Market Story I

Monday, April 4, 2011

Bears Throw in the Towel

The Bulls charged ahead during the past trading week, erasing almost all the damage caused by the tragic events in Japan. The NYSE Composite Index is still trading slightly below its 2011 high but the NYSE cumulative advance decline line has already broken its highest level of the year, definitely suggesting that there will be another move to break this years highest levels. The US Market is driven by a strong Energy Sector, where the Energy ETF XLE managed to break out. In the NASDAQ market we witness a strong out performance by the Biotech Sector. Health care and Financials are still lagging the overall market, but the big picture, on a technical basis, remains extraordinary strong and healthy. Things can change quickly and the market is once again overbought, but for now, the message is loud and clear: Buy the dips.

The Chart below plots the daily price structure of the S&P500 ETF SPY. I expect the market to make one last move to the downside, before we break out, and move towards 1400. I expect a good entry level for this trade at around 1300. If I am right, we have made 2/3 of this consolidation.

The only one, that could derail this current rally is the USD. The DXY is still sitting on major support, and the break out in the EURUSD has not taken place at 1.4230 yet. If we break 1.4040 in the EURUSD pair to the downside, we should have a look at the DXY. A break above 77.5 would not bode well for equity bulls.

Still trading below resistance at 1.4230

DXY: Sitting on major support

NYSE A/D Line: The strong performance in Small Caps helps the A/D-line to a new high.

Small Caps outperform, another short term bullish sign for the market

NYSE: Will follow AD-line, even if we get another pull back

VIX: Volatility sitting on the downtrend, maybe we get a small bounce from this level.

BTK: Biotech outperforms the overall market

QQQ: Negative divergence in the 60' time-frame, don't chase the rally, buy the dips

XLE: The Qaddafi Break-out

XLF: under performing sector, avoid

Equity markets on 60': All showing minor to strong negative divergences, don't chase the rally

DAX: Outperforming but ahead of strong resistance

SMI: Heavy weights Health care and Financials are lagging, under performer

SDF: Potash in Europe, outperforming, but also here we have strong resistance

Syngenta: A break of 320, sparked by a rally in softs, would bode well for the bulls

Corn: Heading towards last resistance at 740, break-out @ 750

Wheat: After an impressing Head and Shoulder top the market rallies back, the re break of 760 is bullish

Crude Oil: Daily Time frame shows weak momentum, resistance @USD110, cycle could turn negative in April

Crude Oil 60': Not really gaining on strong momentum

Gold: Every trade gets sucked back to the USD1431 resistance.

Gold 60': Stuck in a range, the break of USD1431 resistance did not spark another rally

Tuesday, March 22, 2011

The Start Of A Major Distribution Phase

During the past several trading days, equity markets rallied back from deeply oversold conditions, filling the downside gaps the markets had opened after the severe earthquake in Japan. I believe we are witnessing the first part of a huge distribution phase, that will mark a cyclical top in 2011. This could lead to spectacular moves in Indices, to the up- as well as to the downside. It will take some time until markets start to roll-over and resume the secular bear-market. We could even see a new high in the S&P500 this year, but if this is the case, I expect negative divergences setting up, confirming that a big top is under way for equities in 2011. The technical condition remains strongest in the big cap sector, which could be an indication that investors start to shift from small- to big caps and build their portfolio in more defensive names.

For those of you who have not seen the documentary movie "INSIDE JOB", I would recommend you to watch that. As you are probably are aware, we have not setup any meaningful regulation for Investment Banks and Derivative Trading. On top of that, the Swiss National Bank is celebrating that it cut losses on EURCHF trades, by selling "toxic assets" with a profit. This sounds like as if you wake up in intensive care and your doctor is telling you: We implanted this cancer successfully into your body.

"INSIDE JOB" : http://topdocumentaryfilms.com/inside-job/ all the culprits are still in charge.

FTSE: Starts to under perform, there is a danger of a substantial top here

Biotech Index: Showing relative strength, a break above 1310 would give a buy signal

Volatility: After the triple witching option expiry, we are back in the "neutral zone".

The Bullish Percent Index (BPI) is a breadth indicator based on the number of stocks on Point & Figure buy signals within an Index: We have a bull correction S&P500 and some bear alerts NASDAQ COMP. NYSE COMP., but not a new bear confirmed yet.

SPY: I expect a retest of the lows in the coming days.

The Nasdaq QQQQ tracker has to test and hold the 53.85 level

USD: Testing the important support, but still no signs of live...

The DAX has a good chance to build a bottom within its uptrend

SMI: Good Support around 6000. Investors could buy the support in defensive names.

Eurobanks: Still very resilient, but I would avoid this sector

Dow Jones Industrial: Big Caps start to outperform

Eurostoxx50: Could build a bottom around 2750, still within it's uptrend.

Syngenta: Broke uptrend: Also here, some bottom building above 291 needed.

Kali & Salz: Merrill Lynch initiated a sell-off after buying the SDF stake from BASF, stop-loss 48

XLE Energy Sector ETF: The uptrend is broken and there is a possibility for a short term top

Gold: At resistance, but momentum does not favour a break-out.

Monday, March 14, 2011

Bull Correction or Bear Market Ahead?

The Bulls had not much to cheer about during the past week, as tons of bad news flooded the markets, starting with renewed fears of an European Debt Crisis getting out of control, followed by more unrest in the middle east and on top of that, we witnessed one of the strongest earthquakes in History, which hit Japan on Friday just after the closing bell. The tragic news out of Japan is now what weights the most on international equity markets. Ultimately, here comes the most important question for investors: Is this rally over? I would say no.

The economic recovery that started in the US almost 2 years ago, is in full force and there are no signs that this recovery is weakening. We probably have to worry later in the year, when the FED ends its QE2 Programm. We will get comments on monetary policy from the FED later in the week, but for now, no change in wording is expected.

I strongly believe that after some back and forth action during the month of March, equities will continue to rally, with the S&P500 trading above 1400 in Q2. It is very important that we get some high bearish sentiment readings in the coming 2 weeks, confirming that investors have liquidated positions and raised cash and the market can continue to climb the so called wall of worries. My preferred downside target for the S&P500 is 1250.

I updated the charts at 10:00 CET to take into account the recent overnight market action in Japan. After a 3rd. explosion in the nuclear power plant of Fukushima, the Nikkei plunged almost 15 % to a day low of 8227.63 and to close at 8605.15, down 1015.34 points. Traders in Zurich are saying that the citizens of Tokyo are not fully aware of the situation, since the Japanese Government is not telling the full truth about the situation.

UPDATE: There is fear of a nuclear meltdown in Fukushima. Marc Faber gave an interview on CNBC that makes the situation very clear: Meltdown or not.

http://bit.ly/gVOGXr

VIX: Chances are high that we get this break- out.