WMA 23rd May 2010 – for trading week ending 28th May 2010

In last week’s analysis, I posted “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.” Midweek, the markets confirmed a quick dive to the lows, failing the 50MA twice, and breaking support levels. Let’s see how it all ended and what to expect for the coming week…

TIP
During the week, the TIPS tanked to value and at the end of the week, rallied up again with candles that have long low tails. From the daily charts, it looks like a continuation rally is in the cards and should be revealed later this coming week.

JNK
The corporate junk bonds did equllibrate the bearish divergence with a bang like the overall markets. On the daily charts, it looks like it has some more to go. Weekly charts look much worse really… there is likely to be much more.
The daily charts are showing something interesting… that although mid last week there was a gap down commitment it appears to have reversed abruptly with a bullish engulfing and short term bullish divergence on my indicators. This bullishness should continue for 2-3 days till mid-week.

/HG
Copper started out the week bad, with prices falling and then it stalled, only for the week to end with prices rallying almost back to where the week started. This ended the week with a slightly deformed looking hammer. The daily charts show a short term bullish divergence.


This week, Napier’s leading indicators are realigning for a possible rally. The TIPS are about to continue the rally, JNK and copper ending the week with short term bullish divergences. It looks like that coming week would have a higher probability of being bullish.



/DX
The USD (futures) went parabolic mid-week and started correcting. This was indicated by the drop in open interest as large players were closing their positions on the USD rally. The weekly charts show that the resistance level at 86.35 held, and with the parabolic run-up, the USD should be correcting to about 84.

SPX
The SPX/SPY ended the previous week with a long legged hammer indicating a possible upside, and at that weekend, it looked as if the market was not yet committed. Once the week opened, by Tuesday, it was clear as daylight that the lows of the 6th of May would be tested. This was followed by a gap down on Thursday with Friday opening hours testing the lows of 6th May. Friday then closed to complete a piercing pattern. Although the weekly chart has indicated a significant correction, led off by a weekly bearish divergence, the weekly bearish divergence has not equilibrated, and should take weeks more to do so. However, the increase in volatility may have made up for it, and the daily charts now indicate that the coming week should be bullish. Friday’s piercing pattern is one such indication, and closing the gap by SPX breaking out over 1115 would confirm a short term rally is at hand. Other indicators also suggest that a short term reversal is in the making as of last Friday.

Gold /GC
On the weekly charts, an interesting development has appeared… While Gold has shown its relevance in times of risk aversion, particularly with the recent events in Europe, it is building some bearish divergence in the long term weekly charts despite making new highs. The daily charts show clearly that Gold had clocked a parabolic move and duly corrected last week. The indicators suggest a steeper Gold correction to come, bringing prices to 1150 thereabouts.

Crude /CL
Crude had a thrashing week, clearly equilibrating the weekly bearish divergence. On the weekly charts, there appears to have more to come in the next few months. However, the daily charts are starting to signal a probable rally to 75, given the extreme oversold condition of crude. Interestingly, crude closed on Friday with a bullish harami and indicators are showing a possible reversal up.

VIX
The VIX weekly charts show that the increase in volatility is clearly a manifestation of the bullish divergence. It still looks like volatility would be abundant over the next month or so, but a sudden reversal may be in place as the VIX is rather extreme. The daily charts are clearer with a bearish divergence, and a Friday close to form a bearish engulfing. The immediate VIX support at 35, once broken, should see the next support at 25.

SYNOPSIS
From a quick scan of the market based on my usual charts, it is clear to me that the coming week is likely to be very bullish. This is apparently very clear in almost all the charts that had been featured in my WMA. As I began doing this WMA, I was a little wary of my bias, as I had 3 people ask me on Friday itself about the possibility of getting into the market to buy up recently beaten stocks. It appeared that greed has taken the average Joe out there and thus it would be showing up in the charts. Amazingly, it appears to be so.
I am expecting a bullish week. Be it a minor bullish retracement or otherwise, there is one thing that would be clear… it would be volatile.

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.