On the move: US Dollar Index

Been waiting for a 5 wave advance on the US Dollar Index and it seems it is here.

Although, I may be jumping the gun higher since it the confirmation will be on prices exceeding 83.43 (symbol /DX, US Dollar Index ETH). The reason being that the personality of today's advance is impulsive on the 15 minute chart. If 83.43 is not exceeded tonight (when Europe starts to trade), then short term bearishness will follow.

On the 15 minute chart, the 5 up move is in the works. Wave III is almost 1.61 multiple of Wave I.

Again, waiting for the confirmation for prices to exceed 83.43!

On the move: Treasury Bonds

These are short term charts with short term outlook. But it looks like the 10 year Bond is poised to move higher from here.

The mainstream media is already reporting that Bonds are in a "bubble". Retail Investor are buying Bonds at a historical level. One can anticipate the shock and awe (more so dismay) of Mutual Fund Managers who are looking at capital outflows. One possible outburst: "How dare the retail investors douse their fingers in Bonds! They will surely burn when this bubble bursts."

Buyer beware: There is some merit in this argument. "When" the bubble bursts, it will surely harm a lot of participants. But till then Treasury Bonds seem to go higher.

Many times the bubbles inflate further before bursting!

On the 15 minute chart of US Treasury 10 Year Note, it looks a running flat a-b-c correction is over and the trend is resuming upwards in 5 waves. A 3 wave correction will be the confirmation that prices will trade above 126.

US Dollar Index and insomnia

Major moves in Forex markets occur in the wee hours of the morning (after midnight) of Pacific Time. The choppy action in the US Dollar Index since 11 AM PST (7-13-10) has been frustrating. Numerous profit opportunity have been missed already in search of 83.5 target which is elusive so far. The trade drags on; draining a lot of emotional and physical energy.

A lot of patience and stamina is needed. Similar to "The old man and the sea". I am most certain that if "The old man" was a trader, he would have been a great one. Perhaps amongst the very top ones!

I for one, need to wait for 83.5 to hit in the next 2 hours. That area is getting pretty close to the correction target. I am not sure if the green back starts to rally from there or it just chops around for a couple of more weeks and then levitate towards 88. Currently the broad market seems to jubilant over Intel's numbers and looks like an opening gap. Is the market getting ready for a last hurrah and then chop lower? It will be known in the coming weeks.

In any case, the greenback is more likely to find its bottom with the market top!

EUR/USD overnight story

The EUR/USD high of 1.2722 on 7-8-2010 was significant. On the 15 minute chart, it looks like the pair is coming down in 5 waves. Although it could change if 15 minute bar closes above 1.2616. That would negate the 5 down count.

Even if it is 5 down, whether the 5 down is impulsive or part of a 5-3-5 Zigzag still remains to be determined.

In either case, one of the trade with good risk/reward is to Short EUR/USD (currently at 1.2593) with target to cover at 1.2540. Stop loss being 1.2620.

On being crossed

The nth version of DOW 10,000 hats are in vogue again! S&P 500 has jumped 52 points on closing basis in the shortened trading week. The Bulls are jubilant and the Bears are once again dismayed that S&P 875 seems way too distant.

On closing basis, the bottom of SPY (ETF for S&P 500) was on 3-9-09 at 65.98. The Golden Cross (50 MA- simple moving average, daily crossed from below the 200 MA) happened on 6-18-09 after 101 calendar days and after 24 SPY points (about 240 S&P 500 points).
Presently, the top of 4-23-10 at 121.24 lead to the Death Cross (200 MA crossing below 50) after 75 days and 15 points.

The bullish cross signal came after 24 points of rise and SPY advanced 31 points afterwards to the very top. The bearish cross signal is here now after 15 points of decline. If this bearish signal does indeed play out, how far the decline will go? The first support is at 86 (20 points from cross) and then at 65. The real fun place to go bearish can be 109-110 where the failure to surpass the resistance of 200 DMA will discourage the Bulls.

The earning season is getting started. Fixed Income instruments are taking a breather after their advance. Greenback is correcting its uptrend. EURO is breathing again. Gulf Spill has replaced the plight of sovereign default risk from the headlines. It seems like happy days are here again. Was the recent decline just a bump in the road and the markets are ready to soar again? Did someone order DOW 15,000 hats?

Looking at the volume trend, one can see the accumulation area and then gradual decline in volume as the market trended up. One can also note the distribution near the top and the increase in volume on down turns. The technical picture is pretty clear; 86 on SPY is closer than it seems.

The conservative Option idea can be to start selling OTM (Out of The Money) Calls when SPY is 109-110. Even more conservative is start putting on Bearish Call Spreads and if the market starts to decline, leg-out of the Long Call and buy Puts.
Of course, the other idea is to buy Puts outright in weak tickers; but that does come with negative theta, while selling Calls or Bear Call Spreads will give positive theta (Time Decay).

Dismal corporate guidance can be a bearish trigger or vice versa. Wide-spread top line growth with encouraging guidance can boost the bulls. Watch out if the earnings are only boosted by shaving the bottom line. That will bring SPY 86 closer!

The Spyder on the Fan

Our friend SPY (S&P 500 etf) is a beautiful creature. I have been watching its relative strength via the RSI (Relative Strength Indicator) and so far it has held up. In July 09, it briefly dip below 40 but quickly came back up. In November 09, it did turn back from 64 instead of going to 70. The day of record close 11-25-09, it was 61.57. If it breaks below 40, it will mean that whatever Bullishness there was in the last 8 months has come to an end.

The Fibonacci fan on SPY looks like as shown in the chart above. If the current fan line at 50% is breached, there is support at 107.50 but major support is much further down at 103.12. In spite of the seasonal bullishness and the impending Santa Rally, the risk seems to be on the downside.

Feeling lucky?

The drop of LVS (Los Vegas Sands) from $148 to $1.42 in year and half was quite remarkable. The gain to $20.73 in next six months was even more noteworthy. The gain is in three waves though. It does look like an a-b-c correction. It appears that LVS is going to see lower prices.

Dow Jones: the leader

I am trying to read the footprints of the market by looking at some market indices.

Index comparison


Since the significant bottom of 3-9-09, Dow Jones Industrial Average (Dow 30) has been outperformed by S&P 500 (SPX), Nasdaq 100 (NDX), Nasdaq Composite (COMPQ) and Russell (RUT, the Russell 2000, small cap) indices respectively.

Since the bottom of 11-2-09, things have changed. Dow is outperforming all these indices and guess who is under performing? The Russell 2000 small cap index. What does that mean?

Lets look at the daily three month charts of Dow, S&P 500, Nasdaq and Russell 2000 (below).

In a typical Bull market, the leadership does change from time to time. At the very bottom of Bear markets, Blue chips (large caps) are favored as they are the traditional strong companies with strong books and cash reserves. As the Bull phase sets in, the downtrodden or high Beta (high volatility, speculative) stocks gets favored. Since they will go up the most in percentage terms, money is thrown into those. Thereafter the rally matures. Investors start to feel jittery and become skeptical of the rally and large gain in prices. The want to protect their profit. So they move back into the Blue Chips.

Looking at the charts of these indices for last three months, it is clear that now Dow 30 is out performing the other indices. Look at the higher highs in Dow and lower highs in others. Does that mean that this signals the Bull trend is mature?

Sure it does.

Look for the relative preforming of these indices in the coming weeks. Things may be gearing for a change. We shall see.

With that, I am all ready to dive into a fun filled Thanksgiving!

Enjoy!

Sugar in my Pecan Pie

Nymex Sugar Futures (continuos unadjusted)

Sugar is up 120% this year.

Why doesn't it gets as much press as Gold which is only up by 40% this year?

You mean to tell me that Sugar is not the "real" currency? You mean to tell me that you can have Halloween, Easter, Valentines Day, Thanksgiving, Christmas and birthdays WITHOUT sugar? Come on, it is the real currency of love :)

The futures chart is coiling into a symmetrical triangle. The challenge with symmetrical triangles is that they can break out in either direction.

Notice how the momentum is also curling but RSI did not dip below 40. The bullish trend seems to be intact as yet. The chart is telling me that it is probably going to break to the upside.

Point to remember that according to Elliott Wave Principal, triangles usually happen in the 4th waves and break out from a triangle is the terminal move. So, if we go higher, probably blow off higher because of all the Pecan Pie I am going to consume in the holidays, that will be a terminal move in the trend. Look out below after that.

NEM : Newmont Mining Corp.

NEM did hit $54.87 yesterday into the resistance area. Gold is making new highs and money is pouring into Gold miners.

Media is abuzz with tall targets for gold: $1,300, $1,500, $2,000 and so on.

It does remind me about the $200 a barrel target for crude oil some time ago. The most respected (ahem) firm (s) were giving that target. Even the Government kept buying oil into the SPR (Strategic Petroleum Reserve) as crude went higher and higher all the way to $147 a barrel. Then it corrected to $35 a barrel.

Oh, that was so last year!

"Now the things are different. There is hyper inflation lurking out there with all the money that is being printed. After all, Gold is the only real currency out there. India just bought 200 Metric Tonnes of gold, even Mauritius bought 2 MT. What are you waiting for?"

Please give me a break.

I am not counting too much on my EWP count on NEM with a Diagonal in Wave 3. Still, it looks to me that NEM is about to roll over. That thought lead me to buy a Bearish vertical spread on it today. Lets see what happens.

If the count is correct, NEM should correct towards $45 and bounce higher from there. In the meanwhile, I will scratch my head for more thoughts on the count.

Water water everywhere but not a drop to drink!

The chart of Aqua America Inc (WTR) looks bullish to me.

It has lost some serious money since climbing past $21 in Nov 09. The falling wedge could be complete and it could be ready to break out to the upside.

From an Elliott Wave Principal perspective, the currently drop seems to complete the wave ii retracement (78.6%) and is projected higher from here. If the primary count proves to be correct, wave iii should go well past $21. That will be something.

For long plays, $15.25 is a good stop loss. A buy stop at $16.45 will be even more surer way to play this cool (sic) chart.

Air Gas ?

ARG

It is a unique name, Air Gas(ARG). The gas seems to be letting out and it has broken its bullish up sloping trend line and made a lower high and lower low. Support does exist at $42.25.

Why I am thinking that there is more gas to be let out? May be I am looking at the longer time period chart given below. Even though the inflation has done its trick but the price may correct more than to $42.25.

ARG (longer period)

ATI is another beauty which is ready to break out of its triangle. Which way, I beg to ask?

IMHO to the downside. Lets wait and see how it unfolds. It has shown a lower high so far. A lower low will provide the clarity :)

ATI

Oil Service Holders Trust (OIH)

OIH (Oil Service Holders etf)


Still another hour left for the market to close. Got nothing better to do than think about OIH. Looks like this is ready to roll further down. The bullish trend line has been broken with a gap down. The volume in the previous rallies have been declining. It is forming a sort of Head and Shoulders pattern with slanting neckline. Be warned, a lot of patterns exist in the beholder's eyes!

My Elliot Wave Principal count shows that 5th wave completed on 10-20-09. Now we should be in a three wave a-b-c correction. It looks like a Zigzag correction so far. The equality (a =c) target comes down to $110. While there is the previous 4th wave of one lesser degree at $111.

Still, the form does not look complete at $111 area. The 1.61 of "a" target is just below $100 and the previous 4th wave is at $89.

There is horizontal support at $110 and at $100. The slanting neckline can also provide support and will need to broken down.

We shall see how this unfolds. I am thinking about selling Bear Call Spread and let time decay work in my favor while OIH eases it self.

Sector Relative Performance

Relative Performance of S&P 500 Sector ETFs (& Dow Transport Index)
Data Table



Relative Performance of S&P 500 Sector ETFs (& Dow Transport Index)
Time period from Mar 09, 2009 to Nov 17, 2009


Relative Performance of S&P 500 Sector ETFs (& Dow Transport Index)
Time period from Jul 09, 2009 to Nov 17, 2009


Relative Performance of S&P 500 Sector ETFs (& Dow Transport Index)
Time period from Nov 02, 2009 to Nov 17, 2009

The three charts compare the performance of various Sector ETFs of S&P 500 and Dow Transports Index (for lack of a S&P 500 etf for transports) to SPY which is the S&P 500 etf.

The color lines on these charts are somewhat hard to distinguish. The table givenbelow the charts is easier to read.

The first chart depicts the relative performance since 09 Mar 2009 to date ( 17 Nov 2009). As I recall 09 Mar was the significant turning point in the market.

The second chart depicts the period from 09 Jul to 17 Nov 2009. July 9th is also an important pivot in the market so is Nov 2nd.

The third chart is for the period 02 Nov to 17 Nov 2009.

These are percentage charts. The table given above the charts has an additional period depicting 09 Mar to 09 Jul 2009. The numbers in the table is the percentage change within the time period lsited.

Some things jump out to me from this data.

The financials have been the out performers so far. That is not surprising as they took the most beating in the downturn!

Since March lows, Energy, staples and utilities have underperformed the S&P 500. No surprises there as Energy trade did wind when Crude peaked at $147 last year. Staples and Utilities being safe haven plays typically under perform in Bullish phases of the markets when risk is sought and embraced by the participants. They are the hiding places when Bears start to maul.

The picture is more clearer when I look within the smaller time periods. Though, the sample period of the latest data is very small (from Nov 2 to Nov 17), it is giving some distinct clues.

Note: Small sample data can magnify the errors. The following inferences need to be reevaluated in the coming weeks when more data is available.

XLF is now under performing. XLK (technology) is barely keeping up with SPY. The leadership is changing. Money is moving out of Financials. Transports and Materials are doing well. Staples and Utilities are still under performing.

The Bullish trend seems to be maturing as the leaders (Financials and Technology) are tired.

I am going to keep an eye on XLP and XLU. Money flow into these sectors will signal an end of the Bull party.

Keep in mind that this is the sector relative performance. There are some individual stocks within these sectors that are defying the performance of their sectors. Case in point is XLP components like CL (Colgate Palmolive) at all time high, PG (Procter and Gamble) at 52 week high, WAG(Walgreen) near 52 week high. Similar examples are in all the sectors.

Keeping an eye on Sector rotation can be rewarding.

Crude Oil

A lot of Oil has passed under the bridge (or in the pipeline) since I wrote about Crude Oil in May 09. It is time to visit the black gold yet again.


My homegrown Elliot Wave count on Crude's advance since the beginning of 2009 tells me that Oil has topped or better yet, will top between 86 and 90. That is full 10 points away! What is the use of this "wide" target? Go figure.

I can count 5 waves up to 80 but can also see the alternate count for the 5th wave advance to 86 to 90. I have not measured the exact target as yet!

I do note that the RSI is showing weakening momentum. The open interest has been rising but not at the level of previous bull market in oil. That is understandable.

Looking at the futures chart (not shown here) for light Nymex light sweet (miNY ETH), I can imagine that 5th wave has more advance left.

If the 5th wave moves higher, it may resonate with US Dollar Index dropping below 74.50 to 70 - 72 area. Thereafter, a violent surge in US Dollar to 78 level may bring the Crude Oil down to $59. There is support at $74; that may prove to be fragile.

It seems that more price action is in the downward direction from here. If the Crude advances to 86 - 90 range, it will present even better risk reward on the down side!

Fixed income markets: US 10 year note

Today, the market is euphoric about S&P 500's close above 1,100. The bulls are jubilant.

In spite of this, I am looking at the chart of US 10 year note yield and noticing the yield dropped today. Same thing for the 30 year bond yield. That translates into the 10 Year Note (or the Bonds) actually going up!

Money is moving into Bonds while Equities are going up. This is abnormal. You can dig into today's speech given by the Fed Chairman in search of clues. I for one, is more concerned with the outcome than the cause.

I am hanging my hat on the fact that Bonds moved higher today. As a reminder to myself, Bonds lead Equities!

I get the message.

Near the highs (2 of 2)

Similar charts approaching the highs.
(see post below).

Approaching their highs (1 of 2)

What to do in a market which is relentlessly going up?
Plan to sell!

These charts are at or approaching their 52 week or 2 year or all-time high. What happens when the prices reach a previous high? Prices can move further high or may decline (or may consolidate). More often than not, markets have memory. The market tends to respect the previous high price level and the pullback is more probable at that level.

XLF : Financial Sector Spdr

XLF is the Financial Sector etf that trades with heavy volume.


I have been bearish on this for the past few weeks but I picked up the wrong trade. Instead of selling a bear call spread, I bought puts. The loss in theta (time decay) has eroded all profit and some.


I am counting on to it weakening yet again. Note the weakness in momentum (RSI). Also the highs in Oct made a sort of evening star with abandoned babies!

Bearish charts

These charts appear bearish to me. They are either at resistance or approaching resistance. I am inclined to sell Bear Call Spreads for Dec on them provided the option premium is lucrative.

Near resistance.


Resistance is nearing.


Near resistance and trying to make a triple top with lowering volume.


At resistance.

At resistance and approaching all time high.

At resistance and has retraced 61.8% decline from the high.

Making a double top and is beneath the rising trend line.