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.