer touched that rising uptrend on the shadow. The RSI is curling higher but the MACD is at zero and looking like it could cross lower. There appears to be a move higher working but for it to sustain the Index needs to get through 79 first and then 79.50. Look for a short term continued move higher to begin the week.
iShares Barclays 20+ Yr Treasury Bond Fund Daily
iShares Barclays 20+ Yr Treasury Bond Fund Weekly
US Treasuries had their worst week since December. The TLT after flirting with breaking the down trend line lost support of the 90.20 level and headed lower near support of a previous channel at 88.60 on the daily chart. The MACD just crossed lower and the RSI is moving towards the oversold line but still has a long way too go. Finally all the bearish death crosses of the SMA’s have now occurred with the 100 day SMA crossing through the 200 day SMA this week. On the weekly chart there is a little more hope. The long red line is the 8 year uptrend line for the TLT as support. 8 years is a long time and the trend line has survived 5 major tests. This trend is also intersecting with the support line from the previous channel top at 88.60 next week. Coincidence? Should it bounce there is resistance at the down trend line at 90.75 on the daily and 90.94 on the weekly charts, and then through it at 92.14, the 100 week SMA. The RSI and MACD on the weekly chart suggest it has room lower though. Look for the down trend to continue but be mindful of the 88.60 level.
Shanghai Stock Exchange Composite Daily
Shanghai Stock Exchange Composite Weekly
The Shanghai Composite broke out of the downward wedge on the daily chart and settled there before taking off the rest of the week for the Chinese New Year. It will be back trading again February 9. At that pint it looks ready to test the resistance of the 50 and 100 day SMA’s higher as the MACD is rising and the crossed and the RSI through 50. The weekly chart suggest that it may find resistance at the top rail of the symmetrical triangle at 2910.
iShares MSCI Emerging Markets Index Daily
iShares MSCI Emerging Markets Index Weekly
Emerging markets have been in a wide range consolidation mode since October bounded on the upside by the resistance at the May 2008 high. The daily chart shows the MACD improving again and about to cross higher, but the RSI stuck and bumping against the 50 level. All the SMA’s are converging at 46.50, so that area might be the base for the next move. the weekly chart suggest that next move will be higher. It has been consolidating after the breakout of a channel and has now printed a higher low. The SMA’s are rising and the RSI has just bounced off of the mid line. There is support at 44.40 and then the channel top at 43.40, should it move lower. Expect a sideways to up bias in the coming week.
The Volatility Index reversed the big move higher last Friday in 5 easy steps down. It brings to mind a Rising Three Methods pattern which would complete with a large move up above last Friday’s high on Monday. It is sitting on support between 15.50 and 16.25 as well. Couching the prospect of a big bounce is the MACD crossing lower and the RSI falling toward the oversold line at 30. From the weekly chart the case for a move higher grows. The last 8 weeks have had a widening range on the support at 15.67 and the MACD is improving. There is a divergence in this chart as well though. The RSI has been unable to get through 50 and is moving lower from its last rejection. With all these mixed signals expect the relatively wide range to continue and that it will not rocket higher but likely be stopped by the falling SMA’s and previous resistance higher near 21.25. If it breaks lower there is also support at 12.40 and then 10.
The SPY opened the week on its lows at the 20 SMA and then gapped higher on Tuesday to continue the up trend the rest of the week. The daily chart shows it continues to print small body candles as it rises and is now approaching the 131.46 resistance level from November 2007 and February 2008. The RSI is rising again after last weeks fall took it out of the overbought condition and the MACD just crossed higher Friday. The weekly chart shows a strong white candle, closing nearly at the high in a clear continuation of the uptrend. The interim resistance comes next at 131.36 on the way to resistance at 136.44 from May 2008. The RSI is strong but not overly high and the MACD is positive. The only issue seems to be that volume is diverging, the same issue as last week. Watch that but remember that price is what counts and it is rising.
The IWM opened the week with a touch of the 50 day SMA and then traded higher meeting some resistance around 80. The daily chart shows it now above the 20 day SMA and prior support/resistance at 79.10, with support at 78 below it. The MACD is crossing up on this chart and the RSI is now up after bouncing just under the mid point. There is resistance higher at 80.50 then 81.57, the high from October 2007. It looks a lot like a sideways consolidation over the last two months. The weekly chart puts that consolidation in context as part of a longer uptrend. The broadening range during the consolidation suggests a break out soon. The MACD on the weekly chart has been decreasing but the EMA’s just kissed instead of crossing, so it may reverse and start to improve, and the RSI is rising again. Finally the SMA’s are rising on the weekly and should give support at 74.42 if the break out is lower. The trend remains higher although a few signs to watch out for.
The QQQQ also started the week on the low, holding support at 55.50 then and rose higher retracing the move down from Friday last week as it rode the 20 day SMA higher. The RSI touched and held the 50 level and is now rising and the MACD has been improving all week crossing up to end the week. There is resistance overhead at 57.50 and then 60. The weekly chart shows a strong move higher ending near the highs. Too short to be a Marubozu but with the same bullish characteristics. The RSI is high but not extreme and the MACD that was decreasing, reversed slightly this week and had the EMA’s kiss instead of crossing. The broadening range suggests that you stay on your toes as a break out of the consolidation is coming soon. If it is lower there is support at 54.26 from the weekly chart, but the trend is still higher.
So next week looks for Gold to continue higher with Crude Oil to continue consolidating with a bias to the downside if it breaks. The US Dollar Index looks to continue higher with US Treasuries lower. The Shanghai Composite will start trading again mid week and looks to continue higher with emerging markets continuing their broad range consolidation with a bias to the upside. The Volatility Index should remain volatile but not so much that it dictates direction of the market. The equity index ETF’s look to continue their moves higher next week. Keep these trends and relationships in mind as you prepare for the coming week and trade’m well.
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Gregory W. Harmon CMT, CFA, has traded since 1986 and held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)