$SPX: near term outlook for S&P 500

Tracking risk appetite across bipolar asset markets

THURSDAY FEBRUARY 21, 2013       19:50:00 GMT

After some weak economic data in the US (the Philadelphia Federal Reserve index) the presumption was that the anxiety about a phasing out of the Fed’s super accomodative monetary policy, which had preoccupied traders after the FOMC statement on Wednesday (20th), would be relieved with a renewed conviction that QE would not be brought to an early conclusion and that bad economic news was - as it has been for a very long time - good for equities and bad for the USD.

As Thursday’s trading progressed that presumption became questionable as there were a succession of time stamps when $AUDUSD, $NZDUSD, $AUDJPY, $NZDJPY, $EURUSD, $ESH3 and $NKDH3 were registering synchronized LOD’s.

It would be too far, in my estimation, to overstate the significance of the FOMC statement - some were claiming that it was a watershed event when the music stopped playing! - but there was a rhythm to trading today (21st) which suggested that the tide was turning towards one of selling rallies rather than buying dips.

The daily chart of the S&P 500 futures suggests that a near term correction down to the 1475 level is feasible but until there is real evidence of a more robust US economy it would be imprudent to bet on much lower prices for US equities.

$AUDSGD: good proxy for risk appetite

I have been watching some very lively action today (20th) in commodities, precious metals and key FX pairs. Of particular interest is the price behavior of AUD/SGD - the Aussie dollar against the Singapore dollar. Since the yen is following its own logic at present, the Singapore dollar represents one of the best examples of a safe haven (risk off) currency and this is in direct contrast to the Aussie currency which is a great barometer of risk appetite.

The daily chart captured at 16.10 GMT shows the Aussie breaking below a key upward trend-line which dates back to last September and this negative development is underlined by a noticeable failure to break above the cloud formation and also the intersection of the 50 and 200 day EMA.

I would suggest watching the resource currencies in coming sessions - especially AUD - as the performance of many commodities (notwithstanding rumors about a possible fund blow up) are pointing to a less than buoyant macro outlook for China and frontier markets.

Updates on sterling and the Nikkei

Tracking risk appetite across bipolar asset markets

WEDNESDAY FEBRUARY 13, 2013       18:09:00 GMT

Two charts that caught my eye as they reveal interesting patterns are the monthly chart for the Nikkei 225 and the weekly for GBP/USD.

A long term view of the Nikkei stretching back to the late 1980’s with the all time high coming on the last trading day of 1989 shows an almost uniquely spectacular and extended bear market in Japanese equities - with a decline from the peak of more than 75% seen since the 2008 crisis.

By focusing just on the more recent time frame and taking the mid 2007 peak and the 2009 trough it is remarkable that the 50% retracement of those two data points exactly coincides with the top of the cloud formation on the monthly chart. As can be seen the current level sits more or less astride the 38% retracement level where it is feasible that some resistance could be seen but I am confident that the 12620 level will be seen within the next 3-6 months. Different ways to gain exposure to Japanese equities are via the Nikkei Futures contract and a somewhat imperfect substitute, but with the benefit that it is US dollar denominated, is the EWJ traded fund.

Sterling looks poised for a test of the lows seen in January 2012 and June 2012 in the vicinity of $1.5270 and marked by the arrow on the chart. The highlighted section on the weekly chart shows the most recent failures by sterling to move above $1.64 which is the 38% retracement level (from the November 2007 high to the March 2009 low). Also evident on the candlestick pattern is the gravestone doji formation registered in mid December of last year followed by the shooting star pattern two weeks later which again failed to break through the 1.64 level.

I have previously mentioned here the fact that there is a well formed triangle pattern on the weekly chart which extends back to the March 2009 low - and since writing that piece this triangle has now been decisively broken. Longer term I would suggest that from a technical perspective and with weak macro economic fundamentals and a diminution of sterling’s safe haven status (assuming that the Spanish and Italian governments can keep their ducks in a row!), it is quite conceivable that sterling could have a 1.40 handle.

$AAPL - a rear view mirror on technical divergences

Tracking risk appetite across bipolar asset markets

FRIDAY FEBRUARY 8, 2013       16:52:00 GMT

The following weekly chart for Apple (AAPL) demonstrates - convincingly to my mind - the value of technical analysis and in particular the reason why being vigilant for negative (and positive) divergences can be very rewarding.

In particular as the large arrows on the different panes of the chart reveal there was a failure for the upward price trajectory - especially noticeable in Q3, 2012 - to be confirmed by three key technical indicators. The arrows for MACD and RSI have a very striking downward slope, and even that for the weekly MFI which has a less divergent slope but rather a plateau formation is indicating that accumulation was not taking place during the run up to the $700 level.

$UUP - long US dollar position looks tempting but not for the impatient

Tracking risk appetite across bipolar asset markets

FRIDAY FEBRUARY 8, 2013       10:40:00 GMT

The US dollar is displaying signs of a basing pattern against a basket of other currencies and this is reflected in the daily chart for the exchange traded fund UUP. The euro/dollar exchange rate is by far the largest component in the basket and there is evidence that euro weakness may lie ahead which would also impact the Swiss franc which is another component in the basket. The wild card is the USD/JPY rate which has already seen considerable strengthening of the dollar against the yen, but where perhaps, for political reasons, the Japanese government and BOJ may want to temper the FX market’s view that being short the yen was a sure one way bet.

Technically the pattern shown on the chart shows several bounces off the $21.60 level in what appears to be a basing pattern with a positive divergence on the MACD chart. There are definite technical hurdles to overcome including the need for a definitive break above the dotted diagonal trend line and then resistance from the 200 day EMA (green line).

Expectations should not be for any dramatic upward moves for the reasons alluded to, but a long position would be my preference for a longer term positional play.

$AUDJPY: Aussie/Yen topping out?

Tracking risk appetite across bipolar asset markets

THURSDAY FEBRUARY 7, 2013       16:46:00 GMT

The 60 minute chart for AUD/JPY shows a very well formed H&S pattern with a clearly visible neckline.

Using the standard yardstick for a possible correction - should the neckline be violated - the distance from top of the head to neckline would put 94.70 as a feasible target. This could be a fake out move and I would be looking for more yen strength before getting too convinced about the validity of the pattern.

$FEZ: Large cap European stocks under pressure

Tracking risk appetite across bipolar asset markets

WEDNESDAY FEBRUARY 6, 2013       14:25:00 GMT

DAX March futures have been on the defensive all morning and are being closely tracked by pressure on France’s CAC40 as well.

Since January 28th the DAX has dropped more than 300 points, although there is chart support around 7500 where previous resistance is likely to be support and where there is likely (initial) support from the top of the cloud formation

The daily chart for the exchange traded fund, FEZ, which tracks the EuroStox 50 reveals how this index has dropped abruptly from recent highs and the very tiny star candlestick from yesterday (also an inside day) coupled with the rolling over of the MACD chart anticipated the 2% decline in pre-market US trading.

The near term target for support is indicated on the chart at approximatley $33.50.

GBP/USD: Sterling reaches key level against dollar

Tracking risk appetite across bipolar asset markets

TUESDAY FEBRUARY 5, 2013       16:14:00 GMT

In trading Tuesday (Feb 5th) sterling has broken to a new six month low against the US dollar.

The failure to sustain a move back up above the 1.58 level earlier today (highlighted in yellow) suggests on the daily chart that an eventual target to be tested could well be a check of whether the 1.5270 level seen on June 1st last year provides reliable support.

However a review of the weekly chart shows that there is a very clear triangular formation extending from the March 2009 lows for sterling - which coincided with the post GFC turning point for most equity markets - and that the current level is in danger of a break below the trend-line through the lows which has now been in place for almost four years. The current testing of this key level is quite critical for the UK currency and a decisive close below it in today’s session would open up longer term targets below $1.50.