Macro Week in Review/Preview August 20, 2011

Last week’s review of the macro market indicators looked like a reversal of the previous week. Gold looked heading lower while Crude Oil had a short term bias higher in a downtrend. The US Dollar Index looks to continue sideways in the 73.50-76 range, while US Treasuries look to continue lower in an uptrend. The Shanghai Composite and Emerging Markets look to be headed higher. Volatility looks biased to the downside with a move under 34 key to continuing lower, and giving a bias to the upside for the Equity Indexes SPY, IWM and QQQ, also within a downtrend. The big question looks to be whether this is a dead cat bounce or for real.

As the week began the macro trends took control. Gold moved higher while Crude oil started higher but fell off through the week. The US Dollar Index did continue sideways but to the lower end of the range while US Treasuries moved higher. The Shanghai Composite and Emerging Markets started higher but reversed ending the week lower. The Volatility Index started the week heading lower as Equity Index ETF’s SPY, IWM and QQQ moved higher only for all to reverse with Equities closing near the lows of the week and Volatility spiking again. How does this impact the view for the week ahead? 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 Daily, $GC_F

Gold Weekly, $GC_F

Gold took off right out of the gate and never looked back adding over $100 for the week. The Relative Strength index (RSI) on the daily chart remains elevated but the Moving Average Convergence Divergence (MACD) is increasing again. It did stay within the Bollinger bands this week and volume was increasing for this leg higher. The weekly chart printed a continued move higher above the channel, confirming the breakout with a target of 1905. The RSI is higher than it has been since May 2006 and the MACD is large. It finished well outside of the Bollinger bands on the weekly time frame. The trend remains higher ans expect that to continue next week, but be cautious about adding or creating a new position as it is getting extended from the trend and the Simple Moving Averages (SMA). Any pullback should find support at 1800 or 1748 below that.

West Texas Intermediate Crude Daily, $CL_F

West Texas Intermediate Crude Weekly, $CL_F

Crude Oil continued its move higher early in the week but found resistance at the 88 support/resistance level and moved lower. By Friday it held support at the previous low area at 81. The daily chart shows the RSI bouncing off of the 30 level but the MACD kissed and moving lower. The weekly chart shows the continued break lower, failing to confirm the hammer from last week. The RSI is heading lower as is the MACD, suggesting more downside on the time frame. Look for Crude Oil to continue lower next week with the 81 area proving important and then 77 below that. Keep in mind a Measured Move (MM) lower would target 68.

US Dollar Index Daily, $DX_F

US Dollar Index Weekly, $DX_F

The US Dollar Index continued its move sideways in the range between 73.50 and 76. The RSI and MACD on both the daily and weekly basis continue to muddle around the mid line offering little guidance for any future move. But the trend remains lower with a long bear flag. The target on a MM lower is 56, below the Head and Shoulders target of 59.80. Look for more milling around next week within the 73.50-76 range, with a move lower finding support at 73 and then 71.50. Above 76 has resistance at 77.30.

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

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

Treasuries, as measured by the ETF $TLT, continued their breakout higher this week making a new all time high. the RSI on the daily chart is strong pointing higher and the MACD is increasing again, both supporting more upside. The weekly chart continued the breakout of the symmetrical triangle, with the RSI becoming elevated near 82 but the MACD growing. Volume was a bit lower this week and it finished well outside of the Bollinger bands for the third week in a row, both adding to the caution of the elevated RSI. Look for more upside next week with 115 the next target and a note that the target for the triangle breakout is at 136. Any pullback has some support at 109.30 and 108 before 106.

Shanghai Stock Exchange Composite Daily, $SSEC

Shanghai Stock Exchange Composite Weekly, $SSEC

The Shanghai Composite continued its move lower after finding resistance at the June low near 2625. The RSI is moving lower and the MACD is also after missing a cross higher on the daily chart. The red candle on the weekly chart could not confirm the hammer from last week as it moves below support between 2571 and 2590. the weekly RSI and MACD continue to signal more downside. Look for next week to continue lower for the Shanghai Composite. there is support at 2500, 2450 and 2400 before a MM target at 2360, coinciding with the 61.8% Fibonacci retracement at 2357. Any move higher has resistance at 2695-2700.

iShares MSCI Emerging Markets Index Daily, $EEM

iShares MSCI Emerging Markets Index Weekly, $EEM

Emerging Markets, as measured by the ETF $EEM, moved higher before crashing on Thursday. The RSI on the daily chart has turned lower and the MACD blew an air kiss before heading back lower. The weekly chart looks worse with a big bearish engulfing candle complementing a RSI that is falling and a MACD that is growing more negative. Look for the downside to continue next week with support at 39 followed by 38 and 35.91. Any move higher should find some resistance at the 40.75-.89 area and then 42.54.

VIX Daily, $VIX

VIX Weekly, $VIX

The Volatility Index jumped back higher to end the week, after a move lower early, breaking the bull flag higher to near last week’s high. The target for the flag break is 56. The RSI on the daily chart is rising and the MACD is increasing again both suggesting more upside. On the weekly chart the bullish engulfing candle negated last week’s inverted hammer/shooting star. The RSI on this time frame is rising and becoming elevated while the MACD is increasing as well. The RSI has fallen hard the last 2 times it has reached this level, suggesting a move lower may come soon. look for continued elevated Volatility next week with any pullback finding support at the 34-35 area and a move above 50 leading to a greater rise.

SPY Daily, $SPY

SPY Weekly, $SPY

The SPY started the week higher before a violent move lower to end the week near 112 support and the recent lows. The RSI is pointing lower and the MACD is growing more negative after it blew a Real Housewive’s of New Jersey air kiss. The weekly chart printed a bearish engulfing candle just above the 200 week SMA at 111.16. The RSI and MACD on the weekly basis support more downside. Look for the carnage to continue next week with some support in the 111.15 area and then the range between 110 and 102.50. Any upside move looks to find resistance at 114.14 and then 115.83-116.

IWM Daily, $IWM

IWM Weekly, $IWM

The IWM also started the week higher before a violent move lower to end the week near 65.25 support. The RSI is pointing lower and the MACD is growing more negative after it blew a air kiss on the way down. The weekly chart printed a bearish engulfing candle just above the 200 week SMA at 64.27, that rejected on a test of the Head and Shoulders neckline from below near 70. The RSI and MACD on the weekly basis support more downside also. Look for the downside to continue next week with support in the range between 64 and 58.60. Any upside move looks to find resistance at 70 and then 72.

QQQ Daily, $QQQ

QQQ Weekly, $QQQ

The QQQ also started the week higher before a violent gap move lower to end the week at 50.03 support. The RSI is pointing lower and the MACD is growing more negative after it also blew an air kiss on the way down. The weekly chart printed a bearish engulfing candle just above the 100 week SMA at 49.85, that is testing from above the Head and Shoulders neckline. The RSI and MACD on the weekly basis support more downside also. Look for the downside to continue next week with support in the range between 49.50 and 48. Any upside move looks to find resistance at 52.60 followed by 53.50 and then 54.26.

The entire rubber band of the market is getting a little stretched but expect it to continue next week. Gold looks to continue higher as Crude Oil continues to sell off. The US Dollar Index appears comfortable continuing sideways while US Treasuries move higher. The Shanghai Composite and Emerging Markets look ready for more downside. Volatility looks biased higher leading to the expectation that Equity Index ETF’s SPY, IWM and QQQ continue lower. Remember that a stretched rubber band can result in two outcomes: a snap back, or the rubber band breaks and the real carnage results. Stay nimble. Use this information as you prepare for the coming week and trade’m 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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