Hopefully you had a nice July 4th and rest from the market. That means its July, but with what we have on the calendar this month I doubt it will be the lazy, hazy days of summer. We’ve finally reached the month where the Greenback is in the 121 square-out month in this incredibly long bear market. Is it a coincidence that July is the square-out month and we will come down to the wire with this debt-ceiling business? No doubt markets should be making several twists and turns along the way.
China turned up and that means commodities and stocks were better. However, grains were a disaster. Look to the Corn market. We saw the potential for one last leg up but couldn’t afford to violate last week’s low which it did in a serious way. I’m also concerned about Gold and I think there’s a very good chance the May high is more significant. Also threatening to break down are Soybeans and Cotton.
Turning to our stock market, given everything that we’ve been watching, this is the best technical condition in recent memory. Our June 20th seasonal change point produced what it needed to produce and now has exceeded the target. I’m impressed but if I have to pour cold water in one area its housing. Banks are doing a little better than neutral but housing has been horrendous except for Friday. Our view is the rally can continue without banking and housing but those have to stay neutral. Also, to get a major rally you’ll need participation and we really aren’t getting in that arena right now. But the SOX turned up, selected biotech is doing better and of course commodity land is doing much better.
At the beginning of the week I was looking for a retest of the lows one more time. Remember a week ago Friday? The NQ was horrendous but that being said, that was your test. Markets turned up at the start of the week. The theme for the end of the week is while we did have a neutral oil and bond candle, the stock market WAS NOT NEUTRAL which means this is something more than window dressing. However, take a good look at the NDX chart below and you’ll see an action reaction sequence which probably stalls out the action the first part of the week.
The main conditions of interest obviously were China which had a great week. But we’ve also been seriously observing WTI as it was configured exactly for a correction in an ongoing bull market in Fibonacci based terms. So it bounced exactly where it needed to bounce and the first thing to watch out for in the new week is the reaction to that new Exxon spill. In bull markets we’ve seen oil spike on the slightest hint of a shortage. But we are also watching the bond market which has now dropped to a key support level from the March high. In a decent market in will make a bounce attempt. Should the bond price keep falling here it will confirm the top and perhaps that the US government is the only buyer. But a bounce this week should provide some turbulence to the stock market.
But for now the stock market is operating under the dominating force of a double bottom from March which makes for an excellent trading leg. We’ve had it as we ended the week, we did not have the kind of euphoria necessary to top it out but I did start hearing the HAPPY word. This materialized on CNBC Europe. As the week built on itself the technical conditions improved everyday as the charts shed a key area of resistance just like one peels an onion. From the chart below you’ll see the bigger one. I doubt we can get past there easily.
What you are looking at on this NDX chart is not only an action reaction which means what goes down generally comes back up but without much support or resistance in the way we end up with the V shaped pattern. As you can see, this action reaction sequence is about to end. This point on the chart is known as a supply imbalance where sellers hit really hard the last time. I suspect they will make another attempt to do it again. Whether they can succeed is another story. This point coincides with overhead resistance in oil and support in bonds as I just said. That means conditions are ripe for a disturbance of what we had last week.
Mind you I have to be careful not to prematurely predict the reversal because I don’t think it’s wise to impose ones will on the market. It’s enough to realize that at the point we start out, it’s the place where professional sellers look to take profits. If they hit them hard enough we could get the reversal and it would give us one scenario where the overall pattern from February and May gives us a trading range type of market. We have come far enough even in this short amount of time to all for a trading range type of market. It doesn’t necessarily have to touch the top.
But I will add one thing. Industrial machinery type stocks had their very best sequence since they topped out earlier in the year. If they can somehow sustain it would be a very important sign the recovery is taking root again. Banks have done better and it could be a manifestation of Goldman Sachs finally hitting long term support. Here’s a stock that went from 175 to 128 and finally hit the bottom of the median line. It held very important support. On another note, AAPL has led this surge in tech and has had a move from 310 to 343 in 2 weeks. We told our subscriber base this type of move was a high probability event. But even this world leader is close to important resistance.
Finally, the US Dollar is making yet another attempt to find a bottom. Last week it had a serious technical violation and any bounce will have to deal with just as serious overhead resistance. As you can see this should be a week of various technical headwinds and if we don’t have an outright reversal should be really choppy.
Click charts to enlarge
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