Saturday, 30 June 2012

Last week's European political shenanigans are yet to impact the technical picture of the markets

Last week's European political shenanigans are yet to impact the technical picture of the markets. Of course, I am talking about the markets and time frames that I post about on this site. While posting charts tonight for all those markets, I was struck and (shamefully) somewhat surprised by how little has changed compared to last weekend's charts.

While political and central bank activities often cause volatility, they never cause a change in larger degree trends. If anything said activities are caused by the larger degree trends. Would last week's European political action be required if we weren't in a bear market? Have a think about it.

ASX 200 declines 11% in 2011/12 financial year

The following daily candlestick chart shows the ASX 200 for the entirety of the 2011/12 (Australian) financial year. Friday's close was 4095, 11% below the June 30 2011 close of 4608. The trend line on the chart is drawn from the 2009 low, shown more fully in last weekend's post. A clean break would likely usher in a fresh round of selling.

Zooming out now to a long term monthly candlestick chart illustrating the down trend channel that the ASX 200 has traded within since the 2007 high. Only a move upwards from the trend channel would present the possibility of a new bull market, with that possibility firming if the 2010 and 2011 highs around 5000 are cleared. Needless to say, those levels are far away. For now, look lower.

Lastly a weekly candlestick including after hours trade illustrating the main reason that I consider the 4200 level to be key for the near term bearish case. I have discussed other reasons in posts over the past month or so. The 4200 level coincides with the anticipated level of an impending bearish cross by the 18 and 40 week moving averages. This moving average pair provides a good rough and ready guide to the trend of the market at this time frame.

S&P 500 tests resistance

The S&P 500 rallied Friday and is testing resistance. This post features three charts which examine the market at different time frames and using different techniques.  The common ground between those charts suggests that both 1380 and the March high at 1425 are lines in the sand for the bearish case. To my eyes, while the market is below 1380, the bearish case has the benefit of the doubt. Above 1380 I would be neutral. A clear break of 1425 would be bullish. 

The market is once again testing the top line of a trend channel that has contained more than 90% of market action since mid-1997. Betting on a clean break higher, is betting against that much history. Also note the bearish momentum (MACDH) divergence leading in to the March peak, warning of weakness. Clearly, a move higher from the latest monthly close will begin to raise the odds for an upwards break. As I posted in May, the Decennial Pattern on the Dow Jones indicates that around about now should be a great time to invest in US stocks. I would wait for near term action to emphatically support the bullish case before trading in line with such a long term seasonal pattern. Ultimately I think only a break of the 2012 high would provide that bullish evidence. 

The daily chart of trading from the beginning of 2011 to now shows that Friday's rally returned the S&P to the middle of a resistance zone formed from recent significant highs and lows. A move above 1380 would clear the way for a challenge of the 2012 high.

Now time for some Elliott Wave and Fibo. It didn't take long for last night's hourly chart Elliott Wave count to be invalidated, so let's zoom out from that to examine what the count at a larger degree of trend tells us. Looking at the chart of 2012's action we see a clear five wave decline 1-2-3-4-5 from the March high. I have labelled that entire decline as big wave 1 down, and shown big wave 2 currently being formed, to be followed by wave 3 lower (much lower). Wave 2 has so far retraced a Fibo 61.8% of wave 1, which would be a nice place for wave 3 to begin. Only a rally above the March high would invalidate this bearish count.

AUD/USD could be forming a large symmetrical triangle

The weekly candlestick chart shows the AUD/USD travelling along the underside of the trend line drawn from the late 2008 lows, following a bounce from the illustrated support zone, formed from significant highs and lows of recent years.

Time for a little Elliott Wave, to illustrate what looks to me like a significant potential for the AUD/USD. Zooming in to the daily chart of the past year shows a sequence of three wave a-b-c moves, which look to be forming a symmetrical triangle. If (IF!) so, then big wave D up is now under way, which would end below the big wave B high, to be followed by a decline in big wave E, before a rally above the 2011 highs. A move below the big wave C low would indicate that some other pattern was unfolding.

EUR/USD continues to trend down

The weekly candlestick chart shows that the EUR/USD has in the last year trended down to a test of the support zone formed from the trend line drawn from the 2001 and 2002 lows, and the area surrounding significant lows from recent years.

Daily chart shows a clear down trend channel. A move over 1.30 is required before a new up trend is possible.

Gold continues to test up trend line drawn from 2008 and 2009 highs

As per last weekend's post... Gold continues to test the trend line drawn from the 2008 and 2009 highs, as shown on the weekly candlestick chart below. To my eyes, this could go either way. The May high and low are key. A break of the May high would indicate that Gold was drawing upwards away from that trend line, while a break below the May low would open up considerable downside risk.

One notable event this week was that Silver declined below it's mid-June lows, while Gold did not. Such divergences often occur at turns in the direction of the precious metals markets. Silver recovered in to the end of the week.

Also of note, I showed recently that most years since the current Gold bull market began in 1999, it has made a significant bottom in June or July. How do I use that knowledge? Well firstly, I watch market action to tell me whether to be long or short. If I get a signal now to be long, the seasonal background would encourage me to deploy my maximum single trade risk. Obviously I don't deploy maximum risk on every trade! There are many factors that influence this decision, but that's a whole other topic. 

Daily chart shows Gold butting up against trend line resistance.

Silver continues to test trend line drawn from early 1990s highs

Today's weekly candlestick chart zooms in to the past five years or so, to show that Silver this week made a false break below the trend line drawn from the early 1990s highs, though at this time is perhaps better to say that Silver continues to test that trend line. For a longer term view of that trend line, have a look at last weekend's post.

Daily chart shows that Silver is butting up against trend line resistance.

GOLD.AX breaks below seven year old up trend line

The GOLD ETF traded on the ASX (GOLD.AX) is a proxy for Gold priced in Australian dollars.

Monthly candlestick chart. Most trend line breaks lead to a period of broadly sideways action before the next trend begins. The next trend could be either up or down. Another possibility is that the trend line break will quickly prove false, a non-trivial potential while the late 2011 lows hold. Having said all that, my preference is to only be long markets where the trend is clearly up.

Daily candlestick chart showing June's false upside break.

DAX weekly and daily charts

Friday's bullish action on the daily chart contrasts with bearish or at best choppy action on the weekly chart.

Weekly candlestick chart.

Daily candlestick chart.

USD/JPY monthly and daily charts

The monthly candlestick chart shows the USD/JPY wedging in to a bottom over a number of years - a bullish set up with a target of over 120, where the wedge began. This month's close failed to decisively clear the mid-1990s low, and the rally from the wedge so far is hesitant.

Daily chart shows that the recent rally has stalled. Watch the market with regard to the newly illustrated up trend line, a break could lead to a re-test of the June low.

Canberra and Queanbeyan residential housing listings to 30 June 2012

Taking the allhomes home page totals at face value, For Rents have recently hit record highs and For Sales have risen in the past month toward record highs. However as blogger Capital Appreciation at has pointed out, the allhomes totals include recently Sold and Rented listings, which sometimes linger for months after properties are sold or rented. This means we cannot take each individual data point as gospel truth. That said, clearly the trend is up in both For Sales and For Rents, which typical supply and demand arguments indicate will apply downward pressure on house prices.