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.

Choppy Trading for Hangseng

Hangseng opened soft and drift to the negative territory on morning trade but turned around in afternoon session and went on to finished with slight gain of +90pts or +0.38% on thin turn-over value of HK$ 71.45B.





The market continues to move sideways on downward bias as it re-test downward resistance turned support line. It is likely to close the gap made last 4/2/08 except if US Markets come up with a reversal tonight.

Light Crude Oil Trading at New Record High

Brace yourselves for another series of gasoline hikes that may hit Php55/liter as light crude oil broke out from its' recent peak (after several attempts), it is now targetting $120/barrel in the coming weeks. Commodity Traders are advised to buy on pull back.









Light Crude Oil had risen 800% in 10 years time and is currently trading at new record high, the question is how high can it still rise .... the answer depends on how low can still the US Dollar fall.

Could Buoyancy in US Dollar Lift Stock Market's Sentiments?

S&P500 INDEX:




US Markets closed flat (Dow Jones dipped -0.20%, S&P500 Index shed -0.34% while Nasdaq was down -0.63%); when a security's open and close are virtually equal it formed a 'doji' candlestick pattern. Alone, 'doji' are neutral patterns, any bullish or bearish bias is based on preceding price action and future confirmation. The index was down 5 out of 6 trading days with lower high and lower low (refer to S&P500 Index Chart) hence preceding price action is a downtrend; moreover, yesterday's 'doji' was preceded by a long black candle; this indicate that selling pressure significantly diminished wherefore a potential technical bounce can be expected from the market.






I searched historical patterns that has similar candlestick pattern that we have now (long black candle + doji) to give us some clue as to how the index may (possibly) behave for the next couple of days and i only got two (refer to above chart):


1.) June 2005 --> it was followed by a long white candle (morning star formation), the preceding trends were very similar to that of today: minor uptrend then a pull back (after the morning star formation: long black candle+doji+long white candle) the market resumed its' uptrend.


2.) Sept 2001 --> it was followed by series of black candles; however, the preceding trends were not similar to that of today because the preceding trends were significant downtrends.



I was not satisfied with the above, so i checked on Intel and JNJ Charts since these two companies are next in line to report their earnings and look what i got:






1.) JNJ --> bearish shooting star candlestick pattern.

2.) INTEL --> broke down from minor uptrend that started 1/22/08.



With both the bulls and bears on equal footing it would be prudent to wait for further confirmation, but for those who can take some degree of risk the market is technically near oversold levels.







US DOLLAR INDEX:

The trading range in the US Dollar Index is getting narrower and narrower as it approach the apex of its' symmetrical triangle pattern; it re-tested and respected the support of its' triangle for the second time yesterday and closed slightly above previous day close. A re-test of the resistance of its' triangle is very likely in the coming days.

CRB INDEX:

Light Crude Oil overnight gains lifted the CRB Index after two consecutive days of decline, the commodity market is broadly moving sideways tilted towards downside bias with recent peak serves as resistance and previous high serves as major support.

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.




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