WMA 16 May 2010 - for week ending 21st May 2010 - Decision Point

TIP
For the past month, TIP has been bullish, and the past 2 weeks, it has been divergent from the market. Last week, I noted a correlation trend, and I am wary now, of a potential surging rally to come in time. For now, the TIP weekly still has at least another 2-4 weeks of bullish power left, with a likely correction in between at some point. The daily TIP chart are indicating another week of extreme bullishness. This looks like the beginning of a possible bearish divergence in the daily charts.

JNK/HYG
The coporate junk bonds are just starting a reversal from a bearish divergence in the weekly charts. The daily chart bearish divergence looks like it has equilibrated and is in the midst of a stall. Going down further would mean that the last tanking session is not done, and there is upside risk. Signals are conflicting at this point with candlesticks having long low shadow tails and a gap that was left open all week.

/HG
Copper has been in a downtrend for the past month, and appears to be continuing so as well. The bearish divergence has not equilibrated and there should be more downside to come. The daily charts also indicate a stall in the drop. While more downside seems likely, it looks as if there may be some upside, at least early in the week. The open interest fell 20% over the past 2 weeks, which indicates short covering is in place, and price may spike down with a rally to follow.

It would appear that the Napier leading indicators are showing more downside with a possible reversal up again. The market is spooked but at the same time overcooked for a bear tank. Going down further would be really much worse as there is a lot more downside left open. At this point, a Greek default in the coming days would seal that fate. Otherwise, a change in tone is expected to charge the rally again.

/DX
The USD futures have pretty much gone parabolic with a very strong uptrend clear in the weekly charts. The same chart is indicating a retracement for the next week or two, or at least a stall for this week. Clearly, a Greek default would throw that expectation out the window. The open interest for the USD has been falling 20% in the past 2 weeks, which isn’t good for a strong rally, indicating an underlying weakness. As a matter of fact, the open interest in this USD rally has fallen 64% since its peak. The daily chart is at a decision point. It is near parabolic, and the RSI is at the same level as the last peak. Furthermore, the week closed just at resistance level. This coming week would determine if there is more to go, or a retracement/stall is in place. The USD is gaining basically due to the Euro losing ground.

SPX
Comparing this week to the previous week, this week was a very normal week that ended lower. Although the bearish divergence is starting to equilibrate (meaning go down), I am seeing signs in the weekly charts that there is a lower high to be made. This is supported by the daily chart having completed the equilibration of the bearish divergence. This week is going to be interesting …

Gold /GC
After all the gravity defying gap up rallies… the weekly charts still look bullish, although a retracement is definitely needed. The near parabolic rally is clearly caused by concerns on the Euro, and a flight to “safety” in Gold (and the USD). This retracement that is showing up may go as low as 1170. The daily shart looks starkly different, with an extreme mania in Gold that is about to end, with a long shadow doji on Friday. A close on Monday below 1234 followed by a close below 1210 later would be a clear indication that the gap has closed and a major reversal in place.

Crude /CL
Crude has begun its bearish divergence equilibration on the weekly charts, taking a $14 drop in price over the past 2 weeks. This fall is a little overdone and a bounce is likely to be in place over the next few days, again, barring a Greek default.

VIX
The VIX rose faster than the when LEH filed for Chapter 11. However, the weekly chart paints an ugly picture for the rest of 2010. The daily chart is hinting of a relief from the fear, but the indication is vague at this point.

SYNOPSIS
The overall activity of the market appears to show that the relief bounce is over. I am discounting that for now, preferring to observe. No doubt I still maintain that the market is likely to have topped out for a significant correction, perhaps not before an attempt to fail the top again.

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.

I have an incompleted WMA from last week, which basically saw that this past week was to be a bounce week. I will post it later as an imcompleted record.