From Currency to Commodity to Bonds to Global Stock Market

US DOLLAR INDEX:


The greenback was broadly weak but surprisingly resilient for the past weeks and looks ‘possibly’ exhausted after years of decline; recently, there were three times the US Dollar managed to bounce back after extreme bearishness: March 25 & 26 (back-to-back long black candle), April 4 (bearish grave-stone), April 9 (bearish engulfing). However, over-all downtrend for the US Dollar is still very much intact, it has to break-out from its’ symmetrical triangle pattern and take-out previous November trough (now serves as immediate resistance) before a potential ‘short term bottom’ for the US Dollar could be in sight.





Interestingly, if you notice the past couple of days it was the stock market that influenced the Dollar movements instead of the other way around. Moreover, there was very light movement in the commodity market as the commodities were tracking the next potential move of the US Dollar because of the G7 meeting in Washington over the weekend.

If last Friday’s ‘black candle’ close for the US Dollar is an indication of a potential break-down of the greenback from its’ triangle, then early next week the US Dollar Index should be at anywhere near the 71 levels; however, if it still manages to bounce back after re-testing support of the triangle, then perhaps the US Dollar is indeed exhausted as the bears are not too aggressive and eager to push down the greenback lower than it is at current level.


Japanese Yen Index:


Aside from Swiss Franc, Japanese Yen is the best barometer to gauge if risk appetites are back at the Equity Markets; when Yen is strengthening or ‘Yen Appreciation’ it is bad for the stock markets because of the unwinding of the ‘carry trades’ or risk aversion.

Last February of this year, Japanese Yen Index hit record (all time) high (refer to preceding chart) after it broke above its’ previous historic (2004/2005) peak; it pulled back and re-tested this previous peak (now serves as major support) or rather it is currently re-testing this support.

On a magnified (zoom-in) view of the chart, there was an island reversal after Yen hit record high and was followed by another gapped down last April 1 which was not yet filled to-date. Last Friday, it formed a ‘harami candlestick pattern’ and since it was nestled inside a black candle, this is potentially bearish and a re-test of 97 levels is possible.


CRB INDEX:


In spite of the general weakness in the US Dollar, CRB Index formed a potential bearish reversal ‘shooting star’ candlestick pattern; moreover, it failed to re-test previous peak thus formed a lower high (this is bearish). Stochastic Oscillator crossed-over for ‘sell signal’ hence the commodity market could reverse and head south (for the coming week) and possibly erased past week’s gains.

I highlighted four hard commodities from different sectors: spot gold (metals), light crude (oil), copper (industrial metal), coal (energy). Notice on succeeding charts that the first three commodities highlighted are ‘short term bearish’ and only coal is potentially bullish in the near term.


Spot Gold:

The precious metal retreated after hitting new high $1,025/oz. last March 17, it rallied back up after touching its’ trend line support but the rally was short live and subsequently gold continue its retracement and broke below its’ trend line support. But upon touching its’ 100days moving averages support, spot gold recovered and this time the rally last longer than the previous rally. However, gold encountered strong resistance at its’ trend line support (turned resistance) and is now looking to re-test its’ 100days moving averages support for the coming week. Stochastic Oscillator crossed-over for ‘sell signal’ confirming this move for the coming week.

A potential break down from its’ 100days moving averages could send gold prices lower near $850 (which is also its’ next major key support).


Light Crude Oil:

The last three trading days of the week, light crude oil took out its’ recent intra-day peak ($111) but never closed above $111 (this is bearish) and RSI Oscillator formed a ‘bearish divergence’ sending early warning/signals that oil might head lower for the coming weeks and in addition Stochastic Oscillator crossed over for ‘sell’ as well; therefore, a re-test of $100/barrel should be expected, this level is also a major key support level (it was tested three times already for the past month). Whether this support will holds is still uncertain but a break down below this level is good for the stock markets.

Copper:

Likewise, we have a potential bearish ‘double top’ pattern formation for copper and its’ RSI Oscillator formed a ‘bearish divergence’ somewhat confirming this bearish top pattern formation.

A potential break down from its’ double top pattern will send copper prices re-testing its’ recent trough at $270.


Coal:

Coal prices is consolidating at the high after it broke out from its’ major key resistance; however, it should stay above this resistance (turned support) for coal prices to continue trending upward. Otherwise, this could be another false break-out similar to what happened last February.

10 Years USD TREASURY NOTES:


After re-testing its’ downward resistance three times (December ’07 and February of this year), recent rally for the 10 years U.S. Government Treasury Notes failed to re-test this downward resistance as it encountered strong resistance at its’ 50days moving averages (this is bearish).

Yield spreads now narrowing as it nears the apex of the triangle pattern and downward bias will continue as long as its’ downward resistance is not taken out. A potential break down from its triangle pattern could mean a re-test of previous historic (2003) trough of 3.08%.


S&P 500 INDEX


The bulls were surprised by the bears last Friday as the market plunged -2.04% on weak earnings by G.E. and thus closed the week at its’ low; the market started the week re-testing its’ key major support (turned resistance) trend line but failed to break it; two previous occasions (both on February of this year) the market had false break-outs when the index broke above its’ trend line support (turned resistance) but failed to sustained it. As a result, the market validated this major trend line as strong resistance. Last Friday’s long black candle was indeed quite a ‘surprise’ because it came after the market twice (Wednesday & Thursday) respected its’ immediate downward resistance turned support (blue diagonal line).

The market made higher lows from mid-March to April, it made similar higher lows last January to February, but there was big difference with recent higher lows from previous higher lows; recent higher lows made corresponding higher highs while previous higher lows made lower highs.

The price actions on Monday is critical for the market, if the index wants to maintain its’ higher lows it must not sink deeper and re-test recent trough; otherwise, the minor (channel-like) up trend that started mid-March could be over; on the other hand, if the market maintains its’ higher lows then we can expect the index to make corresponding higher highs for the coming week thus extend its’ minor (channel-like) up trend.

If we are to use the VIX Index (preceding chart) as leading indicator for S&P 500 Index, there is probability that the market may maintain its’ higher lows, because in spite of the three digits loss last Friday for Dow Jones the VIX didn’t spiked up and it failed to close above last Wednesday intra-day high; moreover, last week was the longest (it terms of number of days) the volatility index stayed below its’ 200days moving averages in a year. In addition, notice every time VIX re-tested its’ major support trend line, it made significant long white candles and last week after VIX re-tested its’ major support trend line again, there was no significant long white candle.


FTSE INDEX:

Following the lead from Wall Street, FTSE closed weak last Friday after opening strong (perhaps spill-over from strong finish of Nikkei); the market re-tested several times (for the past week) its’ previous November ’07 trough which now serves as key resistance line but failed to break above said resistance. Similar to S&P 500 Index, FTSE had a false break out also from this resistance last February of this year.

The market will continue to take its’ lead from Wall Street for the coming week, but it may pick up from where it left last Friday’s close and index bias is towards downside as it seeks to re-test its’ immediate downward resistance turned support line.


Nikkei Index:

Nikkei took the spotlight on global stock markets last Friday (up 3.0%) as it closed the week quite strong, last Friday was the fourth time the market re-tested its’ downward key resistance however the market leave investors some suspense to think about over the week-end as it merely touched its’ downward resistance with its’ Stochastic Oscillator about to cross-over for ‘buy signal’ and RSI Oscillator points upward after retracing from its recent peak. But the triple digits losses of Wall Street last Friday’s night should spoil what could have been a party for Nikkei this Monday.

Nikkei is expected to open weak (gap down) on Monday as the market has yet to price in last Friday’s huge losses from Wall Street.


Shanghai Index:

It was a very volatile market for the past weeks for Shanghai Index as the market hovered above and below its’ 50% Fibonacci Key Resistance Level (3,550 to 3,600 levels); Shanghai re-tested its’ downward resistance twice for the past week but didn’t have enough strength to break above it.

Market’s downward bias will continue for the coming week as Shanghai Index drift lower to re-test its’ 61.8% key Fibonacci Support Level. The index must respect this key support level and starts to rally strongly back upwards and break above its’ downward resistance for investor’s confidence to come back into the market; otherwise, the market may find itself inside a hole too deep for it to crawl back.


Hangseng Index:

Hangseng showed strong resiliency (for the past week) over external market factors as the market ignored last Wednesday losses from Wall Street to close with a modest gain on Thursday; the index twice re-tested and respected its’ downward resistance turned support line thus validated it as strong support. Moreover, the market seems unwilling to close the gap made last March 31, because every time the market touched 23,850 to 23,900 levels, buyers aggressively bought up the market or it can also be viewed as sellers not willing to sell aggressively below that levels.

The index finished at its’ intra-day high last Friday and close the week at its high is bullish and looks ready to take on its’ immediate resistance of 24,900 after which attempts to close the gap made last January 16 of this year. Moreover, two technical indicators (RSI and Stochastic) points to potential upward momentum of the market for the coming week; however, the huge losses from Wall Street last Friday should pose some problem for Hangseng comes Monday. Hangseng is expected to open weak (gap down) on Monday as the market price in last Friday’s weak close of Dow Jones but if the market is really resilient it should pare down some of its’ intra-day losses on Monday and more importantly the market should respect its’ downward resistance turned support line to keep its’ upward bias momentum intact; otherwise, the minor up trend that started last March 18 could be over.

CROSS MARKETS SUMMARY:

Three of the World’s Largest Stock Markets (US, Japan & England) are staging a potential comeback after falling from its’ recent peak yet one of the fastest growing economy of the world (China) is still hovering from its’ low for the year but potentially near its’ bottom (considering it had dropped quite significantly from its’ recent peak).

Hangseng should continue to take its’ lead from US, Japan and China:
1.) S&P 500 Index à after last Friday’s shake out of Wall Street, could the recent rally (longest rally for this year) be all over or it still has some more legs to propel US Indices back above its’ major support (turned resistance) trend line?

A.) The broad weakness in the US Dollar for the past weeks didn’t propelled the commodity market to new high: spot gold was not shining anew (smart money will wait for spot gold to reach $850 before buying into it again), light crude oil has a potential bearish divergence and copper likewise has a potential bearish top formation; a weak commodity market should be positive for the stock market.

B.) Yield spreads for 10years Government T-Bonds narrowing as it nears the apex of its’ triangle pattern but the Bond Market has yet to make its’ move whether to break-out to the upside or a breakdown to the downside; bond movements could be both leading and lagging indicator for the stock market.

C.) Volatility Index (VIX) is hovering at its’ major trend line support; a low volatility index is positive for the stock market.

2.) Nikkei Index à Japan is a country that relies heavily on its export; therefore, its’ stock market is greatly influenced by the fluctuations in its’ currency (Japanese Yen). The strong appreciation of the Yen from mid-2007 to date looks exhausted with its’ island reversal at its peak and followed by another gap down that was never filled to date; a break down from its’ historic peak now serves as key support is positive for Nikkei and global stock markets as a whole because of the return to risk.

3.) Shanghai Index à the price differential of A-shares and H-shares have significantly narrowed (if not reversed) due to the –43% dropped of Shanghai Index from its peak last October ’07; this should benefit both Hangseng and Shanghai markets.




">Link