Macro Week in Review/Preview October 26, 2018

• Posted by Greg Harmon
• on October 26th, 2018

Last week’s review of the macro market indicators noted as the October Options Expiry passed equities saw a week of failed hopes as they rose off of the lows only to fall back by the end of the week. Elsewhere looked for Gold to move higher while Crude Oil continued lower in the short term. The US Dollar Index showed no signs of moving out of consolidation while US Treasuries were moving back lower. The Shanghai Composite continued to look awful as it made new 4 year lows while Emerging Markets were pausing in their downtrend.

Volatility pulled back slightly but remained above the longer term steady levels, keeping some pressure on the equity index ETF’s SPY, IWM and QQQ. Their charts still showed damage and little effort to get out of it. Short run reversals at the end of the week were likely bring on more bearish sentiment over the weekend.

The week played out with Gold moving higher, but slowly, while Crude Oil consolidated before another move lower. The US Dollar moved slightly higher in its consolidation range while Treasuries found their footing and started back higher. The Shanghai Composite found support and bounced higher while Emerging Markets resumed their move lower.

Volatility picked up out of sideways movement and rose to the high from earlier in the month, keeping the headwinds on equities. The Equity Index ETF’s reacted by moving lower with a strong move lower mid week and then retest of the lows before bouncing Friday. What does this mean for the coming week? Lets look at some charts.

Gold Daily, $GC_F

Gold Weekly, $GC_F

Gold was consolidating after breaking out of a symmetrical triangle when the week began. It continued until a move above the top of consolidation Wednesday and then held there the rest of the week. Upper shadows on the daily chart suggest possible topping with the RSI flat at the edge of the bullish zone and the MACD leveling but positive.

The weekly chart shows the stall at the 200 week SMA. The RSI on this timeframe is approaching the mid line with the MACD crossed up and rising, but still negative. There is resistance at 1245 and 1265 then 1278 and 1300. Support lower comes at 1215 and 1200 then 1185 and 1145. Pause in Uptrend.

West Texas Intermediate Crude Daily, $CL_F

West Texas Intermediate Crude Weekly, $CL_F

Crude Oil was pulling back from a higher high as the week started. It was consolidating and continued Monday before dropping lower Tuesday and then holding there on support. The daily chart shows it right at the 200 day SMA as well with the RSI bouncing off of oversold while the MACD continues lower, but is hitting prior price bounce levels.

On the weekly chart Crude is pulling back to the 50 week SMA and approaching the rising trend support. The RSI is dropping through the mid line with the MACD crossing down. There is support lower at 66.50 and 65 then 62.50 and 60. Resistance higher comes at 69.50 and 71 then 72.80 and 75. Pause in Downtrend.

US Dollar Index Daily, $DX_F

US Dollar Index Weekly, $DX_F

The US Dollar Index was pausing in an uptrend, at the October highs, as the week started. This was all within the long broad consolidation. It continued to hold Monday and Tuesday and then resumed he path higher Wednesday. By Friday it had reached the August high and was pulling back. The daily chart shows the RSI kinking down in the bullish zone with the MACD rising.

The longer timeframe shows he tight Bollinger Bands® expanding with the RSI rising and bullish. The MACD is about to cross up and is positive. There is resistance at 97.40 and 98.30 followed by 99 and 100. Support lower comes at 95 and 94 followed by 93 and 92. Pause in Short Term Uptrend in Consolidation.

iShares Barclays 20+ Yr Treasury Bond Fund Daily, $TLT

iShares Barclays 20+ Yr Treasury Bond Fund Weekly, $TLT

US Treasuries were pulling back from a bounce when the week started. They held there Monday and then started higher Tuesday, getting back to the 20 day SMA. They held there until continuing higher Friday. The daily chart shows the RSI rising up toward the bullish zone with the MACD crossed up but still negative.

The weekly chart shows a bear flag developing, well under resistance. The RSI is bouncing off of oversold territory with the MACD continuing down and bearish. There is support lower at 113.20 and 111 then 108.50. Resistance above comes at 115.25 and 116.20 then 118.20 and 120.25. Pause in Downtrend.

Shanghai Stock Exchange Composite Daily, $SSEC

Shanghai Stock Exchange Composite Weekly, $SSEC

The Shanghai Composite ended last week with a possible reversal candle and Monday delivered it. But in a rather poor way with intraday price action falling all day. It held in the range Tuesday and Wednesday before breaking lower and recovering Thursday and holding Friday. The daily chart shows price struggling at the retest of the break down from the 2016 low with the RSI stalling at the mid line and the MACD trying to cross up.

On the weekly chart the Hammer from last week is confirmed as a reversal. The RSI is trying to lift off of oversold levels with the MACD flat and negative. There is resistance at 2650 and 2700 then 2800 and 2900. Support lower comes at 2450 and 2320 then 2250. Pause in Downtrend.

iShares MSCI Emerging Markets Index Daily, $EEM

iShares MSCI Emerging Markets Index Weekly, $EEM

Emerging Markets were bouncing off of support at the early October low at the start of the week. But by Tuesday they had resumed their downtrend. That continued for the rest of the week, with them closing at 18 month lows. The daily chart shows the RSI running sideways in bearish territory with the MACD falling.

The weekly frame shows price now under the 200 week SMA with the RSI falling into oversold territory and the MACD falling hard. There is support lower at 38 and 37.50 then 37 and 36.50. Resistance above comes at 38.80 and 40 then 41 and 42.25. Downtrend Continues.

VIX Daily, $VIX

VIX Weekly, $VIX

The Volatility Index was holding under resistance, not pulling back, as thee week began. Monday saw the consolidation continue and then Tuesday it broke out to the upside. It continued higher, ending the week back at the early October levels and the March highs. The daily chart shows the RSI nearly overbought with the MACD positive and moving up.

The weekly chart shows it well outside of the Bollinger Bands®. This is 3 weeks in a row outside of the Bollinger Bands. The last time that happened was August 2015. The RSI is nearly overbought on this timeframe as well with the MACD approaching the early 2018 highs. There is resistance at 28 and 31 then 40. Support lower comes at 22 and 18 then 15.67 and 12.40. Increased and Possibly Expanding Volatility.

SPY Daily, $SPY

SPY Weekly, $SPY

The SPY came into the week holding at the 200 day SMA after a small bounce. It leaked below Monday and then gapped down to open Tuesday. Despite recovering most of that drop it had a really bad Wednesday, driving lower all day with a bearish Marubozu candle. Thursday then printed an inside day adding a little calm.

But it ended the week with a wild ride Friday. First it was down nearly 3% then working its way back to positive on the day only to drop back and finish the day lower, but nearly unchanged on the day. This was down nearly 4% on the week. The daily chart shows the RSI turning back down to oversold levels in the bearish zone with the MACD well below the February lows, approaching the February 2016 lows.

The weekly chart shows SPY with a long drop following the doji last week. It closed below the 50 week SMA for the first time since February 2016. It has a RSI in the bearish zone with the MACD falling but still positive. There is resistance at 269 and 271.40 followed by 272.50 and 274.50 before 277. Support lower comes at 265 and 263 then 262 and 261 before 257. Downtrend.

IWM Daily, $IWM

IWM Weekly, $IWM

The IWM came into the week at the lows, after giving up a small bounce. It held Monday and then gapped down Tuesday, driving lower all day Wednesday. It printed inside candles to hold there the rest of the week. The daily chart shows the RSI turning back down in oversold territory in the bearish zone with the MACD well below the February lows, approaching the October 2008 lows.

The weekly chart shows it with a long drop and close below the 100 week SMA for the first time since before Trump was elected. It has a RSI in the bearish zone with the MACD falling but still positive. There is resistance at 148.50 and 150.50 then 152.50 and 154 before 155. Support lower comes at 145.70 and 142.20 then 140.50. Downtrend.

QQQ Daily, $QQQ

QQQ Weekly, $QQQ

The QQQ came into the week holding over the 200 day SMA. Monday it held up but then gapped down to open Tuesday. Despite recovering most of that drop it had a really bad Wednesday, driving lower all day with a bearish Marubozu candle. Thursday then printed an inside day adding a little calm. But it ended the week with a wild ride Friday ending lower. The daily chart shows the RSI turning back down in the bearish zone with the MACD dropping below the February lows, and a levels not seen since 2001.

The weekly chart shows it closed below the 50 week SMA for the first time since June 2016. It has a RSI dipping into the bearish zone with the MACD falling but still positive. There is resistance at 167.50 and 169.75 then 170.95 and 174 before 177. Support lower comes at 165.50 then 162.80 followed by 160.50 and 158.60 before 156.20. Downtrend.

Heading into the last days of October and the last full week before the midterm elections, stocks have been rocked. The S&P 500 and Nasdaq 100 have dropped more than 10% from their highs at the end of September with the Russell 2000 more than 15% off its high. Elsewhere look for Gold to pause in its uptrend while Crude Oil pauses in its downtrend. The US Dollar Index is meeting resistance in its short term uptrend while US Treasuries are digesting their run lower.

The Shanghai Composite is searching for a bottom but Emerging Markets are continuing to the downside. Volatility looks to remain elevated and possibly rise further keeping the bias lower for the equity index ETF’s SPY, IWM and QQQ. Their charts look like they agree with that, all 3 in solid short term downtrends and now downtrends on the intermediate timeframe as well. Use this information as you prepare for the coming week and trad’em well.

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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