Macro Month in Review/Preview March 2011

• Posted by Greg Harmon
• on March 31st, 2011

Last month in this space my Monthly Macro Review/Preview suggested that heading into March 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.

The month started out with Crude Oil jumping, Gold moving higher and the Dollar Index moving lower, all as expected. Treasuries did find a bottom early in the month, but the Shanghai Composite and Emerging Markets started higher and the Volatility Index was stable early also as expected. But equities started flat and then moved lower. How did the month end up and what does this mean for the next few months? 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 the ascending wedge with in the rising channel, moving slightly higher for the month. The trend continues higher with resistance for April at 1495 and then 1620, and support at 1396 followed by 1325 and 1250 lower from previous support. The Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) indicator are both supporting higher prices, and the Simple Moving Averages (SMA’s) are are strongly sloping higher. Expect the bullish run for Gold to continue.

West Texas Intermediate Crude$CL_F

Crude Oil continues it’s move higher towards the Median Line (ML) of the Andrew’s Pitchfork. As it moves higher the Bollinger bands are expanding to allow for the run. The rising RSI and the MACD also support higher prices. The resistance higher begins at 112 and then the ML currently at 125.75 followed by previous resistance at 128 and then the high near 140. The SMA’s are pushing higher and sloping higher. Expect higher Crude Oil prices in the coming months.

US Dollar Index$DX_F

The US Dollar Index broke out below the bottom rail of the symmetrical triangle this month. This is now resistance at 76.75. The next support level lower is at 74.74 from November 2009 and then 71.75 from March 2008. The target for the pattern breakdown is 57.75. If the break out fails then the first resistance above the bottom rail is at 79.50. With the RSI continuing lower, failing its test at the mid line, and the MACD growing more negative the down trend looks to continue in the coming months.

iShares Barclays 20+ Yr Treasury Bond Fund$TLT

US Treasuries held higher this month after moving up from the 8 year trend line test last month, but printed a long shadowed candle showing some indecision. The SMA’s and RSI are sloping and pointing higher suggesting the move up can continue but the MACD is growing more negative at the same time. There is resistance higher from the 20 month SMA at 93.27 and then 98.90 if it can get through that level. If the indecision resolves lower then there is support at 89.60 and then 88 near the 50 month SMA and previous support at 84.55. The major trend continues higher so the benefit of the doubt is given to higher prices in the coming months.

Shanghai Stock Exchange Composite$SSEC

The Shanghai Composite is pressing the down trend line from mid 2009 as it retests the 61.8% Fibonacci retracement of the major move higher from 2005 until 2007. If it can get through the resistance at 2956 then it can run higher to the early 2010 previous resistance at 3150 and then the 3366 Fibonacci level above that. Support comes at the uptrend rail near 2830 and then the 2714 Fibonacci support line before a major drop to 2395. The Composite has been consolidating sideways and the RSI and MACD offer no clues yet as to how this may resolve on the monthly scale. Finally the Bollinger bands are continuing to tighten, with the price just above the mid line. Expect continued consolidation until it starts to move towards one extreme of the Bollinger bands.

iShares MSCI Emerging Markets Index$EEM

Emerging Markets, measured by the ETF EEM, moved higher above previous resistance at 48.50 with a strong candle. If it can hold over this level then the next resistance is at 52.40 from October 2007. If not then support lower is at 45 and then the 42.92 previous level. The RSI is moving up and the MACD is positive, suggesting this may be the start of a move higher that has been foreshadowed by the contracting Bollinger bands. Lean in that direction.

VIX$VIX

The Volatility Index spiked higher in March and finished with a long legged doji candle. It seems the bottoming process continues, with a base at 16.33. If that does not hold then 12.80 is the next level of support lower. The flat lined 100 and 200 month SMA’s at 20.93 – 21.40 provide the first resistance and then the 23.50 – 24 area. Expect the VIX to continue in this bottoming process with probes higher in the next month, until it can hold above 21.40.

SPY$SPY

The SPY printed a Hanging Man candle for the month with a very long shadow. This is a bearish reversal candle given the long run higher, but needs to be confirmed. Until then the trend remains higher with resistance at the previous high of 134.12 and then 141.50 before a full retracement of the move lower at 146.02 and a Measured Move target of 155.33. If it does confirm then the support areas come at the trend line, near 126 for April, and then 120.65 from September 2008. The MACD is still increasing but the slope is declining and the RSI has flat lined high in bullish territory. These support further upside but the price is testing the top of the Bollinger band and may need to consolidate or pullback to get within them again. Expect some slowing in the uptrend or consolidation in the short term.

IWM$IWM

The IWM also printed a Hanging Man candle for the month with a very long shadow, but needs to be confirmed. Until then the trend remains higher. The targets to the upside are 93.82, a Fibonacci extension to 123.6% of the down move higher, a Measured Move to 96 from a comparable to the March 2009 low to the April 2010 high, and then a Head and Shoulders target at 111. This is the strongest looking of the Index ETF’s with a rising RSI and MACD and strong volume on the March candle. Support at the 81.50 level has a back up at 77.50 below it. Expect the uptrend to continue for IWM.

QQQQ$QQQQ

The QQQ also printed a Hanging Man candle for the month with a long shadow, that needs to be confirmed. Until then the trend remains higher. For the QQQ this is happening at a consolidation range between 57 and 63 from late 2000 into early 2001. Upside targets start at 63 and then 68 from the Measured Move comparable to the move from March 2009 to April 2010, and 79 -80 from previous support in 2000 and the Head and Shoulders target. The RSI is starting to roll over but is still solidly in bullish territory, and the MACD is solidly positive. Should the rollover continue then there is support at 54.26 and then 50 below it. Expect the QQQ trend higher to go through some consolidation.

As we turn into April the next few month looks to bring higher prices for Gold and Crude Oil, and a continued move lower for the US Dollar Index. US Treasuries look biased higher but in a tight range. The Shanghai Composite looks to consolidate further while the Emerging Markets move higher. A basing Volatility Index should remain fairly stable. The Equity Index ETF’s look mixed with the IWM the strongest and the SPY and QQQ looking tired and in need of some consolidation, but all still in an uptrend. Use this information to understand the long term trends in Equities and their influencers as you prepare for the the coming months.

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