Saturday 15 June 2013

Weekend update - US weekly indexes

The US indexes were generally lower by around 1% this week. The two leading indexes - Trans and Rus'2000, however only declined by 0.6%, probably indicating there remains a significant underlying strength still in this QE-supported market.

Lets take a look at six of the US weekly index charts...


The sp' lost 1% by the Friday close, but that was an important 28pts above the critical low of 1598. It would seem we have a new 'marginally higher low' of 1608, and that is arguably where all good long trading stops will now be clustered around.

Underlying MACD (blue bar histogram) cycle ticked lower for the fourth consecutive week, and is set to go negative cycle at the Monday open. This is perhaps the most bearish situation the bears have seen since the down cycle of mid-Sept'2012 > mid-Nov'2012..

First soft support is the recent 1608 low, but then the more critical low of 1598.

I want to note with absolute clarity. In my view, if we break <1598, the door will open, and the market will begin a multi-week drop to the lower weekly bollinger band - currently sp'1479 (and rising). I see NO reason why it will get stuck at the mid-April low of 1536.

Nasdaq Comp

The Nasdaq was the weakest index this week, slipping 1.3%. Once again, we saw a test of the rising weekly 10MA, and it held. Underlying MACD cycle ticked lower for the fourth week, and is set to go negative cycle in about 2 weeks time.

For the bulls, it could be argued the last 5 trading weeks have merely set up a large bull flag (wave'4 ?), and that would bode for one final lunge into the 3600/3700s in July/early August.


The mighty Dow broke the old rising trend/channel again this week, but closed the week 1.2% lower. Underlying MACD cycle ticked lower again, and we're set to get a bearish cross at the Monday open.

Like the other indexes, this is now a VERY marginal situation. The trend IS turning to the downside, but price formation could be a bull flag. For the bears, dow 14k, is the obvious first downside target, but probably not before one final higher high.


The master index slipped 1% this week. Underlying MACD cycle was negative for a second week, and momentum is unquestionably slipping lower. Yet, price formation looks like a large bull flag, and daily charts are suggestive of a very viable final wave of significant upside into July.


The second leading market index only dropped 0.6% this week, and is still holding above the rising 10MA. The R2K is only 2% away from breaking into the 1000s again, and that looks very viable next week - so long as the FOMC don't spook the market.

Underlying MACD cycle has put in a distinctly weaker tower/block - relative to the one in the spring. Bulls are losing momentum, but as with all other indexes, price formation could easily be a bull flag.


The tranny was the strongest index this past week, losing just 0.54%. It closed just within the old (broken) channel . Underlying MACD cycle is negative, and the tranny does look..'tired'

If the bulls do manage to take back control of the market, first target are the 6600s. If that is achieved, that opens the door to the primary target zone of 7000/7200. If we do reach the 7000s, I would believe that to be a very important mid-term cyclical top, before some kind of multi-month down cycle - perhaps in the style of summer/early autumn 2011.


So, only 1% lower, and indeed, its nothing for the bears to get overly excited about. The fact the market held sp'1598, and put in a rather impressive reversal @ 1608 on Thursday was again something that should cause great concern to those heavily short right now.

All indexes are showing some bearish signs, but price formation looks to be a (wave'4) bull flag.

Best guess right now...

sp'weekly'8 - near term count'2

Unless we break <1598, I'm going with the above outlook/count. A final (fifth) wave up cycle, that takes us into mid/late July, somewhere into the sp'1700s. Daily fib' charts are suggestive of sp'1740s.

Looking ahead

There are a few minor pieces of econ-data next week, mostly housing related. What the market will be focused on though is the FOMC. The statement is due Wednesday @ 2pm, and I believe the Bernanke will also be doing a press conference.

No doubt the Fed won't raise rates (as if they will ever do that again!). Neither do I expect them to cut QE, and that would mean the market has at least another 6 weeks of full QE.

Again, I will note, the market has NEVER significantly declined ahead of any of the previous QE cycles ending. What seems clear, the 'tapering', even if it occurs will be so minor, as to be largely irrelevant. If the Fed cut QE from 85bn to 70bn at the July'31st FOMC, would it really matter that much?

In terms of QE-pomo this week, we have 5-6bn on Monday, and 3bn on Thursday. Other days are only 'minor' amounts. The latter part of the week could see some equity chop, since it will be quad-opex.

Near term outlook

With the market putting in a marginally higher low, baring a break <1608, I believe we're headed back upward. Whether that's to a new high >1687 - or putting in the first lower high, that is the big question.

Both the daily and hourly charts are suggestive of broad upside for next week. Indeed, the hourly chart is offering a potential inverse H/S formation...

sp'60min'3 - inverse H/S scenario

If that turns out to be the case, then we will be trading in the 1670s sometime next week, and that's a good 3% higher from current levels. It would equate to R2K back over 1000, and the Transports would be making a play for the 6600s.

As I noted last week, I have no doubt the bears are going to get a very significant multi-week down cycle, but just not yet. Best guess remains, one final lunge into the sp'1700s, before this relentless Nov'2012 wave is complete.

back on Monday

The Euro - due for a rollover

The Euro/$ closed -0.17% @ 1.3346, although across the week, gained 0.96%. Weekly trend is still broadly to the upside, next key level is the Jan'2013 high of 1.3711, however, that does not seem likely in the near term, with daily charts showing initial signs of a rollover.

Euro, daily

Euro, weekly, 5yr


A rare..and brief look at the Euro/$ currency pair.

Certainly, the US Dollar has suffered for some weeks - with the Euro rising from 1.28 to 1.33, and the USD now looks set to end a multi-week down cycle within the next few weeks - perhaps a turn as late as mid July?

The EU will effectively be on summer break for the entirety August, but there is plenty of talk about there about the looming German elections, and what effect that might have, not just in the political sphere, but in economic terms, not least the issue of 'will Germany ever consider reverting back to the DM?'

I've long believed that Merkel will get the boot, even since Sarkozy was (to the surprise of many) ousted. If the German elections do see Merkel thrown out, then the US..and world markets will be back to focusing on whether the Euro currency unit has a future.

That will take the focus off the USD, and the overspending US Govt....for a few months at least ;)

**Bonus chart..

sp'60min'3 - inv. H/S

sp'1670/75 would be great for the bulls next week. Thats only 45/50pts higher, barely 3%, so its not really asking too much. For the doomer bears out there, it could make for the first 'lower high' <1687. Anyway, we'll just have to see how we open Monday. The one thing the bulls have going for them is the huge 5-6bn QE that is due.

..and that concludes the trading week!

Goodnight from London

*next main post, late Saturday, on the US weekly index charts.

Daily Index Cycle update

The main indexes closed on a weak note, with the sp' closing -0.6% @ 1626, that made for a weekly decline of 16pts (1%). Certainly, it was a pretty fierce battle across the week between bulls and bears, but the bulls did manage an important marginally higher low @ 1608.





So, we closed lower, and indeed the closing hour was itself pretty weak. Yet, there really wasn't any significant market panic/concern - as there was on Wednesday. The VIX did climb 4.5% - confirming the equity weakness, but that sort of move in the VIX really isn't anything for the bears to get overly excited about.

More than anything this week, what seems central to keep in mind, is that the bulls managed to hold the absolutely critical sp'1598 line, and indeed, put in a slightly low @ 1608.

Hourly charts offer some equity upside for Monday, and with a very large QE of 5-6bn, the bears have a real problem to begin next week.

*I am holding a small index-long position across the weekend, from sp'1626, seeking an exit in the sp'1645/55 area by next Tuesday afternoon.

a little more later...