Macro Month in Review/Preview December 2011 into January 2012

Last month in this space my Monthly Macro Review/Preview suggested the monthly charts had morphed a bit in the Equity Index ETF’s with the previous downward bias turning neutral. In the metals Gold looked higher but Copper was looking better lower. If Copper falls it could have a negative influence on the Equity ETF’s. In the fuels Crude Oil looked to continue higher, bullish for Equities, and Natural Gas to continue lower. The US Dollar Index had moved into a neutral view from a downward bias and US Treasuries looked to continue higher, both providing a negative influence to Equities. In the foreign markets The German DAX and Emerging Markets looked to be in neutral while the Shanghai Composite looked to continue lower. Sharp moves lower in the German DAX or Shanghai Composite would be negative for Equities. Volatility looked to be slowly waning providing a supportive environment for Equities. And the Equity Index ETF’s themselves were all in a neutral mode on the monthly timeframe. The caution was to look for outside influences to rule.

In the metals, both Gold and Copper both ended up moving lower. Crude Oil was even after recovering from a fall while Natural Gas continued lower. The US Dollar Index moved higher while Treasuries ended there as well but after an up down up path. In foreign markets the Shanghai Composite, German DAX and Emerging Markets all moved lower with the Shanghai Composite the weakest. Volatility drifted lower and the US Equity Indexes finished the month little changed. Just one month but how does that month impact the longer term picture. Let’s look at some charts.

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

Metals

Gold, $GC_F

Gold spit out below the tightening rising wedge and moved lower on the month, continuing the fall from the Tweezers Top in August and September. The long term uptrend remains in place with all of the Simple Moving Averages (SMA) sloping higher but the recent pullback within that trend looks to continue. The Relative Strength Index (RSI) is making a lower low as it trends down and the Moving Average Convergence Divergence (MACD) indicator is about to cross negative, both supporting more downside. It is very near the 1558-1560 support area and there is support lower at 1500 and then 1430 and 1330 followed by 1240 before the bottom rail of the 10 year uptrend. A bounce higher sees resistance at 1620 and then 1755. More Downside

Copper, $HG_F

Copper also looks bearish. The working man’s metal continued the bear flag this month getting some lift from the 50 month SMA at 3.25. It has not yet moved below the middle of the channel on the bullish Pitchfork so it should still attract to the Median Line. But the same can be said for the bearish Pitchfork which may be limiting the upside. The RSI is heading back lower after touching the mid line from below, while the MACD is growing more negative. This chart is in no man’s land with a bias lower. Resistance comes higher at 3.67 and 4.00 before the past highs at 4.53. Support lower at 3.04 and 2.72. Consolidation with a Downward Bias

Fuel

West Texas Intermediate Crude, $CL_F

Crude Oil has broken above the Upper Median Line of the bearish Pitchfork and is heading to the Hagopian Trigger Line at 109, signaling a long bias. This would likely also attract it to the Median Line of the bullish Pitchfork. The recent trend higher should continue but there is caution from the potential Tweezers Top and the RSI turning lower. The MACD is about to cross positive though supporting the upside. There is resistance higher at 101 and then 115.44. Above that the past high at 147.90 comes into play. Support comes lower at 95.50 followed by 87 and 79. Look for a continued upside bias but not a strong move, with the possibility of a short term pullback. Flat to Minor Pullback in Upward Bias

Natural Gas, $NG_F

Natural Gas is a very ugly long term chart. Not only did it break below the rising 13 year trend support but it did so with a strong red candle finishing just a penny from the low. The RSI is pointing lower and has a lot of room before it is oversold and the MACD is just crossing negative. If I had just one short to bet on in the New Year this would be it. Support lower comes at 2.15 and then 1.83. Resistance higher is at 3.34 and then 3.84. Downside Continues

Currency & Debt

US Dollar Index, $DX_F

The US Dollar Index continued its move back into the symmetrical triangle and ended near the mid line at 81.28. A failed break out/ Not so fast, it made a lower low and until breaks above 88.71 may still make a lower high, signaling a rekindling of the downtrend. Until then it has support for further move higher from the RSI moving higher toward bullish territory and a MACD that has crossed back to positive. Above 81.28 there is resistance at 83.25 followed by 84.85 and then 86.58 before reaching the top rail. Support is found lower at 77.20 and 74.15. Continued Upside

US Treasuries, $TLT

US Treasuries, as measured by the ETF $TLT, continued to build a bull flag after the major move higher from the symmetrical triangle breakout, in August. The RSI continues strong over 70 while the MACD continues to grow more positive as well. Both support a further move higher. The SMA’s are sloping higher as well. Volume is falling off as it consolidates which is normal in a flag. Resistance is found at the top of the flag at 124.40 and above that triggers a Measured Move to 159. Support lower comes first at 115 and then 107. Consolidation with an Upside Bias

Foreign Markets

Shanghai Stock Exchange Composite, $SSEC

The Shanghai Composite broke its bear flag lower in December and ran lower to previous support at 2200. The prognosis on this time frame looks like more downside to come with the shorter SMA’s rolling lower, the RSI continuing to trend lower and the MACD slowing growing more negative. Support is found at 2070 and then 1900 before a retest of the long term support/resistance line at 1750. The Bollinger bands are also expanding to allow the move lower. It would take a move over 2400 resistance to start to think about a change of trend. Continued Downside

German DAX Composite, $DAX

The German DAX continued to hold near the 6000 support/resistance level. But the RSI turning back after failing at 50 and the MACD growing more negative are foreshadowing more downside price action. There is support lower at 5400 followed by 4290-4410 and then 3800. Resistance at 6300 would need to be breached before a run at 7500 and the top rail could occur. Consolidation with a Downside Bias

iShares MSCI Emerging Markets Index, $EEM

Emerging Markets, as measured by the ETF $EEM, continue to consolidate sideways toward the intersection of the Lower Median Line of the bullish (green) Pitchfork and the Upper Median Line or the bearish (red) Pitchfork. This is happening while holding over the 38.2% Fibonacci retracement of the major move higher from inception until the highs of 2007. With the RSI rejecting at the mid line and heading back lower and the MACD growing more negative it looks like the preferred direction is to the downside in the near term. Support lower comes under 35.50 at 32.75 and then 28.50. Resistance to the upside is found at 42.20 and then 48.20. Consolidation with a Downside Bias

US Equity Markets

VIX, $VIX

The Volatility Index continued its march lower to the confluence of the 100 and 200 month SMA’s between 21-22. That area could provide some support on the way to the long term support/resistance area at 16.45. It is now below the 20 and 50 month SMA’s and withe the others below the pace of the move lower may slow. A move back over 30 would reverse the thinking. Continued Downside

SPY, $SPY

The Fibonacci chart above shows that after retracing 61.8% of the down move SPY pulled back just under 50% before moving up and then pulling back to the 61.8% level again. Now rising off of that base and along the Fibonacci Fan line it looks poised to retest the high at 143.64. If it stays along this Fan line then it could reach about 165 by year end and if it falls to the next lower fan along the way it would suggest a rise to 141.00. The RSI holding in bullish territory and the MACD stalling in its move lower support further consolidation as well before a move higher. My post My Prediction for the S&P 500 Year End 2012 is…. goes into much more detail on the SPY. Upside Bias with Possible Consolidation

IWM, $IWM

The IWM continued along the Median Line of the bullish Pitchfork and near the neckline of the Inverse Head and Shoulders at 73.50. The RSI continues to hold bullish but the MACD is diverging, growing more negative. The Topping Tails on the last 3 candles agree with the MACD, suggesting a reversal coming. A move over those tails at 76.60 has resistance higher at 80.55 and then 85.80. A move under 70.60 will signal a continuation of the downtrend with 64-65 the next support. Consolidation with a Small Downside Bias

QQQ, $QQQ

The QQQ continues to move sideways oscillating around the 2007 high area of 54.26 and maintaining over the neckline of the Inverse Head and Shoulders at 50. This is also riding the Median Line of the bullish Pitchfork. The bearish Pitchfork can continue to be redrawn as it moves sideways. The RSI has remained bullish but is trending lower while the MACD has turned negative and is slowly growing more so. A move under 50 has support lower at 45.60 and then 41.00 which would also negate the Inverse Head and Shoulders. A move higher over 59.54 has resistance at 63 and then 79. Consolidation Between 50 and 59.54

The monthly outlook suggests that over the next few months Gold and Copper are looking to head lower with a chance that Copper consolidates sideways. The divergence between Crude Oil and Natural Gas, with Oil heading higher and Gas lower, looks to continue although Crude may consolidate or head slightly lower in the short term. Both the US Dollar Index and Treasuries look to continue higher with Treasuries possibly continuing the consolidation first. In the foreign markets tracked, the Shanghai Composite, German DAX and Emerging Markets, all are better lower with a chance that China and German consolidate before another move. Volatility looks to continue to drift down. These influencers paint a mosaic that give the US Equity Index ETF’s a bias to the downside, although a slightly clouded one with Treasuries and the US Dollar conflicting with Oil and the Volatility Index. The SPY however is disagreeing, with a better look higher while the IWM agrees with a best look lower. The QQQ is firmly in the middle. A possible scenario then is that all move sideways for a while until the conflicts resolve. Use this information to understand the long term trends in Equities and their influencers as you prepare for the coming months.

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