October 17, 2009
COMP: 2,156.80 GOLD: $1,052.80 $USD INDEX: 75.57
S & P 500: 1,087.68 SILVER: $ 17.42 VIX: 21.43
“Speculation is a hard and trying business, and a speculator must be on the job all the time or he’ll soon have no job to be on.”- Jesse Livermore
US MARKETS:
Greetings stock fans. For the past several weeks we’ve been focusing members/readers attention on the ‘potential’ H&S (Head-and-Shoulders) pattern developing in the S&P 500 as we noted in last week’s report, “we’ve directed members/readers attention to the ‘potential’ build of yet another H&S pattern forming within the Spoo’s (S&P 500) and felt such warranted the attention of both investors and traders alike. However, after last week’s impressive performance, Mr. Market may be on the verge of dispelling such thoughts/notions and righting the ship.” We also went on to say, “while we cannot rule out the ‘possibility’ of the ‘potential’ build of the H&S pattern in its entirety just yet, the likelihood and probability of such development (build of the right shoulder) has diminished significan tly as a direct result of last week’s activity. Furthermore, should the S&P’s now go ‘topside’ of the 1080 level on a ‘closing’ basis, such scenario would render the ‘potential’ H&S pattern ‘null and void’.”
That being said, US markets got off to a strong start in this past week of trade with Q3 earnings results setting the positive tone and as a result, the Spoo’s did indeed find themselves ‘closing’ above our referenced SPX 1080 figure (Wednesday SPX 1092) and in the process rendering the ‘potential’ H&S pattern ‘null and void’, as well as, and perhaps more significant (from a psychological standpoint), witnessing the DJIA recapture of the 10,000 level for the first time since October ’08.
With spirits high and the mood festive, the major indices, despite finishing slightly off of their weekly highs, registered their second consecutive week of gains as the S&P tacked-on 1.5%, while the DJIA and COMP closed on the plus side of the ledger by 1.3% and .3% respectively, where we now find the Spoo’s once again residing at the upper end of the range.
As we can observe in the chart above, the Spoo’s remain in a healthy technical posture with the index trading and resting comfortably above their 20; 50 and 200-Day MA’s respectively, as well as the MACD positioned above the 0 line, which is suggestive of the positive bias.
Furthermore, when examining the action of the past few months, we can clearly see that the S&P’s have risen in a ‘staircase’ manner as the index has continued to register ‘higher highs’ and ‘higher lows’ in impressive fashion on their march into higher ground.
Thus, while nothing has changed/altered within the composition of the landscape and remains favorable/healthy from a short-term technical perspective, we ‘may’ perhaps be in need of a bit of pause/consolidation during the days ahead where relative strength has once again found itself tagging the RSI 70 level (short-term overbought), as well as an extremely low VIX reading (sentiment indicator), which resides at levels not witnessed since September ’08.
Nonetheless, this tape has and continues to dispel any notions of ‘topping’ thus far and as long as the Spoo’s remain in a healthy technical posture (above their moving averages) while expecting/anticipating intermittent pauses/breathes along the way, the trend remains positive and should be given the benefit of doubt until or unless proven otherwise. As always, allow the tape to do the ‘talking’ and heed its message.
Moving forward, earnings will continue to occupy center stage, therefore, remember to be aware of any and all releases due on current positions/holdings in order to avoid any potential landmines as we navigate the landscape in the days/weeks ahead.
GLOBAL MARKETS:
With US markets experiencing upside traction this past week and the DOW revisiting the 10K level for the first time in a year, global markets/bourses advanced into higher ground as Asian markets finished the week positive across the board with the exception of the Seoul Composite, which closed on a ‘flat’ note and seemingly appears a bit vulnerable from a short-term technical perspective. Nevertheless, it was a positive week of trade where the majority, Hang Seng; BSE 30; Jakarta Composite; KLSE Composite; Singapore Straits and Taiwan Weighted all find themselves perched at the upper end of their ranges. While the Nikkei put in a solid week of action, we can’t help but notice the recent pattern of ‘lower lows/ lower highs’ since late August which has garnered our attention and should be monitored with a close eye for further clarity moving forward. With respect to the Shanghai Compo site, the index finished the week of trade at higher levels as we continue to monitor the ‘potential’ development of the inverted H&S pattern (bullish) for further clarity yet, additional time appears necessary before classifying/labeling such as of the moment. As for ‘Down Under’, both the All Ordinaries and NZ 50 registered gains this past week and find themselves flirting at the upper end of their respective ranges, while the latter, continues to ‘coil’ and ‘appears’ lubed for a spring. Moving on to Europe, while the DAX was able to ‘squeak out’ fractional gains in last week’s trade, both the CAC and FTSE were less fortunate, finishing a slight shade of ‘Crimson’ after witnessing positive territory early in the week. Nonetheless, all three remain at the upper end of their respective ranges, much akin to the entire global landscape (including the US) and also ‘may’ be in need of a pause/breath from a short-term perspective?
BONDS:
Nothing to see here, move along, move along!! In all seriousness, despite a few intra-day breaches/violations of the 3.2% figure earlier this month only to close above ‘the level’, nothing has changed within ‘Treasury Land’ and more specifically, the 10-Yr Treasury, as we continue to mire within our noted 3.2%-4% range for the past five (5) months, where this past week of trade was no different as the ‘Note’ finished 4bps higher to close at 3.42%. While we know/understand you’re tiring (likewise) of hearing/reading it, until or unless either end is willing to ‘give’, expect more of the snore/bore while the paint continues to dry.
METALS:
The secular ‘Bull’ remains alive and well with regards to both Gold and Silver who continue to demonstrate ‘constructive’ action, whereby the former touched down on nominal All-Time Highs ($1,070ish) again this past week of trade yet, finished with fractional gains ($1,052.80; +3.90), while the latter closed the week out 1.5% lower ($17.42; -.28) after tagging the 18-Handle. Nonetheless, what we found interesting was that, despite the $USD index ‘gagging’ and ‘breaching/violating’ the 76 figure, neither Gold nor Silver were eager to take advantage of such development, thus, our pondering whether both metals have perhaps factored-in such event? Needless to say, while the long-term trend remains, higher, perhaps the metals are in need of a pause/breath before resuming their upward trajectory. With the 1,000 level ‘appearing’ to be the new established ‘floor’ for ‘yellow metal’, any and all pullbacks may be considered for entry for those whom wish to partake/participate. Furthermore, we continue to feel/believe that the Gold/Silver ratio which presently stands at 60:1 will ultimately (in due time) contract to its historic ratio of 35/40:1, thus our preference to ‘Hi-Ho Silver’ albeit, we remain active participants of both via physical and Jr. shares.
CRUDE OIL:
Two weeks ago we referenced a potential technical shift in the action of crude despite the continuous four (4) month range-bound price action and we again reiterated such thoughts in last week’s scribe when we stated, “When observing the technical conditions, one can witness that the MACD is now beginning to turn higher and should such condition persist, well, we may just find higher prices in the days/weeks ahead” and this past week of trade delivered such outcome as crude went ‘topside’ on a ‘closing’ basis of our noted potential resistance located at the $75 level where ‘black gold’ spurted higher by 8.8% closing out the week at $78.67. Although crude finds itself in a short-term overbought condition having risen in six (6) consecutive sessions, as well as its relative strength reading of RSI 71, past/former resistance ($75) now becomes ‘potential’ support while the $88-$90 zone should provide ‘potential’ resistance/headwinds. Thus, we now find ourselves working within a new set of parameters and while we suspect some pause and or corrective action in the near future, the trend in crude is now favorable and healthy from a technical perspective.
CURRENCIES:
As long-time members/readers are aware, we’ve made our position with respect to the $USD very clear from a longer-term perspective while dealing with the ‘here and now’ present regarding defined levels of ‘potential’ support and resistance when in last week’s report we noted, “Despite a couple of intra-day breaches/violations/piercings during the past few weeks of our referenced ‘potential’ support located at the 76 level, the “Buck” continues to hold on the ‘goal line’, where the ‘greenback’ once again flirted with potential disaster this past week yet, closed above the figure (76).” We also went on to say, “the more times that support or resistance is ‘tested’, such level/figure is likely to fail or ‘give way’. While we may be witnessing a ‘stay of execution’ (shor t-term), a tremendous amount of buzz this past week, most notably the ‘apparent’ clandestine meetings of China; Russia and Brazil etc. with regards to the $USD’s reserve status, was the flame that ‘lit the wick’.” This past week, the $USD did succumb to further selling pressure and was unable to hold on ‘fourth and goal’ with the ‘greenback’ slicing through that ever so noted/referenced 76 figure that we’ve alluded your attention to now for some weeks/months. With the 76 figure having now ‘given way’ on a ‘closing’ basis, the 71-72 zone is now ‘in play’ and may act as ‘potential’ support, while the declining 50-Day MA presently located at 77 and change, continues to provide ‘potential’ resistance/headwinds. Nevertheless, while we’re sure that we’ll witness an attempt at bobbing its head up for air at some point, the “Buck&rdq uo; has as of yet to show any visible signs of life and remains in I.C.U. on life-support apparatus at present.
US Markets:
Short-Term: Bullish- Trend Intact; Short-term overbought?
Intermediate-Term: Bullish- Remains Constructive
Long-Term: Bullish- SPX 1,000 Has Been ‘Re-Captured’ (Yet, within the confines of a secular-Multi
Year Bear based on Weekly charts)
POTENTIAL INDICES SUPPORT/RESISTANCE:
SUPPORT RESISTANCE
DJIA: 9,750; 9,560; 9,430 10,063; 10,125; 10,310
COMP: 2,128; 2,080; 2,060 2,174; 2,188; 2210
S & P: 1,075; 1060; 1036 1,098; 1,112; 1,140
POTENTIAL SET-UP’S:
LONGS:
Aurizon Mines Ltd (AZK) 5.11; Back to 4.50 and more aggressively above 5.50
Oilsands Quest Inc. (BQI) 1.28; From here and more aggressively above 1.50
Gasco Energy (GSX) .58; X Crossing .62
Magma Design Automation Inc. (LAVA) 2.52; X Crossing 2.60
Sunrise Senior Living Inc. (SRZ) 5.16; Back to 4.25-4.50 and more aggressively above 5.37
from these reports during the past several weeks/months and we hope that you have participated and profited handsomely!!****
SHORTS:
With the markets remaining in a healthy/favorable technical posture, we’re continuing to find few favorable risk/reward set-up’s on the short-side, hence, our reluctance in ‘putting them on’ in a meaningful way and allocating new/fresh capital on the short-side. Having said that, we do have a few ‘potential’ set-up’s for you this week and continue to monitor those that we’ve mentioned in weeks past for potential further slippage and or drifts back to resistance levels. We cannot stress enough the importance of keeping a short leash and honoring your stops!!
The Bank of New York Mellon Corporation (BK) 27.24; Back to resistance at 29 and more aggressively below 26
Jack In The Box Inc. (JACK) 20.19; Breaking below 19.85
Osi Pharmaceuticals Inc. (OSIP) 31.90; Back to resistance at 34 and more aggressively below 31.50
Shaw Group Inc. (SHAW) 28.20; Back to resistance at 30 and more aggressively below 27.40
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