Cheers to All the Fathers

It's tough to be a father, the world expects us to be "Superman", we ought to be 24/7 call center agent to our children care; carpenter, plumber, electrician at home at the same time clown and magician to our children even when we have a bad day and most of all always on-line ATM machines even when we could hardly fill up our car gas tank; we ought to love the mother of our children faithfully at all times and be delighted by our children in everything.

Just the other night, my son hugs me and whisper "Dad, I want to be like you", it encourages me and at the same time scares me, I don't know about you but when you're imperfect like me, these six words should scare you; this reminds me that on top of all the roles I mentioned above, fathers ought to be role models to their children and this for me is the most difficult part of being a father.

To all fathers out there, give yourself a pat in the back, it's not easy and absolutely impossible to be a perfect father but the mere struggle to be one should already merit 'a pat in the back' and whether we like it or not, we will continue to be 'superhero' of our children. Cheers to all the Fathers!!!!

Two Elements Keeping US Equities Afloat

The –395pts dropped in Dow Jones last Friday set the frailty tone for the trading week as Wall Street shed another triple digits loss on Wednesday but recovered towards the end of the week to closed only -0.04% week-on-week (well off its’ intra-week low). There were two key elements that kept US Equities from falling: the tech sector and the strengthening of the US Dollar:

NASDAQ COMPOSITE

The tech index has been the leading indicator for the other two US Indices for a while now, it led the rise from recent March pit with better than expected bottom line margins during the earnings report season; and with recent pull back, Nasdaq only retraced 38.2% from May peak while DJI and S&P 500 retraced 61.8%.

US DOLLAR

The greenback has recovered convincingly from its’ March trough due to growing expectations of a potential FED rate hike within the year and recent hawkish comments by the FED and US Treasury on strong dollar policy further boosted the US Dollar rally; technically, the US Dollar Index is steadily climbing inside an upward channel and seeks to retest its’ 200MA resistance, this will be the 3rd time in 13 months it will try to break above its’ 200MA resistance which also served as downtrend resistance line and a successful break-out from its downtrend resistance line can be a prelude to a trend reversal.

COMMODITY and US DOLLAR DIVERGENCE

On the other hand, the imbalances of supply and demand forces in the commodity realm propelled the commodity index to its’ highest level but it was the steep fall in the US Dollar that fueled the ‘bubble-like’ craze in the commodities as investors bought up commodities to hedge against a weakening dollar; now, should the US Dollar indeed has a valid change in trend it will definitely cause a divergence or at least stall the commodity boom and this will tame inflation and relatively bring back stability in the stock market.

RISK TOLERANT BEHAVIOR CAUTIOUSLY REMAIN

In spite of the recent sharp drops in the stock markets, interestingly, risk tolerant behavior cautiously remain. Risk indicators such as the 10years US Treasury and Japanese Yen evidently proved this: 10years US Treasury yield continues to trend upward after it moved above its’ historic downtrend resistance line and Japanese Yen firmly above 108 levels and last Friday it closed above its’ 200MA after staying below 200MA for a year

US EQUITIES: RESILIENT BUT DOESN’T MEAN SMOOTH SAILING

In conclusion, the two elements that provided strong support for US Equities for the past weeks namely: the tech sector and the strength in the US Dollar and coupled with a potential easing of commodity prices due to a strong dollar may continue to contribute to market resiliency but it doesn’t mean smooth sailing for the coming week; US Indices at technical over sold levels are due for a bounce but these bounces maybe cap, in particular the technical bounce in S&P 500 Index maybe cap between 1370 to 1375 levels, these are immediate resistance levels; moreover, 10years US Treasury, Japanese Yen and US Dollar Index charts are all in technical over bought levels, hence, pull back for these three leading indicators should be expected and these may drag US Equities with it. Subsequently, markets will look for guide at upcoming FED meeting (end of June) and the result of the FED meeting could be pivotal point or trigger for the market’s next big move.

GREATER CHINA MARKET

Moving on, it was a bearish week for Greater China Markets led by Shanghai A-share Composite Index which broke below key 3000 strong support level paving the way for more downside pressure for the index with next key Fibonacci support level stands at 2500 levels, but there should be technical bounce as its’ RSI Indicator already at extreme over sold levels.

Likewise, we have a bloodbath at Hangseng as the Index fall –7.42% week-on-week but hefty gain in Wall Street last Friday and potential technical bounce in Shanghai market may provide some relief in the battered Hangseng Index. However, bounce maybe cap near 23,100 levels and the Index next strong support is already at 21,400 to 21,050 levels.

Hangseng Index: Watch Out For Bullish Morning Star

I issued an alarm (refer to my Sunday post on Hangseng Index label) that Hangseng looks exhausted and it will be prudent for traders to cash in on gains, last Tuesday was an opportunity to do that when Hangseng was modestly up 78.2 points.

Asian stocks including Hangseng Index tracked Wall Street's fall and traded lower on Thursday and closed down 160.42 points or 0.6 percent at 25,449.79, losses were however capped by Shanghai's 2.17% gains.

Technically, the market today formed a 'star position' and traders are advised to be on the look-out for potential bullish morning star (this is a candlestick formation of long black candle followed by a small doji and a long white candle); a white candle tomorrow will confirm this formation (preferably the white candle will be supported by strong volume somewhere in the vicinity of HKD 80B of value traded). In this event, Hangseng Index will be ready to take-out 26,390 recent resistance and take-on 27,000.

Dow Jones Index: Look Back At 8 Years Time Line

The best compass for the future is the past and the best way not to get lost on a trail is to constantly review the road map and to familiarize the terrain; therefore, let us travel 8 years back and study key paths the index has navigated so far.

The last US recession in 2001 we saw Dow Jones Index dropped 39.70% from its 2000 peak and the downtrend lasted 2.5years before the market recovered and went on a 4.5years bull run (FED Funds Rate then touched historic low of 1.00%). Good times don’t last forever and so the recent bull run reached its’ climax last October 2007.

The index suffered its’ deepest correction in 4 years when the market broke down from its’ bearish Head & Shoulder Pattern and consequently broke down from its’ major support trend line. However, the deep correction failed to penetrate through 2000 key historic high of 11,900 which served as the index first wall of concrete support, that level proved to be a stronghold as the index rallied from there and climbed back above its’ trend line, then the market regained 12,700 key level by knocking out its’ H&S Neckline Resistance, the index paused and consolidated a bit above the neckline before it jumped above 13,000 psychological level and closed the week at that level.

THE TERRAIN AHEAD

Looking at the chart, the index don’t have decisive resistance left in its’ way except for some pockets of potential obstacles: first is 13,200 level followed by Dec ’07 peak of 13,850 and lastly its’ all time high of 14,280. But this doesn’t mean the index will immediately take on these obstacles with the exception of the first obstacle as the market came a whisker close to 13,200 level last Friday’s intra-day high. As a matter of fact, traders should be on the alert of a possible strong pull back of the index to re-test 12,700 support level and it is very important for this support to hold for the index to rise further; otherwise, a broke below 12,700 support will mean a failed break-out of this key neckline resistance.

MARKET EXHAUSTION

6 out of the last 10 trading days, the index closed near its’ intra-day low this implies market exhaustion especially after its’ 2 months long rally. Moreover, looking at the chart more closely, the market could be developing a ‘rising wedge area pattern’ though it’s too early to conclude on this pattern hence further confirmation maybe warranted. Nonetheless, traders should be on the look-out for early signals of potential candlestick reversal patterns considering a re-test of 12,700 is imminent regardless of the purpose: whether to confirm a valid break-out of the index from 12,700 neckline resistance, or a set-up for further up trend to take-on the three potential obstacles.

US DOLLAR: Is It Time To Buy Dollar?

The 6 long years of continues depreciations of the US Dollar has pushed the greenback to the backstage allowing the Euro and the commodities to take the spotlight; as the greenback lost its’ value and appeal investors flew to other asset classes to hedge the falling dollar. However, for the past weeks there were evidenced of scalpers picking up the battered green currency and investors starting to notice the US Dollar coming to life again. Still, others believe the rebound could be short-lived. Let us look at the widest time frame available for the US Dollar Index to try to determine where the Dollar is headed.

Looking at the 9 years chart of the US Dollar Index, the Dollar fall off the cliff when it broke down from its’ bearish head & shoulder pattern last mid 2002, the downward momentum that followed the break down was quite strong which is a typical characteristic of a Wave III; the dollar recovered early 2005 but the rally lasted for a year only; interestingly, the index formed a smaller head & shoulder pattern during these rally, the Dollar once more broke down from this bearish pattern and the downward momentum accelerated again, the difference between this downtrend from the preceding downtrend was the evidence of a sort of ‘capitulation’: for a month or so, the 71 level was severely tested (refer to upper right portion of the chart) but it was not broken this could be because “shorters” were no longer too aggressive or eager in pushing down the Dollar further; moreover, notice that the recent consolidation was preceded by a larger consolidation pattern (Dec ’07 to Feb ’08), consolidation after consolidation only occurred on extreme exhaustion, compared with bottom of wave III there were no consolidation patterns but only sharp rallies (refer to mini wave 3 to 4 of Wave III and early leg of Wave IV). Henceforth, the recent downtrend (2006 to April ’08) could be Wave V (note that capitulation normally happens on Wave V, result of over-extended or over-stretch of a trend).

COMPARING WAVE IV CORRECTIVE WAVE CYCLE WITH RECENT COUNTER-TREND MOVE

Wave IV rolled pass 2004 trough resistance but failed to break above 2003 stronger trough resistance; of the same importance, recent Dollar counter-trend move must clear its’ recent ’07 / ’08 troughs and subsequently breaks above ’05 stronger trough resistance (or bottom of Wave III) for the US Dollar to have a clear trend reversal.

CRB INDEX: Short The Commodities

The strength in the US Dollar has an inverse effect to the commodities as investors flee from what is widely perceived as ‘safe heaven’ back into equities and the greenback; these are natural cycles in the financial markets. Whether the decade bull market run on the commodity market is coming to an end or not is too far for my telescope to reach but on the near term horizon the commodity index is clearly forming a bearish double top reversal pattern and its’ RSI negative divergence confirms this bearish top pattern.

A breakdown from this double top coupled with a bearish cross-over of its’ MACD below centerline presents ‘shorts trading opportunities’. The index first wall of support is its’ 2006 historic high which looks tough for the market to penetrate on first attempt hence it may be prudent for traders to cover short positions near this level; however, a break down from this support will accelerate the downtrend.

10yrs TREASURY YIELD: Biggest Rise in 48 Months

The Benchmark 10-year Treasury note yielded 3.76 percent last month, up from 3.43 percent on March, this is a spread rise of 9.6% (its’ biggest rise in 48 months) all due to speculation that the Federal Reserve rate-cutting campaign might be nearing an end, this help revive the sagging dollar and fuel the strong rally in the stock market that sent Dow Jones Index sharply higher 4.5% month-on-month.

However, traders are advised against counting out a potential rebound in Treasury prices (prices and yields move in opposite direction), because technically the bond market has yet to take-out key 21 years old downward resistance line and this is a precursor to a trend change.

The recent ’03 to ’07 bull market run on Wall Street, bond yields enjoyed the same boom as it broke out from its’ 21 years old downward resistance line but during the last leg of its’ bull run it formed a small bearish double top reversal pattern. And a broke-down from this bearish top pattern ended the bond market 4 years rally and eventually sent yields back below its’ downward resistance line.

Suffice to say, traders would want to see bond yields broke above its’ historic downward resistance line and more importantly consolidate above this downward resistance before it take-on its’ double top neckline resistance. Otherwise, failure to do so may soften the rally both in the US Dollar and the stock market.

Shanghai A-share Index: After the Bubble had Burst, Will There Be A Reflation?

The long awaited bubble burst in the Shanghai Index had finally burst as the index crashed 51.16% from its’ peak to recent trough, the next question traders have in mind is does the market found a valid floor at 3,000 level? Technically, 3,000 level has a strong historical basis of a valid support for the index, this area served as the first substantial consolidation area for the index prior to its’ bubble-like vertical rise. But this level has to be re-tested to confirm a valid bottom either in two ways: first, the index dropped again at this level and rebound then we have a double bottom or the index pull back and fill the gap it made last 4/24 then we have a higher low bottom.

However, the index may not take both possibilities because on a closer look using the line chart the index actually just broke-out from a small inverted head & shoulder reversal pattern last Wednesday; therefore, a re-test and consolidation above 3,650 support is more likely.

The index may open gap up on Monday, a normal spill-over of the strong upward momentum residue left last Wednesday and jump above its’ 50days moving averages but the index has to consolidate near 3,650 to build a strong base for its’ next leg up.

Hangseng Index: Lighten Up, As The Index Approaches 27,000

Four Black Candles out of the last Six Trading Days is an early signal that buying momentum is decreasing as the index slow down as it approaches key 27,000 strong resistance; likewise, average value turn-over dropped 16% week-on-week. Moreover, Hangseng ignored Shanghai’s 4.8% gains last Wednesday when it dropped 0.60%, these are technical signs of market exhaustion; therefore, it will be prudent for traders to lighten up long positions as the index approaches 27,000 level and pocket gains made for the week.

On the other hand, in the event 27,000 resistance is taken out by the index (which is unlikely), wait for the market to successfully re-test this level before entering new long positions; otherwise, wait for the index to pull back and re-test its’ 200days moving averages. There may be some swing trades opportunities at this level because of the high probability that 200MA will hold.

Hangseng Index Eased After Touching 26,000 Level

Shanghai A-share Index posted hefty 5.0% gain on upbeat earnings of key red chips but more importantly the index successfully took-out important 'key' 3,650 resistance; moreover, it established clear support at 3,460 level.







The market now has to reckon with its' 50days MA resistance or 3,840 resistance, these levels are not decisive resistance and it shouldn't be a problem for the index; however, it is better for the index to consolidate above 3,650 resistance line now turned support before it attempts to test another strong resistance (next to 3,650) at 4,200 levels.


Meanwhile, Hangseng Index retreated after momentarily touching 26,000 level and closed -0.60% lower at 25,755.30 on turn-over value of HKD 82.6B; property sectors were weak and mainland banks paused from its' sharp rise for the past weeks, however, power companies were quite bullish today.





Technically, 26,000 level is not supposed to be a resistance for Hangseng Index but 27,000 should be more valid and strong resistance for the index; subsequently, we should see the index test 27,000 level early next week.

Hasn't the Market factored in Key Monetary Policy and Economic Data Due this Week???

"Many traders fail because they've focused on what the market should be doing, rather than on what it is doing. The stock market leads, not follows, economic fundamentals." from Brett Steenbarger.

"Dramatic news can affect market prices for a few minutes or a day because they temporarily trigger emotional reactions. But news, no matter how dramatic doesn't change social mood. Even if you knew every news event in advance, you couldn't predict the stock market. This is a counter-intuitive claim, because we hear about supposed news causality all day long on financial TV and in newspapers." from Robert Prechter, Jr.

I like to start my article "Hasn't the Market factored in Key Monetary Policy and Economic Data Due this Week???" with these two nice quotes from two respected analyst. Let us observe how cross markets (from currency to bonds to commodities to stocks) behaved weeks or a day before key monetary policy decision from FED and key US economic data from GDP to non-farm payrolls (due within the week).


FED Funds Rate History






Last 2001 recession, FED brought down interest rates from 6.50% to 1.00% (5.00% in 31 months); interestingly, in recent rate cut cycle FED brought down interest rates from 5.25% to 2.25% (3.00% in a span of 7 months only), considering there are still on-going debate whether the US is in recession or will tilt into a mild recession.


Cross Markets Behavior
Before the FED Rate Decision Tomorrow


2yr Treasury Yields spiked up and is currently testing important key resistance (2004 troughs), this resistance was a key consolidation areas prior to its' strong uptrend last 2004 to 2006; suffice to say this level is quite a strong resistance and a good and successful break-out from this level will gives more strength to its' next rally. However, the short term T-Notes may pause and move sideways at this level for a while much like it did 2nd half of 2003 to early part of 2004, because precedent FED action after bringing down rates to 1.00% kept rate unchanged for a year before they start its' rate hike cycle.







US Dollar bullishly broke-out from a month consolidation and comfortably stayed above consolidation resistance turned support (role reversal) a day before FED meeting and appears to have formed a bullish flag or pennant pattern awaiting FED to pull the trigger for a potential break-out.






On the other hand, strength in the greenback resulted to weakness in the commodity realm. A day before the FED meeting, CRB index formed a bearish engulfing candlestick pattern (but note that the negative divergence in its RSI had long been developed weeks ahead of the FED meeting).






Dow Jones Index' paused above 12,700 after its' month long rally, consolidation at this level is good for the market as the index take time out to construct a base foundation for its' next rise; consequently, this level will provide a key support point for any future pull back or downtrend.







Interestingly, in the equity market realm, it was the Nasdaq Composite (dominated by tech stocks) that is upholding Wall Street at current levels; the successful break-out from its' inverted head & shouldern reversal pattern was confirmed by several re-test of its' neckline.







On my recent Cross Markets article updates (4/27/08), I noted the missing link for the equity market to take it to the next level which is a significant drop in the commodity; we saw light crude oil and gold sharp dived yesterday on US Dollar strength, this only supported Brett's theory that stock markets leads (may i add financial markets leads), not follows, economic fundamentals.

Stock Markets Recovery is happening on a Macro Level

I failed to update my blog this week because i was on my 3rd paternity leave, well anyway that is altogether a different story. This week's cross markets update will be short as I still have to catch up with my sleep.


Global Stock Markets Behavior


The week belong to the stock markets and the story was bullish break-outs or potential break-outs from key resistance levels; this is happening on a macro-level led by Wall Street which broke-out of 12,700 key resistance level last Friday followed by FTSE100, Hangseng, Kospi Composite, Strait Times Index and Taiwan; other indices are lagging behind there peers like Nikkei and Shanghai but eventually they will follow.



Cross Markets Behavior


All markets are inter-related, markets don’t move in isolation, historically stock market moves are the end result of the ripple effect that flows through the other three sectors (Bonds, Currency and Commodity): US Dollar and Bond Markets had led the way for stock market recovery in recent weeks while the commodity market remains the missing link but it is developing a bearish divergence and a potential bearish top pattern.







CRB INDEX


The commodity index re-tested recent high but failed to clear the peak thus validated recent peak as strong resistance and technically formed a double top bearish reversal pattern. The bearish divergence in its’ RSI Oscillator confirms this bearish reversal pattern.



BOND MARKETS & US DOLLAR


After last week’s spectacular performance from the bond market, 10yrs USD Treasury Note (TNX) formed a holding pattern this week to gather momentum for a stronger rebound for the coming week and the 2yrs USD Treasury Note which closely track FED Funds moves strongly suggest a potential bottom in the FED Rate Cutting Cycle (this will sustain the anticipated US Dollar rally); and speaking of the US Dollar, it just broke out from its' 3 weeks consolidation last Thursday.

The US Dollar strength or stability will serves as the underlying foundation for stock markets sustained recovery, still, for stock markets to clutch into higher level there must be a significant drop in the commodity market.

STOCK MARKETS


The star performer indices for the week belongs to Shanghai and Hangseng (refer to Greater China Market Category for these indices report); Dow Jones Index broke above key 12,700 resistance level last Monday and is forming a base above 12,700 support level (reversal of role) before the market develops enough momentum for a stronger rise with its target at 13,300 level; notably was its’ volume gradually expanded as the index consolidated between 12,700 and 12,800 for the past 4-5days (note that quoted levels need not be precise, it's only a range).

Hangseng May Attempts 27,000 Level Soon

SHANGHAI A-SHARE INDEX



The six (6) months steep correction of Shanghai Index may have seen a bottom after the index respected and bounced from key historic 3,000 support level; this level has a strong historical basis of a solid base support for the index because the index built its’ strong base at this level prior to its’ ‘bubble like’ sharp rise in 2007. The steep correction that lasted for six months was a typical sharp ‘zigzag 5-3-5 corrective wave II’ that comes after an extended impulse wave I.










The market now face a very strong 3,650 key resistance level, the index established a ‘pile driven foundation pattern’ at this level last Q2 of 2007 before the index shoots up vertically to 6,100 peak; the index need to consolidate in a tight range between 3,450 to 3,650 level and reduce intra-day volatility as the market enters an accumulation phase as it slowly takes the sting out of the downtrend momentum and develops its’ staging area for a stronger rise that may propel the index above 3,650 key resistance in the coming week.




HANGSENG INDEX

Likewise, the five (5) months pull back of Hangseng Index may already hit floor last 3/18/08; the downward resistance break-out last 4/3/08 was a precursor to a trend change. Unlike Shanghai Index, the 5 months retracement period for Hangseng was a double zigzag 5-3-5 (corrective wave IV) separated by an “X” wave in between.

The on-going rally had its initial target at 27,000 level but the index need to consolidate between 25,300 and 25,800 for couple of days on sustained volume like we have this week before it attempts the 27,000 target level.









Anywhere between the consolidation stage is a good time to accumulate shares with target profits near the 27,000 key resistance level of the index.

The probability of the index re-testing 24,500 level in the near future is very small because the index had already built a relatively strong base at that level prior to its’ break-out last Monday and the gap was already filled the next day; the exception of course is only if Shanghai will fill the strong gap up it made last Thursday which is unlikely.

Finding Solace After The Fight

After a long cruel trading day, I normally look forward to a solitude walk. I called this activity “my spiritual walk”. Any trader who has ever felt left out by the market, punished by the market for wrong trades, confused with the market volatility or wrestled with trading fears and greed all day long knows how unbearable trading emotions can be,

So how do you deal with these emotions and find solace after the fight? Yes, trading for me is a battle both with the mind and emotions.

1.) Enroll in boxing and pour out all your trading emotions unto your ‘paring mate’?

2.) Place your top 10 most hated stock codes on the bowling pins and engage someone in a bowling game?

3.) Listen to funny commentaries about Bernanke and laugh out load?

In my case, I prefer a solitude walk, a quiet walk as I commune with my Maker. It soothes my stress, panic nerves and anxious Spirit, a quiet walk allows me to catch that breath I withheld during trading sessions because I was engrossed with chasing and dumping stocks as I ride out the market volatilities.

I thought of writing down insights and reflections every time I do my spiritual walk and share these with other traders to encourage them as well as to learn from them; hence, I designate a portion on my blog and labeled it as “Reflections” for this purpose.

Just recently I got exhausted with charting and this has to do with my portfolio performances. You see I am stuck with this magic number ‘30’ (I won’t tell you if its’ +/- 30) for the past weeks and I can’t seem to get over this number (it now serves as key resistance). Oh, I did passed above this number several times yet tumbled back to this number again.

As I reflected on this I bumped into several insights that I wanted to share with you on this particular ‘Reflections Article’:

1.) IT TAKES TIME

There are no shortcuts to maturity in trading. It takes years for us to grow to adulthood, and it takes a full season for fruit to mature and ripen. The same is true for our trading career, its’ development cannot be rushed.

When you try to ripen fruit quickly, it loses its flavor. In America, tomatoes are usually picked un-ripened so they won’t bruise during shipping to the stores. Then, before they are sold, these green tomatoes are sprayed with CO2 gas to turn them red instantly. Gassed tomatoes are edible, but they are no match to the flavor of a vine-ripened tomato that is allowed to mature slowly.

Everything on earth has its own time and its own season … it’s not about how fast you grow but how strong you grow as a trader, maturity in trading should never be in a hurry.

2.) ONE BIT OF TERRITORY AT A TIME

I read about the strategy the Allies used in World War II to liberate islands in the South Pacific. First they would “soften up” an island, weakening the resistance by shelling the enemy strongholds with bombs from offshore ships. Next, a small group of Marines would invade the island and establish a “beachhead” – a tiny fragment of the island that they could control. Once the beachhead was secured, they would begin the long process of liberating the rest of the island, one bit of territory at a time. Eventually the entire island would be brought under control, but not without some “costly battles”.

Patient is virtue, a kilometer road is constructed with one meter at a time and houses are built with laying one cornerstone at a time.

Where else can you find comfort after every struggle and frustrations in your trading career? Where do you find that inner strength and prepare yourself for future battles? Where else than from the One who wired you with these emotions, than from the One who promised to give you rest when you cast all your cares and burdens upon Him.

Volatility Shifted From Stock Market to Currency Market

Volatility shifted from stock market to the currency market: volatility index reading for S&P500 index dropped to its’ lowest in 4 months, on the other hand we saw volatility accelerated in US Dollar across the board (this is a week after G7 nations communique’ that extreme volatility in the currency market is a concern to member nations).

Bond prices shoots up as stocks look for direction from the bond market, 2 years note yields rose as market participants pared back expectations for a deep FED interest rate cut comes end of the month.

The commodity market was boosted by rising crude oil prices and coal prices (both stands at a life time high) yet appetite for the precious metal ‘gold’ remains anemic and industrial metal ‘copper’ was flat.

On the stock market, technology stocks earnings eclipsed dismal earnings of giant banks, additional write downs from Merrill and Citi were taken positively by the market as Dow Jones delivered two triple digits gains (Wednesday and Friday). Likewise, Asian stock market led by Nikkei Index rose on Yen weakness but Shanghai Index continues to fall and dragged Hangseng with it, as a result Hangseng closed the week mixed.


CURRENCY MARKET:


Currencies of two countries that aggressively cut interest rates for the past months to stimulate their ailing economies stalled by the recent credit crisis due to its’ sub-prime mortgage mess had risen the most (in relative percentage terms) against its’ peers in recent weeks. I am referring to US Dollar and British Pounds. The significant rally of both currencies were due to dealers perception that 2.0% could be the lowest point of the current FED funds rate-cutting cycle (FED Funds Rate stands at 2.25%).









On the other hand, low yielding currencies (such as Japanese Yen and Swiss Franc) widely used for ‘carry trades’ weakened the past weeks evidenced of some risk appetite returning into the stock market while Eurodollar gradually drifted to the downside.





Japanese Yen Index

The broad weakness in the Japanese Yen the past weeks may be due for a rebound because last Friday the index had its’ 3rd gap down or ‘exhaustion gap’ and it formed a bullish hammer candlestick reversal pattern.


BOND MARKET:



Two (2) years USD Treasury Notes yield which responds closely to expectations of FED rate moves went free falling from July ’07 to March ’08 in line with the deep fall in the US Dollar as FED cut rates from 5.25% to 2.25% in a span of 9 months. However, yields in the 2-years note may have found bottom last month as it spiked up and broke-out from its’ inverted head & shoulder reversal pattern; the bullish divergence in its’ RSI and MACD indicators confirmed there was momentum in its’ break-out. The sharp rise in the bond yields provided the buoyancy and stability in the US Dollar as investors bet on the potential bottom in sight on the current FED funds rate cutting cycle.





Likewise, 10-years USD Treasury Note spiked up and broke-out from its’ symmetrical triangle pattern and downward resistance; however, it encountered strong resistance at previous trough and formed a potential shooting star reversal candlestick pattern; hence a pull back after its’ spectacular rise may be necessary for the bond market and its’ stochastic indicator confirms a possible pull back.





COMMODITY MARKET:



The sharp rise in the bond market and volatility in the US Dollar had kept investors cautioned on being too aggressive in the commodity market as the precious metal ‘gold’ momentarily losses its’ shine and looks headed to re-test its’ recent trough and industrial metal ‘copper’ continues to move sideways on downward bias. On the other hand, it was a spectacular week for light crude oil and coal as both traded at new record highs with crude oil had its eyes on the $120/barrel and China’s strong demand for coal pushed coal prices to un-chartered territory.




The commodity index (CRB) closed the week with a ‘dragon fly doji’ bearish reversal candlestick pattern after it failed to take-out recent peak, its’ long lower shadow provides evidence of buying pressure but the low indicates that plenty of sellers still loom; moreover, its’ stochastic indicator at over bought levels crossed over for ‘sell’ could indicate downward bias for the coming week.






ASIAN STOCK MARKETS:






The upbeat U.S. Equity Markets fueled a strong rally in the Nikkei Index as both S&P500 and Nikkei Index took –out recent peaks; however, Hangseng failed to take-out its’ recent high and gains were moderated by the deep fall in Shanghai index.

Undeniably though, the week’s best performer belong to the technology sector. Therefore, we shall start looking at the Nasdaq Composite chart before the S&P500 Index. After which we shall look at Nikkei, Shanghai and Hangseng Indices.










Nasdaq Composite leaped a spectacular 5.0% week-on-week (highest in 87 weeks), but two (2) gaps up in a week may be too much for the index to sustain. I looked at Nasdaq’s historical chart to find similar instances in the past where the index made 2 gaps in a week and observed how the index responded after the 2 gaps (available only to subscribers); meanwhile, Nasdaq Composite failed to break above its’ 100days moving averages as it encountered strong resistance at 2,400 levels, a key Fibonacci Resistance Level.


S&P 500 INDEX:

The Index broke above several key resistance levels: major resistance trend line, 38.20% Fibonacci Resistance, 100days moving averages and recent high; however, another strong resistance awaits at 1,415 levels (this coincides with its’ November ’07 trough, downward resistance and 50% Fibonacci resistance level).












Observing the volume activities for the index, we have expanding volume on good days and contracting volume on down days, this is not bad after all but using the Chaikin Money Flow Oscillator (used for measuring accumulation activities) we have a negative divergence: this happens when prices are going up and volumes are going down. For the current up trend to be sustained we need to see volume keep on expanding not decreasing.









Volatility Index is at its’ lowest in 4 months and it completely broke below its’ major trend line support and 200days moving averages; however, it finished the week with a bullish hammer candlestick pattern, this may indicate a slight rebound for the coming week and its’ stochastic indicator is at extreme over sold levels.

Nikkei Index: The break-away gap last Thursday inspired a follow up buying last Friday as the index closed the week at its’ high; the market now seeks to test its’ 2006 trough which serves as major resistance after it broke above its’ downward resistance, but a potential rebound of the Japanese Yen may derail the index from testing its’ resistance immediately.






Shanghai Index: The index stabilized for 1.5 months near its’ 38.2% Fibonacci Key Support Level before it broke below said level and resume its’ downtrend, as the index approaches its’ 61.8% Fibonacci Key Support Level, market may stabilize once more and possibly had a modest rally as its’ RSI Indicator develops a potential positive divergence (though it’s too early to call it a divergence).







Hangseng Index: The index oscillates between its’ 50 and 100days moving averages, these two MAs now serves as the index trading band; the downward resistance turned support line still managed to holds in spite selling pressure due to deep falls from Shanghai Index. Buying interest in the market remains anemic as value turn-over shrunk –14.0% week-on-week and –3.0% month-on-month.









CROSS MARKETS REPORT SUMMARY





Is business as usual at Wall Street and global stock markets off the hook? Technically, financial markets successfully hurdled several key resistance levels: Bond yields spiked up as the market bet on 2.0% as the low point of the current FED funds rate-cutting cycle (that is 25bps from current rate), these kept the US Dollar from falling further and carry trades currencies were weak across the board as investors suddenly turned bold to take some risk into the stock markets. In the commodity realm, spot gold continue to slipped as light crude oil and coal prices shoots up.


The Week Ahead


Bond yields need to ease after the spike; Japanese Yen Index formed a bullish hammer candlestick pattern after its’ 3rd exhaustion gap down, it is due for a rebound; likewise, Volatility (VIX) Index formed a bullish hammer may indicate a bounce is just around the corner and S&P500 Index moves inversely with its’ Volatility Index therefore a bounce from VIX means a pull back from S&P500 Index; Commodity (CRB) Index failed to take-out its recent high and a pullback should be forthcoming as commodities are at extreme over-bought levels; Nasdaq Composite 2 gaps up in a week may be too hot to handle; Shanghai Index should stabilize and possibly had a modest rally as the index nears its’ 61.8% key Fibonacci Support Level and finally Hangseng Index will re-test the upper band of its’ trading range which is also its’ 100days moving averages.


Key Factors To Monitor


1.) Volume turn-over should start to pick up for both S&P500 Index and Hangseng Index; otherwise, the up trend may not be sustained.


2.) 61.8% Key Fibonacci Support Level for Shanghai Index should hold; otherwise, it will pull Hangseng Index down with it.


3.) Market expectations on next FED moves as they meet comes end of the month.

No It Cannot Be Another 'Deja-vu' for Wall Street

A day after Dow Jones posted triple digits gains the market came out flat last night and ain't this sounds familiar? Last two weeks the index formed a long white candle then it was followed by series of small doji candlestick patterns before the market went south. No, it cannot be another 'deja-vu' for Wall Street and here are the reasons why:



10years USD Treasury Bonds
Broke-out from Downward Resistance


In case you failed to notice yields spike-up in the Bond Market for the last four days, it broke-out from its' small symmetrical triangle pattern and simultaneously broke above its' downward resistance.







We didn't have similar spike-up of bond yields two weeks ago; bond market can be a leading indicator for the stock market (refer to my Weekly Cross Markets date April 13).


VIX INDEX
(Gap) Down and Broke Below Support Trend Line


Two weeks ago, when Dow Jones formed its' first doji candlestick pattern after the long white candle, volatility index bounced back and formed a small white candle and it was well above its' 200days moving averages.







We have an entirely different volatility reaction now, when S&P500 index formed a long white candle the other day, volatility index gap down significantly and broke below its' major support trend line and it is well below its' 200days moving averages; moreover, volatility reading had a lower high and lower low and closed below yesterday's close last night after S&P500 index formed a small doji candlestick pattern.


US DOLLAR INDEX
Relatively Stable Ahead of FED Meeting








The greenback was tremendously under pressure and on a downward slide 3 weeks before the much anticipated FED rate cut last March 18; on the contrary, US Dollar is relatively stable 2 weeks ahead of another expected FED rate cut comes the end of the month.


CRB INDEX
Somewhat Exhausted







The resiliency and unpredictability in the US Dollar has kept investors away from the commodity market; light crude oil and coal though trading at life time high are technically on extreme over-bought levels and spot gold though staging a rally appears easing.




S&P500 INDEX
No Deja-vu




The spike in the 'put option' for citibank ahead of its' earnings report sent shivers to Asian markets as of this writing and S&P500 Index may or may not shrug this expected negative earnings and potential additional write-downs from citibank tonight; but technically, I have every reason to believe that there will be no deja-vu for Wall Street as enumerated above.








The Index should break above its' major support turned resistance trend line in the coming days though there may be some dips along the way but no significant lower lows.

Hangseng Looking for Positive Trigger

The Hangseng Index closed up 380.61 points or 1.59% at 24,258.96 off a low of 24,150.51 and high of 24,442.07 on value turn-over of HK$ 72.66B.







The market open gapped up on back of triple digits gains from Wall Street but drift lower on afternoon trade however late buying pushed the index off its low. Notably though was the market's lukewarm reception to last night's strong gains from Dow Jones perhaps due to concerns from Shanghai market as Shanghai Index fall another 2%.


Where is Hangseng going from here? It is clearly oscillating between 38.2% and 23.6% Fibonacci Levels (measured from October '07 peak to recent trough) and today's close brought the index closer to the upper band of its' trading range. At current levels, Hangseng is looking for positive trigger that would propel the index above 25,000 key resistance level and I'm looking at the following Indices:



1.) Nikkei Index just broke-out from its' downward resistance.

2.) Shanghai Index is technically nears oversold levels.

3.) Another strong finish from Wall Street tonight.

High Crude Oil Prices Failed to Dampen Market Sentiments

The weak US Dollar and high light crude oil prices did not disappoint US stock markets as all three major US indices posted solid gains, among the three indices Nasdaq Composite was the 'head-turner', we will look at Nasdaq and S&P500 Index charts below but let me start with the currency market and commodity market.




US DOLLAR INDEX
Broke Triangle Support







US Dollar was broadly weak across the board except against the Japanese Yen; this is significant because the YEN is widely used currency for 'carry trades' (this explains why the stock markets managed to post strong gains in spite of the weak US Dollar). Technically, US Dollar Index broke the support of its' triangle pattern (perhaps the currency market is starting to price in another FED rate cut two weeks from now).





CRB INDEX
Approaches Key Resistance







The commodity market was supported by the weak US Dollar as investors turn to commodities to hedge a falling US Dollar: coal and light crude oil are at life time high and spot gold broke above its' 50days moving averages (check these individual commodity charts at stockcharts.com $SCP, $WTIC, $GOLD). The commodity index now approaches its' recent peak and seeks to take-out said peak, it may succeed in taking out its' recent peak but technically the commodity market is at over-bought levels hence a potential pull back may be expected. Buy Light Crude Oil and Coal on pull back.




S&P500 INDEX
Confirmed Higher Low

We have a confirmed higher low for S&P500 Index as recent trough was higher than previous 3/28 and 3/31/ troughs (this is bullish, refer to Weekly Cross Markets date 4/13/08); interestingly, i noted yesterday the significant drop in the VIX Index and last night the volatility index gapped down and reading dropped to 20.53 (lowest in 4 months); moreover, it broke down from major support trend line (check $VIX at stockcharts.com), this may indicate the market might push higher for the rest of the week.

S&P500 Index attempts to re-test its' major support turned resistance trend line and the odds favor a successful break above said trend line.

Nasdaq Composite:

Gap Up on Upbeat Earnings

Upbeat earnings in the technology stocks lifted Dow Jones to post triple digits gains, I recalled Mr. Chart Man (Daryl Guppy) recently noted that all eyes were on the financials when Nasdaq Composite could be the leading indicator for S&P500 and Dow Jones Index.

Looking at the Nasdaq Composite daily chart, the size of the gap last night plus the fact that the index traded quite superbly from open to close, the tech sectors may indeed lift Dow Jones to higher grounds. Moreover, the Index could also be forming an inverted head & shoulder reversal area pattern.

Another Higher Low for S&P500 Index???

Could buoyancy in US Dollar lift Stock Market's Sentiments? This was my question on yesterday's article and seemingly it is. Nikkei was inspired by the weaker Yen and Wall Street had its' technical bounce (as I noted yesterday).


S&P500 INDEX:
Another Higher Low???





The market could form another higher low (refer to weekly cross markets date 4/14/08) but further confirmation is warranted. If the market tonight trade on higher high and higher low and finish strong then the market should be ready to re-test its' major support turned resistance trend line again in the coming weeks.

VIX Index dropped significantly and formed a bearish engulfing candlestick pattern, could this indicate S&P500 index ready to trend higher as these two index move inversely?





CRB INDEX:
Can it Take-out Recent Peak???


The commodity index attempts to take-out its' recent peak on the back of higher light crude oil and coal prices, failure to take-out its' recent peak will create a feeble high which is technically bearish.





US DOLLAR INDEX
Alternate Higher Low and Lower Low


The currency market was dribbled around by the US Dollar, last April 10 we have lower low (refer to USD Index chart) followed by a higher low then we have another lower low followed by another higher low; we have alternate lower low and higher low, what does this mean?





The alternate lower low and higher low for the past days indicate market's indecision, this is because in spite of general bearishness in the US Dollar, other major currencies index are somewhat exhausted as well after years of appreciations:


1.) Eurodollar Index hovering below its' 50days moving averages.

2.) Japanese Index re-testing recent troughs.