Saturday 12 January 2013

Weekend Update - US monthly index cycles

The US indexes continue to strongly rally from their November lows. The late December pullback was quickly negated, and we're already seeing clear breakouts for the Transports and the Rus'2000. The broad upward trend looks set to continue into at least February.

Lets take our regular look at six of the main US indexes.
*All charts are monthly, spanning six years.

IWM (rep' rus'2000 small cap)

The more volatile (and often a leading index) - the R2K, is 3.6% higher so far this month. This is a historic high, and we are indeed now trading in twilight zone territory.

Even a break lower in the coming week or two, down to the 84s would do no damage to the broad up trend. IWM in the 90s looks very likely, if not even the big 100s. Underlying indicators ALL bullish.

Nasdaq Comp

The Nasdaq remains the weakest index. This is obviously caused in part by AAPL, which is still struggling to hold the big $500 level.

Yet even the Nasdaq is holding gains of 3.5% this January, and there really isn't any sign of the current 8 week rally coming to an end.

Next upside target is the 3200 level, and then 3500s. If AAPL can see a bounce back into the $600s, then you'd have to think the tech' sector - and main market will be at least a further 5-7% higher.


The mighty Dow'30 is holding gains of just under 3% this month, and is a mere 180pts from breaking the mid-Sept QE highs.

Even a brief retracement down to the 13200/13k level across the next week or so would do no damage to the mid-term trend. A break >13700 will open the door to new historic highs in the spring @ 14198.  Nothing bearish here.


The master index has shown relentless strength since the June lows. Even the pullback in November is barely noticeable. First target is the May 2011 high of 8718 - a mere SIX points away.

Even a fall back to the 8200/100 level would do no damage to the bullish trend.

Nothing bearish here, and the trend is very consistent. A break >9000 would be yet another massive psychological level to target in the spring/early summer. NYSE Comp' 10K in 2013 ?


So, we closed the week @ 1472, a mere 2pts shy of the mid-Sept 1474 high. Whether we break that higher in the next few weeks, I really don't think is too important.

We can see a very clear up trend since the June low of sp'1266, and there is absolutely no sign of this trend ending. 

The monthly charts are pretty clear, and offer natural targets at the upper bollinger band in Feb/March around sp'1510/20..but possibly even 1540/50.

Lets be clear, there is absolutely nothing bearish here, and the bears haven't seen a major multi-month decline since summer 2011.


Since I started posting here last February, it was the transports that I kept highlighting..over and over.

'The direction in which the transports breaks..will be the decisive warning'.

After no less than a full year - stuck in a bizarrely tight trading range, the transports has broken to the upside. For me...this is the ultimate buy signal right now.

The trans closed this Friday above the summer 2011 highs, and is already 5% higher so far this year. That's pretty damn decisive in my view, and where next? The big 6k level seems a very natural psy' level.


Those playing the short side since the October 2011 lows have been relentlessly ground down. We've seen a series of little teasing pullbacks, not least the most recent two in November and late December. Every time though..the market rallies right back..and often with a fierce snap - as we saw Dec'31 and Jan'2.

Without question, the market is still trending higher. There will doubtless be further little waves to the downside, but they won't likely be more than a few percent.

Beware the POMO

Since the start of the year, the Fed is back to buying t-bonds..and now its 'naked/unsterilised'. They have no short term bonds to sell to counter the purchases. Basically, such 'free money'...if it somehow funnels its way from the primary dealers into equities will help to keep this rally going.

What is clear, the Fed will never end QE. After all, how would the US Govt. fund its perpetual 1trn deficit spending?

I'm also guessing that as the mainstream come to recognise US 2013 Q1/Q2 GDP as weak..or even recessionary, the Fed will increase monthly purchases from 85bn to around 125, or even 150bn a month.

See: The POMO schedule - New York Fed

The bears should look at a daily sp' chart and see what happened in late 2010>mid 2011 when POMO was in full effect.  Relentless..slow algo-bot melt higher.

Looking ahead...

Despite my general outlook, I still think there is a very reasonable chance of a retracement this coming week. The natural target would be at least the low 1440s, if not somewhere between 1435/25. There remains a giant gap on the SPY/ES @ 1425..and it is indeed exceptionally rare for a gap to remain unfilled for very long.

sp'60min4 - fib' retracements


I am holding short into next week, seeking that retracement, and then looking to go heavy long in the sp'1440/25 area.

There is a lot of econ-data next week, and with all the corporate earnings, its going to be a very busy week. Mr Market could easily use it an excuse to pull back..if only 2-3%.

I will return on Monday :)

Daily Wrap - a quiet end to the week

The main indexes closed largely flat, after what was a relatively quiet week - where the trading range was a mere 1.5% or so, from sp'1451/72. The VIX closed almost 1% lower in the low 13s, with the dollar similarly declining for a second day.



USD, daily


Just a short update to close the week...

SP' appears stuck under the mid-Sept QE high of 1474.

Best guess..we still see a retracement, target zone remains 1440/25, the latter of which is something of a stretch, but there is the giant gap zone to fill, and 1425 would be the very natural 61.8% fib level.

VIX should similarly see a natural upside spike to the low 16s. The upper gap area of 18 seems difficult to envision, even if sp'1425 was to be hit.

Goodnight from London.....and have a good weekend

*the next posting will be late Saturday.