Macro Month in Review/Preview April 2011

• Posted by Greg Harmon
• on May 2nd, 2011

Last month in this space my Monthly Macro Review/Preview suggested that 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 looked to consolidate further while the Emerging Markets moved higher. A basing Volatility Index looked to 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.

The month started out with Gold and Oil moving up and the US Dollar Index drifting lower. Treasuries dipped then rose as did the Emerging Markets and the Shanghai Composite bounced and fell. Volatility drifted lower and the Equity Index ETF’s dropped and then rose. How did the price action for the month impact what the charts say about the possible future. Let’s take a look.

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

Gold,$GC_F

The 10 year uptrend is prominent in the monthly chart for Gold, moving from the lower left to upper right of the chart. After a bit of consolidation April printed a strong candle closing near the high. What is not to like about this chart. All of the Simple Moving Averages (SMA) are sloping higher, the Relative Strength Index (RSI) is rising and the Moving Average Convergence Divergence (MACD) indicator is increasing. It seems ready to continue higher and has resistance overhead at the intermediate trendline at 1620 and then the major trend resistance at 1790. Expect that there may be resistance also at the round numbers along the way and in between, 1600, 1650 and 1700. On any pullback expect support at 1440 or 1411.

West Texas Intermediate Crude,$CL_F

Crude Oil is also in an uptrend and looks to continue higher. It has a rising RSI and MACD, and SMA’s that are sloping higher. It is rising off of a basing at the 50% retracement of the 2008 down move toward the Median Line (ML) of the Andrew’s Pitchfork with expanding Bollinger bands (BB) allowing for even more upside. There may be some resistance as it reaches the 115.44 Fibonacci level near the ML currently around 122 but then has room to the previous high unabated. Any pullbck can expect support at 104.8 and then 95.36.

US Dollar Index,$DX_F

The US Dollar Index is moving lower after falling out of symmetrical triangle. It printed a large red candle for April closing near the low. The falling RSI and increasingly negative MACD bode for continued downside, as do the expanding BB’s. It is on support at 73 and there is support lower at 71.50. Underneath that the Index will be into the void at all time lows, with a pattern breakout target of around 55.00. On a bounce it should see resistance at 74.80 and then the trend line near 76.85. With all of the SMA’s sloping down expect the downside to continue in the next few months.

iShares Barclays 20+ Yr Treasury Bond Fund,$TLT

US Treasuries, proxied by the ETF TLT, have continued to hold support of the rising nearly 9 year uptrend, at 89.70 for May. It is moving higher with resistance at 98.28 and then the 2010 high at 105.60. With the RSI bouncing off of the mid line and the MACD stalled and now improving, it looks to continue higher in the near term. Any pullback will see support first at the 20 month SMA currently at 93.06 before testing the uptrend line.

Shanghai Stock Exchange Composite,$SSEC

The Shanghai Composite has been in a symmetrical triangle since at least early 2010 if not since late 2008. As it rides into the apex the triangle is losing its strength to create a move. It is now just consolidating between the 2956 Fibonacci level measuring a 61.8% retracement of the move higher from 2005 to the 2007 peak, and the 2714 Fibonacci level measuring a 23.6% retracement of the move from the 2007 high to the 2008 low. Expect this range to hold in the near term with tests to the 3138 level at the extreme.

iShares MSCI Emerging Markets Index,$EEM

Emerging Markets, as measured by the ETF EEM, are moving higher through previous resistance at 48.50 and testing the next level at 50 with only 52.50 above that as prior history. As it moves higher the RSI and MACD as slowly climbing and the SMA’s are sloping higher. Look for it to continue to ride the BB higher in the next few months.

VIX,$VIX

The Volatility Index broke through support that had held since mid 2007 at 16. With the SMA’s flat or rolling lower and the BB expanding volatility looks to continue to drop and test support at the 12 level with 10 below that. Even if it were to bounce back above 16 there is ample resistance at the 20 level, which looks to keep volatility subdued if not absent in the coming months.

SPY,$SPY

The SPY has continued a strong uptrend since July on the monthly timeframe. There is now only 141.75 in its path before a retracement of the down move from the 2007 highs. Beyond that a Measured Move (MM) equivalent to the move from the 2009 low to May 2010 would set a target of 153 next. The RSI is rising and the MACD increasing as it rides the top BB higher. Any pullback looks to find support near 131.30. Now the SMA’s are rolling higher with the 20 month SMA crossing bullishly up through the 50 month SMA. Expect more upside in the coming months.

IWM,$IWM

The IWM has also in a strong uptrend since August and is now at new highs. With a rising RSI and MACD, and SMA’s that are sloping higher, it looks to continue higher along the upper BB. It has printed back to back Hanging Man candles in March and April, so the possibility of a reversal or consolidation is present. Any pullback should see support at the 81.50 area. The next target higher is 96.90 on a MM equivalent to the one from the March 2009 low to the April 2010 high.

QQQ,$QQQ

The QQQ has also been in a strong uptrend since July 2010 and is making new 10 year highs. The last two months for QQQ have printed Hanging Man candles, like the IWM, so the potential for a reversal or consolidation in the uptrend exists. Any pullback should find support at the 54.26 level. With the RSI and MACD slowly moving higher and the SMA’s sloping up look for the trend to continue.

Gold and Crude Oil both look to be heading higher in the next few months with the assistance of the US Dollar Index heading lower. US Treasuries look to be gaining some strength in the short run as they base off of the 9 year uptrend support. The Shanghai Composite Index appears to be consolidating while Emerging Markets head higher. Finally Volatility look to continue to be subdued if not historically absent. All this sets up with the view from the monthly charts for SPY, IWM and QQQ to continue their moves higher in the coming months, with the possibility of a slight pullback or consolidation showing up in the view for IWM and QQQ. Use this information to understand the long term trends in Equities and their influencers as you prepare for the the coming months.

For details on a shorter time frame read the Macro Week in Review/Preview.

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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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