On Thursday last week, I was telling Jimmy aka Singaporeseeds that the market is really bullish eventhough it was grossly overbought, and I really was beginning to see that this bullishness was gravity-defying that could again surprise us to last anbother week. He also saw the bullishness and posted in his latest market analysis. Then on Friday night, while we were at a Trader’s gathering with Conrad at AKLTG, just minutes after exiting a scalp, after some server problems midway, about two minutes later, GS tanked really hard. After consulting briefing.com and reading headlines about GS being charged with fraud by the SEC, the plummet of the GS share price was reminiscent of the September 2008 market tanking experience that we witnessed.
As previously, news like this, especially on GS, resonated over into the market within the minutes that followed. This caused technicals to go screwy and skewed the markets for the rest of the day. Let’s see what the charts look like after the shock resonated through the US markets on Friday.
TIP
It was a bullish week for TIP as played out by a bullish divergence in the daily charts with MACD and STO. This is likely to go on for another 2-3 days. The weekly chart seems to be allowing a new shallow uptrend for the short term. The bias change in the daily charts are at risk from being broken – indicating bullishness.
JNK
Coporate junk bonds are also showing another bullish 2 weeks to follow, and the daily charts another 2-3 days of bullishness despite Friday’s shock. There is bearish divergence in all my oscillators and indicators for both daily and weekly charts.
/HG
Copper had a pretty flat week until Friday when prices resonated to the GS news. This brought back prices to value and appears to have started the downleg for the divergence to even out. The coming week may see weaker copper and base metal prices based on the daily charts.
According to the leading indicators (Napier’s), there seems to be indications that the market is toppy. While TIP may take a little longer to play out, both JNK and HG are already starting the downleg and evening out the divergence. Expect a weak spike in the coming two weeks to form a LH, and what should confirm the double top for a correction to be in place.
/DX
Previous week, the weekly charts indicated a correction in the USD, and breaking 80.80 was to be bad for the USD. The GS news recovered the USD from a weekly low of 80.14 to close at 80.90. This has the implication that the correction in the USD is delayed and there may be another short term USD rally. The daily chart is supporting that view as the recent bearish divergence appears to have played out and this week should see the USD climb higher to confirm the short term bullish run. Now if the USD breaks 82.06 and stays above it in the coming two weeks would add on the bullish stance, but if it does not go above 82.06, it should break 80.14 in no time and then there would be a resumption of the downward spiral of the USD.
SPX
I posted this last week “Early next week should be bullish and mid-late next week should see a retracement of a decent proportion…”
As I said earlier, on Thursday, I thought that I was wrong… and I did not expect Friday’s superb tanker to erase Wednesday’s bullish marubuzo.
The weekly charts still show a mild bearish beginnings with risk of a little upside. Failing the 1200 level is very significant as it never closed above 1200 in the weekly charts. The daily charts are just about ready to have a mild correction (expect 1160-1180) but I am expecting a lower high to form, perhaps the week after, with a small rally after the coming week’s correction only to fail at 1210.
Gold /GC
The weekly charts appear bullish despite the weekly pullback. Even so, I would be a little cautious as the weekly chart posted a bearish harami near a top. The daily charts basically show a flattish week that ended badly. There is more downside for gold this coming week.
Crude /CL
Crude has finally completed the weekly sell setup with oscillators and indicators showing not only weakness. It is likely that it is time for crude to take a breather from the rally. On the daily charts, an interim double top has been made and a close below 83 this week would signal a major correction in crude. Both the weekly and daily have bearish divergences that have matured at the same time.
VIX
The VIX bounced off the weekly support. It was a mid-week breach of this support that had me thinking that the market conditions changed to be astronomically bullish. Never did it occur that a SEC fraud charge to GS could even out the support breach. The daily charts show a 15% spike in the VIX with seemingly more to come. The weekly as well as the daily bullish divergence have synchronized to turn around with a nice bang this week and this is highly probably of a volatility turnaround.
SYNOPSIS
I wrote last weekend: “From the above scan, I am expecting a highly probable turnaround this week, with earnings season touted to be the driver… it could be a driver for the bear. There should be a nice spike up, a fakeout if I may say so. The USD should fall early in the week only to pick up later, with TIPS and JNK turning around midweek, as well as the VIX. Commodities appear likely to do so as well, with some counter conventional relationship moves, especially where gold is concerned.
PS. The DJ briefly broke over 11,000 on Friday late night, and now it is news... I expect this to be a fakeout rather than a breakout. ”
Looks like last week really had a spike and then a very late turnaround, with a black swan twist at the end of the week. It really did fake out and the USD fell early in the week to rally up later. TIP did not turnaround (yet), and JNK appears to be doing so. The VIX clearly turned. Commodities fell through as the black swan event as something that sparked recent memories.
For the coming week, I am expecting a tank on Monday, after many people have sunk in the GS fraud news over the weekend. In SG, the news is nothing big, with nothing in the Chinese newspapers about it, and only taking page 3 of the Straits Times. There will be ramifications with GS being charged by the SEC and confidence is clearly shaken.
While I am inclined to be very bearish given Friday’s development and market reaction, I am holding back as it is not as devastating as it can be – yet. I expect some market downside in the SPX, Gold and Crude, with the USD gaining more ground. By next weekend, it should be clearer if the divergences seen are playing out. I am still expecting a small relief rally which should fail the last high, and this needs another 2-3 more shocking events (including the PIIGS which have been sidelined since mid last week).
Last week was the turnaround, and the coming week will seal it if it is to happen.
The MadScientist
This week’s special – GS chart analysis
From the weekly and daily charts, one can see the extent of price devastation the SEC charges brought to GS. The grey boxes are the exactly the same size and the left grey box was measured when the STO (purple oscillator line at the bottom of the chart) was in the overbought zone and until entry into the oversold zone. It seems that GS has a longer way to go down but may bounce a little. There is a bearish divergence that started to correct in a very big way. From what the charts are screaming to me, it appears that GS may stabilize about the about 120-140 level, barring no further action by the SEC, otherwise 100 would be the last line. By comparison to the WCG debacle in 2006, this may be reasonable given circumstances that I am roughly factoring in, including the broad market correction that should be happening over the next few weeks.
In the very short term, while news would spread and sink in over the weekend, this should be played out on Monday morning with the 5 min chart showing weakness. The 30 min chart, however, is indicating a possible bounce after the initial tank. We’ll just have to see what happens…
Note: Any material posted here is of my sole opinion, and my opinion may differ from others. It is definitely NOT a solicitation to do anything else as a consequence of reading this material. The material presented here is intended for educational purposes only.
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