WMA 15 August 2010 - Market decision point

TIP
The weekly TIP chart is showing growing strength in the bullish rally. Having said that, there appears to be a bearish divergence forming on this weekly chart as well, at least hinted by the indicators, plus a possible evening star candlestick pattern. The daily chart already had its current run stall at mania with price and indicators hinting of a retracement.

JNK
The weekly JNK charts is indicating another attempt of a rally despite the retracement during the last week. If this continues, there should be another 5 weeks of JNK rally. The daily chart had recently made a series of higher lows, and then retraced (over the last week) but still maintaining a higher low. It appears to be making an attempt to reverse and rally again, possibly from midweek next week.
LQD has divergence with JNK and HYG… in that LQD has had an amazing continuous rally and is now looking toppy with obvious bearish divergence. It may be time for LQD to converge with JNK and HYG.
The difference between these corporate bonds are not very much except that LQD is highly speculative, while HYG and JNKis high yield. There is a need for these bonds to sing the same song, and divergence may be an opportunity.

DBB / /HG
Copper registered a lower high possibly and last week closed with a bearish engulfing pattern. Inidcators are still bullish (for now) btu warning signs are blinking for a possible about turn. The daily have had a week of retracements from overbought levels and it appears that the end is not near. Expect this week’s copper prices to keel over and drop < 3.2.

According to the above leading indicators, we are in for another bear week.

/DX
The weekly USD futures chart is again doing another parabolic climb with much gusto clocking almost 3.00 in a week! The USD suffered a deep retracement and bounced off just above the 80 support level. From the weekly chart, the USD has just launched its rally again. The daily chart bounced off the 80 level nicely and almost like clockwork, followed by massive gains late in the week. A very bullish sign for continued rally in the USD.
Also note a repeated pattern in the weekly and daily chart which is denoted between the two cyan time lines in each chart. Both times, the USD was grossly oversold, and then the predictive MACD lines have crossed over with increasing open interest, the STO and RSI also are bullish. IF this pattern plays out, then the USD should run parabolic soon and target just over 87.

SPX / S&P500
The weekly chart posted second lower high and a breakdown of 101 in SPY would confirm a major trend change bias by simple price action. The daily chart has failed the support/resistance and is on its way down, breaking an uptrend line in the process.
Bearish signs if you ask me…

/GC / Gold
The weekly chart shows that Gold is bullish despite the USD rally. This indicates strength itself. Furthermore, the recent retracement in Gold brought it down to the rising trendline and failing to breakdown, but just puncture the trendline has had prices rallying away from the trendline again. Conversely, the weekly chart is showing bearish divergence and this may be the last gold run before it equilibrates. The daily chart confirms the bullish outlook for gold as it crossed above 1200 without being overbought. Gold should be making a new high of over 1300.

/CL / Crude
The Crude oil weekly chart show that the long term bearish divergence may have equilibrated, and the crude rally has stalled this week. The Daily chart has a rising channel but channel support may be tested in the week ahead. Breaking or bouncing off the channel support would be indicative of the next move in crude. For now, it appears more bearish than bullish.

The MadScientist – 15 August 2010

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.