Macro Month in Review/Preview February 2011

• Posted by Greg Harmon
• on February 28th, 2011

Last month in this space my Monthly Macro Review/Preview suggested that heading into February the charts pointed to a decision point for Gold as it was falling within the long term uptrend, and to a move higher by Crude Oil. The US Dollar Index and US Treasuries looked to be headed lower. It also looked like decision time for the Shanghai Composite but Emerging Markets look to be headed higher, perhaps after testing their breakout level. Volatility appeared to be contained to the upside and within a downtrend. Equities all looked higher from many indicators with the slowing volume being the only factor raising a caution flag.

The month started out with Gold making that decision by moving back to the up side. Crude Oil held within the recent range early but popped to end the month. The US Dollar Index had a short term bounce but ended at new lows while US Treasuries did the opposite finding support lower and then reversing later in the month. The Shanghai Composite moved higher and Emerging Markets continued the wide drift lower, still above the break out level. Volatility did drift down but caught a quick pop toward the end of the month. US Equities continued their steady climb, but experienced their first sizeable pullback going into the end of the month bringing it back to unchanged. All this activity put just one more candle on each monthly chart to review. Let’s step back from the day to day and see how the longer picture looks now.

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

Gold

Gold managed to hold the support of the bottom rail of the rising wedge within the rising channel. It printed a strong Piercing candle, with no upper shadow, almost recovering the entire previous month sell off. It looks to head higher now with resistance at the previous high at 1430.60 and then the top rail of the wedge at 1469 for March. Through that it could start a steeper move higher to the top of the channel at 1592. The bottom of the wedge support for March is at 1362 and the 20 month Simple Moving Average (SMA) is below that at 1191 for additional support. The Relative Strength Index (RSI) is strongly in bullish territory, but the Moving Average Convergence Divergence (MACD) indicator looks to have peaked, at least short term. The trend remains higher but a pullback to the wedge bottom or 1332 support would not change that short term, and there is plenty of room to the bottom of the channel before trend reversal could be called.

West Texas Intermediate Crude

Crude Oil continued its move higher this month and is looking like it is on the verge of a major move higher. The Bollinger Bands are starting to expand as it moves higher, from a very tight range. It is currently passing through past resistance and toward the 100 level. From there it will have $10 round number resistance levels at 110, 120, etc until new highs. The RSI is rising with a good slope and has a lot of room before it gets technically overbought. The MACD is increasing as well, supporting move upside.

US Dollar Index

The US Dollar Index continued lower towards the bottom rail of a symmetrical triangle, at 76.64 for March. If it bounces it would be the 7th touch of the triangle and the fourth on the bottom rail. As it is approaching this time the RSI failed to break above the mid line and is continuing lower in bearish territory. The MACD is also growing more negative. Look for it to touch the rail and if it goes through, there is support at 75 and then 71.90 before it could head to a pattern target under 59. Any bounce needs to contend with the resistance of the falling SMA’s and previous peak near 81.40.

iShares Barclays 20+ Yr Treasury Bond Fund

US Treasuries, as measured by the TLT, broke the 5 month down trend and found support at the 50 month SMA before rising and printing a bullish Hammer candle. The bottom of the real body of the candle is at approximately the target for the fall out of the small symmetrical triangle as well, and selling pressure as measured by volume has declined as it touched 90 over the last several months. If the Hammer is confirmed then look for a move higher to resistance at 93.50 from mid 2009 and then 99.20. The RSI has managed to hold in bullish territory and is turning higher now and the SMA’s are sloping up, but the MACD is still pointing lower. Look for the TLT to hold and start moving higher over the next few months.

Shanghai Stock Exchange Composite

The Shanghai Composite is funneling into the apex of a symmetrical triangle. It is too far into it to expect a major break though. The other factors at play are the two Fibonacci levels currently bounding the last 4 months. Expect these levels, 2714 and 2956, to continue to play a role in the near term. The longer term is biased to the upside with the slightly rising SMA’s and the RSI never getting below 30. A move higher through 2956 will see resistance at 3130 and then the 3366 Fibonacci level.

iShares MSCI Emerging Markets Index

Emerging Markets, measured by the EEM, held in the consolidation area above the move over 42.92 this month, after rejecting at the 48.50 level last month. The RSI is still in bullish territory and drifting up slowly, and the MACD is positive. The bias is to the upside as the SMA’s are rising and it is hugging the top of the Bollinger Bands, but it may continue to consolidate for a bit longer. Notice that the Bollinger bands are still tightening. Watch them for expansion as a signal that the move is about to begin. Resistance will come first st 48.50 and then the past high at 52.50.

VIX

The Volatility Index continued in the downward channel this month. It has now tested through the support level at 16.33 each of the last three months and held. It also tested much higher this month before printing a long legged Doji candlestick. This is a sign of indecision or potential reversal of the downtrend. If confirmed by a move higher there is resistance at the 21 area. But indecision could also mean that the stall in the downtrend as signaled by the test and hold of support, may break down and a new move lower could begin. If this were to happen then there is long term support in the 11 – 12 area. Expect that the VIX will move sideways for the next month or so between 16.33 and 21 possibly giving more clues as to a future move.

SPY

The SPY continued higher this month on its march back to the October 2007 highs. The volume decline has now leveled and is rising slightly. The RSI is rising in bullish territory and has plenty of up side room. The MACD is also increasing, pointing to higher levels. But this month printed outside of the upper Bollinger band, suggesting at least a pause or slowing to move back inside should be coming soon. The next level of resistance on the monthly chart is at 137.15 before the past highs at 146.65, and there is support just under the current level at 131.50. There is no doubt the trend is higher on the SPY.

IWM

The IWM printed another strong bullish candle in the uptrend this month, at new highs, but also piercing the Bollinger Bands. The Index is not far from all time highs as well. The RSI is rising and has some room before being extended and the MACD is increasing. As it moves through the 100% retracement of the down move the next price objective on a Fibonacci extension is at 93.02. The trend is higher and look for it to continue.

QQQQ

The QQQQ also continued higher in the bullish trend and is piercing the upper Bollinger band. The RSI is rising and has room before being extended and the MACD is increasing, suggesting higher prices to come. It is now in a short term consolidation area up to 63, with support at 57 and 55. Look for the trend to continue higher over the next few months with the Q’s as well.

So the next few months look to bring higher prices for Gold and Oil, and further weakness to the US Dollar Index. US Treasuries look to be ready to move higher after bottoming. The Shanghai Composite and Emerging Markets suggest more slow drift sideways. The Volatility Index seems to be in a range from 16.33 to 21, which will make it a fine environment for Equities to move higher, with a little caution from the breaking of the Bollinger bands. Keep these trends in mind as you plan your investing activities and trade’m well.

For the shorter term perspective: Macro Week in Review/Preview February 25, 2011

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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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