Saturday, 11 June 2016

Weekend update - US monthly indexes

US equities broke a new multi-month high of sp'2120.55, with the Dow back above the 18K threshold. Yet the market has started to cool again, and if multiple aspects of support in the sp'2030/20 zone don't hold, things are about to get wildly bearish.

Lets take our monthly look at six of the main US indexes


With the Friday decline of -19pts (0.9%), the sp'500 is back to flat for June. Upper monthly bollinger is offering the 2160s, but equity bulls will have to first break a new historic high >2134, and based on the past 12 months of price action, that looks extremely difficult.

Underlying MACD (blue bar histogram) continues to tick higher, currently at -11.8. Clearly, if the bulls can close June on a positive note - in the 2100s or higher, we'll see a bullish cross in July/August.

However, another failure to keep pushing higher - as seems probable, will result in another severe down wave, at least to the low 1900s. Based on price structure, and the 'reality' of the world economy, a decline to the sp'1600s remains a realistic target, before the central banks intervene.

Best guess: increased cooling across June, at least to the 2030/20s. If broken, then 1950/20 before end month. If held, then renewed upside... to new historic highs.

Nasdaq comp'

The Nasdaq has repeatedly come very close to re-taking the giant psy' level of 5K, but keeps failing. A break back under the key 10MA (4844) would be a bearish sign, and open the door to the lower monthly bollinger in the 4500s. If the June close is significantly weak, then the 3200/3000 zone is a viable target.


The mighty Dow saw a Wed' close of 18005, but the week ended on a moderately negative note, settling @ 17865. A break to the 17200/100s, will open up 16400/300s by end June. If the market closes June weak, a valid target for late July/August will be the Aug'2015 low of 15370. Below that... the 12500/400 zone.

NYSE comp'

The master index is currently flat for June... in the 10400s. A break under 10K would be a serious warning to the equity bulls that they have failed again, with increasing weakness across the summer/autumn. After the 10K threshold, next downside target is 8K, which is a clear 20% lower.


The second market leader - R2K, has become stuck in the 1180/1200 resistance zone, settling the week at 1163. A break back under 1100 would be decisive, and open the door to the 800s later this summer.


The 'old leader' - Transports, is currently net lower for a third consecutive month, holding within a broad downward trend that stretches all the way back to the Nov' 2014 high of 9310. First soft support is the 7K threshold. After that... 6000/5500. Things would only become bullish on a June/July close >8K.


The bigger picture remains extremely borderline... for bulls and bears alike.

Equity bull maniacs are still unable to clear the summer 2015 highs, as there are a truckload of problems, such as weak earnings, growth/production, and an array of simmering geo-political issues.

Meanwhile, equity bears have been largely ground out of the market, after a monstrous 310pt (17%) climb from sp'1810 to 2120.

Relative to other world markets, the US is the most resilient, but as we saw in Aug'2015, and more recently in Jan/Feb, even the US market is experiencing occasional spells of rather powerful downside.

Best guess: considering weak earnings/growth, and the price structure of most other world equity markets, I remain inclined to see another powerful equity wave lower. 

It is highly notable that the monthly bollinger bands for most equity indexes are extremely tight... a big move is due.

The USD and its possible impact on equities/commodities

weekly, 2.5yr

We have a short term low of the DXY 91s, having recently been in the 95s. If geo-political turmoil results from a UK vote to leave the EU, then we're going to see a fast move to the 97/98s.

It should be clear, any weekly/monthly close above the giant DXY 100 threshold would put a massive amount of downward pressure on most dollar denominated asset classes... especially equities and oil. The one notable exception would be Gold/Silver (and the related mining stocks).

Above the 100 threshold, the next key area is not until around 120, which is around 26% above current levels.

A 'leave' UK vote (June 23rd) would have profound implications in FOREX land, with secondary bearish effects in equities/commodities.The mid/low sp'1900s look highly probable if the UK vote to leave.

As for interest rates... there is little opportunity for a June hike. If the USD strengthens on the back of a weaker Pound/Euro, then neither will the Fed raise in July.. as higher rates would merely worsen the situation (from their perspective).

Finally, a note on commodities/equities

CRB/SP'500, weekly, 10yr

Most notable is that the CRB broke well below the Feb'2009 low of 200, with a Jan'2016 low of 154. The CRB has since rallied - along with equities, to the 190s. There will be very strong resistance around 200. If the USD eventually breaks above the DXY 100 threshold - as seems likely, commodities will resume lower, and take equities with them.

Looking ahead

An important and busy week is ahead...

M - -
T - Retail sales, import/export prices, Busin' invent'
W - PPI, Empire state manu', Indust' prod', EIA report

*The FOMC will announce at 2pm, with a Yellen press conf' around 2.30pm, which will last around an hour.

T - weekly jobs, CPI, phil' fed, housing market index
F - housing starts,    *QUAD-OPEX*

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Have a good weekend

*the next post on this page will be 7pm EST on Monday.