Macro Month in Review/Preview January 2011

Instead of writing a Monthly Review at the end of December I went through a series of articles titled Looking Ahead: A Series of Longer Term Perspectives looking out for 12 to 24 months and beyond. A month has passed and many events have moved the market. Using that same analysis of the monthly charts let’s take a step back from the day to day and discern just what the longer term trends are telling us now.

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

Gold

Gold touched both the top and bottom rails of the ascending wedge within the uptrending channel this month. the uptrend is still strongly in place as noted by the rising Simple Moving Averages (SMA’s). It also remains in the top of the Bollinger bands. The Relative Strength Index (RSI) has started to fall slightly from an overbought condition and the Moving Average Convergence Divergence (MACD) indicator is starting to decrease. These last two indicators suggest that a further pullback may be in order. The wedge support for February is at 1356 and if it breaks that the next level of support comes at 1314 and then 1250 below that. Expect also that 1300, the round number will give some support. The resistance to the upside when it bounces will come first at 1430, the previous high.

West Texas Intermediate Crude

Crude Oil looks ready to explode to the upside. After rising off of the 67.70 support area it has steadily moved higher and is now pushing the tight Bollinger bands up. The 20 month SMA is crossing up through the 50 month SMA, another bullish sign, and the RSI and MACD are rising. Support can be found at 88.50 and then nearby at 87.50. The next resistance level is at 98.50 and when it gets through that then it can rocket higher.

US Dollar Index

The US Dollar Index is headed lower within a symmetrical triangle. The bottom rail support is at 76.43 for February and resistance higher will come at the cross of the SMA’s at 79.82. If the rail holds as support then the uptrend in RSI and MACD can continue. If not then the next support comes at 75 and then 71.75

iShares Barclays 20+ Yr Treasury Bond Fund

US Treasury Bonds, as proxied by the TLT, remain in a downtrend, respecting the resistance of the down trendline. The next support lower is at 88 from early 201 before stronger support at 85. If it can break the trendline and move higher then the first resistance is at 95. The RSI crossing below 50 combined with the MACD becoming more negative and crossing suggest that the path will be lower.

Shanghai Stock Exchange Composite

The Shanghai Composite is also in a symmetrical triangle. the 61.8% retracement level of the major move higher from mid 2005 to late 2007 is offering resistance with in that triangle at 2956. Should it break though that resistance higher then the next level of resistance is near 3125 before the 3366 level, a 38.2% retracement of the down move from late 2007 to late 2008. Support at the bottom rail comes at 2714 with 2380 below that. The flat lined RSI and MACD do not offer much of a clue to the next direction.

iShares MSCI Emerging Markets Index

The Emerging Market, measured by the EEM, remain in an uptrend, but stalled upon reaching the previous resistance level near 48.50. The RSI is still bullish and the MACD slowly improving, suggesting it can move higher still. If it pulls back it may find support at the 42.92 break out level and through the 48.50 resistance the next level of resistance comes at 52.50.

VIX

The Volatility Index continues in a downtrend, respecting the trendline which provides resistance for February at 19.00. Support to the downside on a continuation comes at 16and then 12 before long term support at just over 10. If it breaks above 19 there is resistance at the flat SMA’s between 21.16 and 21.35, with approximately 25 above that.

SPY

SPY continues the uptrend heading to resistance first at 132 and then 137. The RSI and MACD both support higher prices, but the volume falling off is diverging and suggest being cautious. The 20 month SMA has crossed higher through the 100 month SMA and is heading to wards a bullish cross with the 50 month SMA. It is just starting to push the Bollinger bands higher as well. Support on any pullback could come at 124 and then 118.

IWM

IWM also continues in an uptrend with a slow down at minor resistance at 79.10 as it approaches resistance at 81.67, a full retracement of the down move from mid 2007 to March 2009. The volume is diverging so it is something to keep an eye on. The RSI is strongly bullish and the MACD is rising supporting higher prices. Any pullback is likely to find support at 74.36 or 73, the neckline of the inverse Head and shoulders pattern.

QQQQ

QQQQ has just broken through resistance at 54.26 and is heading higher to resistance at 63 from early 2001. The RSI and MACD are improving and support further upside, but volume is diverging on QQQQ as well suggesting caution in the bull stance. Any pullback will likely find support at the neckline of the inverse head and shoulders at 50.00-50.65 area.

So next month looks to be a decision point for Gold within the long term uptrend, and to move Crude Oil higher. The US Dollar Index and US Treasuries look to be headed lower. It is also a decision point for the Shanghai Composite but Emerging Markets look to be headed higher, perhaps after testing their breakout level. Volatility looks to be contained to the upside and within a downtrend. Equities all look higher from many indicators with the slowing volume being the only factor raising a caution flag. Good luck in February and trade well.

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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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