High Yield Plummets and VIX Flares Most In Almost 3 Months

by Tyler Durden

Credit (and vol) continue to lead the way as smart deriskers as ES (the e-mini S&P 500 futures contract) ends down only 0.5% - which sadly is the biggest drop since 12/28. The late day surge in ES, which was not supported by IG or HY credit (and very clearly not HYG - the HY bond ETF - which closed at its lows and saw its biggest single-day loss since Thanksgiving), saw heavier volumes and large average trade size which suggest professionals willing to cover longs or add shorts above in order to get filled. Materials stocks underperformed but the major financials had a tough day as their CDS deteriorated to one-week wides. VIX (and its many derivative ETFs) had a very bumpy ride today. VXX(the vol ETF) rose over 14% (most in 3 months) at one point before it pulled back (coming back to settle perfectly at its VWAP so not too worrisome). After the European close, FX markets largely went sideways with the USD inching higher (EUR weaker) as JPY strength reflected on FX carry pair weakness and held stocks down. Treasuries extended their gains from yesterday's peak of the week yields as 7s to 30s rallied around 6bps leaving the 30Y best performer on the week at around unchanged. Commodities generally tracked lower on USD strength with Oil the exception as WTI pushed back up to $99 into the close (ending the week +1.1% and Copper -1.1%). Gold and Silver ended the week down almost in line with USD's gains at around 0.25-0.5%. Broadly speaking risk has been off since around the European close yesterday and ES andCONTEXT have reconverged on a medium-term basis this afternoon (to around NFP-spike levels) as traders await the potential for event risk emerging from Europe.

As we warned yesterday, the significance of the divergence with credit in Europe and US was becoming palpable and the Storm that we noted was coming has begun we suspect. Stocks managed to cling to the cliff-edge that is the post NFP spike levels while credit has fallen significantly below pre-NFP levels. No follow through at all in credit on that late day surge in stocks and HYG seeing its single worst day since just before Thanksgiving (chart below).

Let's see how many investors who reached for yield stick with them when they realize that a third to a half of their annual yield just got taken away in 2 days - as we've said before, there is a reason they have a high yield.

VXX (the Vol ETF) was very volatile today as VIX (above) saw its largest jump in three months - as many know this is very typical VIX behavior, slow leak down and abrupt flare-up. We suspect the implied skewness and kurtosis discussions we had earlier in the week are being laid again after normalizing.

Treasuries roared back to life late yesterday and through today as supply ebbed and risk appetites dropped. 10Y seems the most volatile - perhaps on its mortgage hedging exposure - but 30Y outperformed on the week - ending just a little higher in yield.

The USD pulled back towards unchanged today after reaching its lows for the week just around the European close yesterday. Day after day we have seen the most volatility during the European day session with reversals into and around the closes and opens. After hours today EUR is pushing modestly higher on news that the Greek cabinet has approved loan plan but it is staying under 1.32 for now. JPY was the biggest loser on the week though stable as the USD strengthened against the other majors - this carry-pair impact dragged broad risk assets lower - though chatter is that a rotation to the EUR as a funding currency is occurring though we suspect the binary nature of the currency makes it a little too noisy for the risk-sensitive players.

To get a sense of how broad risk assets have been behaving this week we use a medium-term (as opposed to the short-term model that is used for trading and arb) CONTEXT - which as you can see is well synced with last week's pre- and post-NFP behavior. The whole week has seen a very narrow range for US equities that again and again has seen CONTEXT (broad risk asset proxy) and stocks converge around that post NFP spike level (green oval). Monday saw a broader derisking among risk assets but US equities maintained into Tuesday where Oil and Treasuries led risk-on and the faded to convergence. The sell-off and curve steepening in Treasuries along with Oil strength and FX carry all helped to push CONTEXT aggressively higher but the divergence lower in the latter part of the week reflects back to credit's underperformance dragging on stocks. Today saw Treasuries rally, curves flatten, and carry lose ground as non-equity risk assets fell back to earth and reconverged with stocks for pretty much the entire day session today in the US.

On the late-day news from Greece, Treasuries are modestly higher in yield, EUR (and carry) is modestly higher and CONTEXT is leading for now (as ES is closed) suggesting a 3-5pt bounce only. It will be along weekend.

See the original article >>

Implications of a Positively Correlated SPX and VIX

by Bill Luby

For those who missed today’s market action and just looked at the post-mortem reports, today probably looked like just another in a series of uneventful days. For those who were paying attention to the likes of the VIX futures and ETPs based on VIX futures such as TVIX (+10.7%) and VXX (+5.2%), however, the tension in the air was obvious.

But the SPX, DJIA and NASDAQ composite indices were all up today, so what’s the big deal? It turns out that investors are easily spooked if the VIX (+2.6%) and the SPX (+0.1%) both move in the same direction. As the graphic below shows, the VIX and the SPX move in the same direction about 22% of all trading days. I think the real issue behind the concern about the direction of the VIX and the SPX is related to a hypothesis I laid out yesterday in What the VIX Kitchen Sink Chart Says :

“…the general consensus seems to be that stocks just do not deserve their current lofty valuation.  In this type of environment, many investors become particularly susceptible to confirmation bias and scramble to find one or more indicators which will tell them what they have already begun to believe: that a major correction is likely just around the corner.”

The last time I crunched the numbers for VIX and SPX daily correlations , was in May 2007 and in looking at data from 1990, I concluded that a High Positive Correlation Between VIX and SPX Often Signals Market Weakness . Interestingly, when I ran the numbers today, the data from the last five years had completely reversed the conclusions. Thanks to some particularly strong results from 2009 and 2010, the full data set (1990-2012) now shows that when both the VIX and SPX are up on the same day, the mean returns for the next 1-100 trading days far exceed the typical returns for the full data set.

In terms of key takeaways, it now appears that stocks perform best following days when the SPX is up and the VIX is down (the ROI +1 column refers to the performance of the SPX one day hence) and worst on days when the SPX is down and the VIX is up. Interestingly, if one combines the up/down and down/up days, as I have done in the “split up/down” row, the aggregate data set of the SPX and VIX going in different directions looks almost exactly the same as the full data set in terms of future performance.

Getting back to the up/up phenomenon of today and yesterday, this bodes quite well for stocks going forward, based on historical data. By the same token, down/down days correspond to future performance that is, on average, well below the full data set.

Of course another key takeaway is that no matter what the data says today – for this study or any study – future events may overwhelm the current historical data and invalidate the generally accepted conclusions, even with a large sample size.

Now I will be the first to admit that stocks are overdue for a pullback, but just because the VIX and SPX both advanced on two consecutive days does not necessarily mean the planets are aligning for an Aquarian selloff. If investors are looking for that market reversal silver bullet, the SPX-VIX correlation data are not going to make them happy.

[For the record, the data in the table below includes Fridays and Mondays, so it is possible that calendar reversion may have had an impact on the results.]

Below is a larger than usual set of links for those who may be interested in digging into the history of some of the SPX-VIX correlation themes in this space.

Related posts:

See the original article >>

What the VIX Kitchen Sink Chart Says

by Bill Luby

One of the more interesting developments of 2012 has been to watch the diminution of the strident bearish narrative that has been focused largely on the collision course between a preponderance of debt and low or negative growth. The bullish beginning to 2012, however, has not prompted many in the way of converts to the bullish camp. Instead, there have been whispers of “…overbought…” that have turned into a soft murmur and are now verging on becoming a loud chorus. Suddenly the general consensus seems to be that stocks just do not deserve their current lofty valuation.

In this type of environment, many investors become particularly susceptible toconfirmation bias and scramble to find one or more indicators which will tell them what they have already begun to believe: that a major correction is likely just around the corner.

For better or for worse, a look at the VIX is often one of the first stops for those who are looking for evidence of a market reversal.

In the chart below, I have updated and extended a chart from three years ago that I call my “VIX kitchen sink chart” – as it pokes and prods the VIX in a number of different ways. Standard VIX analysis attempts to determine whether the VIX has strayed too far from historical norms, whether this be in the form of moving averages, Bollinger bands or other mechanisms. I have even included a separate rate of change study (with its own Bollinger bands) and a Bollinger band width study below the main chart in order to provide a couple of additional analytical twists.

The bottom line, however, is this:  if stocks are overbought and a correction is indeed just around the corner, the VIX does not appear to be aware of any such inevitability. Instead, it looks a lot more like business as usual in the land of the CBOE Volatility Index.

Related posts:

See the original article >>

VIX Bounces Off 50-Day

by Bespoke Investment Group

As we noted last night, the S&P 500 was stymied by its 50-day yesterday. At the same time, the VIX volatility index has bounced off of support at its 50-day. Higher levels in the VIX generally coincide with a decrease in equity prices, so market bulls are hoping this is one bounce that doesn't hold.

See the original article >>

Implied Volatility And Skew

by Macro Story

I have traded options for a number of years and fully understand the “greeks” as should any active options trader. When you understand options you realize how valuable of a tool they are for investing, managing risk and understanding market sentiment. They are not as risky as many think. Before I share a rather important chart, I think it is important to go over a few option basics to fully appreciate what the data is telling you.

Implied volatility (IV) is one of the most important elements of how an option is priced. The simplest analogy is that of supply and demand. When traders are buying a specific option they drive the IV higher. When they are selling they drive it lower. The technical answer is based on a theoretical pricing model like black scholes, IV is the value needed to equate to a given price.

Ahead of company earnings for example, investors buy puts or calls causing the IV to rise. Once earnings are over, IV falls and so does the price of the options. Stay with me here and I promise to keep it as simple as possible. IV varies across time and strike price and is not linear, in fact if you graphed the IV for various strike prices you would see a “smile.” This smile though is not uniform and in fact shifted more towards puts and less towards calls.

The chart below shows such an “IV smile” both pre 87 crash and post. Notice how volatility is higher for puts (left side of the curve) and lower for calls (right side). The more fearful investors are the more they buy puts and less they buy calls. The result puts generally have a higher IV than calls.

The VIX is the widely used measure of fear in the market as it measures implied volatility on the S&P 500. The lower the number the less fear, the higher the more fear. The CBOE though realized that the VIX does not capture the true picture of fear and or complacency in the market. Since the 1987 crash, investors have realized there is a risk of another crash and buy further out of the money options. In 1990 the CBOE created the CBOE Skew index which specifically measures these tail risks and how investors are pricing them in.

That’s the class, now the chart. Below is a chart of the Skew Index VS the VIX from January 2008 to 2011.

Notice how since the March 2009, the Skew Index has actually risen while the VIX has fallen. The VIX has really given a false sense of security.

More importantly notice the two green boxes. The first is the flash crash of 2010. Notice how the VIX makes new lows while the Skew index makes new highs. Then once the market place reacts to falling asset prices, the VIX rises while the Skew Index falls. Now look at the next green box. The same exact divergence is occurring. Last month’s selloff is even reflected.

See the original article >>

Macro Week in Review/Preview September 10, 2011

by Greg Harmon

Last week’s review of the macro market indicators looked like the moves that revealed themselves the previous Friday would continue. Gold and US Treasuries were ready to continue higher. Crude Oil looked poised to drop further and the US Dollar Index to move sideways in the top of its range. The Shanghai Composite and Emerging Markets looked to continue lower. Volatility looked to remain elevated with the US Equity Index ETF’s SPY, IWM and QQQ ready to continue lower in their bear flags. US Treasuries breaking out and Gold racing higher again could be the catalyst for a break of the bear flags lower.

The week began Gold making a new high before pulling back to consolidate, US Treasuries gapped higher and held there. Crude Oil held narrow range between 86 and 90 while the US Dollar Index marched to the top of the range and then peaked out. The Shanghai Composite and Emerging Markets did move lower but with a mid week blip higher for Emerging Markets. Volatility did hold higher with and the Equity Index ETF’s remained lower, but still in their bear flags. What does this mean for the coming week? Lets look at some charts.

As always you can see details of individual charts and more on my StockTwits feed and on chartly.)

Gold Daily, $GC_F

Gold Weekly, $GC_F

Gold consolidated this week over the break out of the ascending triangle Monday and near resistance at 1875, after it made a new intraday high Tuesday. The Relative Strength Index (RSI) on the daily chart remains in bullish territory but moving sideways. The Moving Average Convergence Divergence (MACD) indicator has been running flat but slightly negative on the daily chart but has been rising on the weekly chart. The RSI on the weekly has held in the high 70′s for several weeks. Look for the bull flag on the weekly chart and symmetrical triangle on the daily chart to play out with either more upside or continuation of consolidation near 1875 in the coming week. Any pullback should find support at 1840 or 1800 lower. A move over 1930 triggers a target of 2250.

West Texas Intermediate Crude Daily, $CL_F

West Texas Intermediate Crude Weekly, $CL_F

Crude Oil continued its bear flag ending the week little changed and vacillating around the 88.50 support/resistance line. The weekly chart shows that resistance of the rising trendline extension form May 2010 is holding. The RSI on the daily chart has stalled near the mid line and the MACD is positive but fading slightly. The weekly chart shows the RSI currently rising but in a downtrend and the MACD improving. These suggest the bear flag will continue next week. Look for upside to be capped at 90 and a move to 93 above that as a break of the bear flag. A move under 84 finds support at 81 and then 77 lower which would trigger a target of 70 on the Measures Move (MM) out of the bear flag.

US Dollar Index Daily, $DX_F

US Dollar Index Weekly, $DX_F

After peaking over the channel Thursday, the US Dollar Index broke the channel higher Friday. It has a RSI that raced higher all week and is strongly in bullish territory, and a MACD that is increasing on the daily chart. The weekly view shows a vault over the resistance area, opening over the Fibonacci Fan line and rising strongly towards the next line. The RSI on this timeframe moved steeply higher and the MACD jumped higher. Look for continued movement to the upside in the coming week with resistance higher at 77.50 and 78.15 as it heads to the channel breakout target of 78.50 near the previous 78.66 resistance area from February. As with any breakout, a retest of the channel at 76 is possible and a move below it has support at 75.52 and 75.

iShares Barclays 20+ Yr Treasury Bond Fund Daily, $TLT

iShares Barclays 20+ Yr Treasury Bond Fund Weekly, $TLT

US Treasuries, measured by the ETF $TLT, gapped up higher on Monday and held the gap. The daily chart shows the RSI continuing to move in a range in bullish territory but with a MACD that has crossed positive. The weekly chart adds that it broke the broad consolidation around the 106 to 111.33 area and now has a MM higher to about 120.70. The RSI on this timeframe remains bullish in the high 70′s with a MACD that is increasing. With a touch of 115 this week, next week or shortly after looks a lock to tag 120.70 and above that triggers a target on the symmetrical triangle break at 137. Any pullback will find support 111.33 and 109.30, with a move under 106 signalling a trend change.

Shanghai Stock Exchange Composite Daily, $SSEC

Shanghai Stock Exchange Composite Weekly, $SSEC

The Shanghai Composite showed continued resistance at the 2500 level holding lower for the week. The daily chart has a RSI that has been bumping along the 30 technically oversold level, but no where near an extreme reading while the MACD fluctuates around zero. The weekly chart shows the long trend of the RSI lower, making lower highs, and the flat MACD. It also shows that it is starting to fall out of the bear flag lower. Continue to favor the downside in the coming week a move below support at 2400 leading to a test of 2357 and a target of 2300 on the bear flag break. Upside should be capped for the week at 2571-2590.

iShares MSCI Emerging Markets Index Daily, $EEM

iShares MSCI Emerging Markets Index Weekly, $EEM

Emerging Markets, as measured by the ETF $EEM, continued in their bear flag similar to the domestic markets. Notice the RSI on the daily chart rejected lower at the mid line continuing in bearish territory as the MACD fades lower. On the weekly chart the bear flag is distinct under the 42.54 resistance level. The RSI on this timeframe is struggling to stay over 30, and is bearish, but the MACD is starting to improve. The downward bias remains for eh coming week with a break below 39, out of the bear flag seeing support lower at 35.91 and triggering a target of 32. Any upside will meet resistance at 42.54 and then 44.10 above that.

VIX Daily, $VIX

VIX Weekly, $VIX

Volatility continues to remain elevated. The daily chart is sporting a descending triangle and is testing the top side resistance with a RSI that refuses to fall back below 50 and a MACD that is improving quickly. The RSI and MACD on the weekly chart equally are supportive of further upside in volatility. Look for volatility to continue to remain high next week with a move above 40 and then 45 triggering a target of 58. It would take a break below 30 to change the mood and expectations for a move to support at 28 or 23 lower. The charts do not show that now.

SPY Daily, $SPY

SPY Weekly, $SPY

The SPY continued in the bear flag this week moving back lower after rejecting a retest at the 38.2% Fibonacci level from the broad move lower. It has a RSI that also rejected at the mid line and is heading lower on the daily chart and a MACD that continues to fade. The weekly chart shows the RSI bounce off of the 30 level fading back towards it and the MACD remaining negative. The downtrend remains for next week. If it breaks the flag lower under 115.30 there is support at 111.15 and 104 on the way to a target of 95-100. Any upside should find resistance over 121.50 at 123.30. Above that the trend may be changing.

IWM Daily, $IWM

IWM Weekly, $IWM

The IWM moved in its bear flag this week, moving back lower after rejecting at resistance at 71. It has a RSI that rejected at the mid line and is heading lower on the daily chart and a MACD that continues to fade. The weekly chart shows the same RSI bounce off of the 30 level fading back towards it and the MACD remaining negative. The downtrend remains for next week. If it breaks the flag lower under 66 there is support at 62.80 and 58.68 on the way to a target of 44. Any upside should find resistance over 71 at 73.60. Above 75 the trend may be changing.

QQQ Daily, $QQQ

QQQ Daily, $QQQ

The QQQ moved in its bear flag as well, moving back lower after rejecting at the 50% Fibonacci level. It has a RSI that rejected near the mid line and is heading lower on the daily chart and a MACD that continues to fade. The weekly chart shows the same RSI bounce leveling and the MACD remaining negative as the flag sits on the 100 week Simple Moving Average (SMA). The downtrend remains for next week. If it breaks the flag lower under 52.60 there is support at 50.03 on the way to a target of 46-46.60. Any upside should find resistance over 55.50 at 57. Above that the trend may be changing.

The coming week looks positive for US Treasuries and the US Dollar Index. Gold looks to continue to be biased higher and Crude Oil lower, but both may also continue in the respective bull and bear flags. The Shanghai Composite and Emerging Markets continue to favor the downside. Volatility looks to remain elevated with a bias towards heading higher. This backdrop suggests favoring a downside bias in the US Equity Index ETF’s SPY, IWM, and QQQ. They may continue to hold their bear flags but a big push higher in the US Dollar Index and US Treasuries are likely to push Volatility higher out of its range and lead to the Equity flags breaking lower. Use this information as you prepare for the coming week and trade’m well.

See the original article >>

Macro Month in Review/Preview August-September 2011

by Greg Harmon

Last month in this space my Monthly Macro Review/Preview suggested that the monthly charts had shifted to showing Gold ready to move higher in the coming months along with US Treasuries while Crude Oil and the US Dollar Index are biased to the downside. The Shanghai Composite and Emerging Markets were set to slowly drift lower in a sideways consolidation. Volatility was on the edge of a break higher at a critical level. A move above 28 would signal regime change while a fall back, more of the same. This was reflected in the Equity Indexes as well with the SPY, IWM and QQQ all consolidating with indicators starting to point negative, but holding in their ranges. A catalyst that pushes them higher could lead to a major rally. The QQQ is the strongest of the Indexes as of the end of July.

Gold and US Treasuries held true to the charts and moved higher, a lot higher, while the US Dollar Index and Crude Oil consolidated. The Shanghai Composite and Emerging Markets also drifted lower as anticipated in the charts. Volatility took the high rode and held higher all month concurrent with a move lower in the Equity Index ETF’s. A month that was true to the technicals. How does the month impact the longer term picture. let’s look at some charts.

As always you can see details of individual charts and more on my StockTwits feed and on chartly.)

Gold, $GC_F

Gold broke above the rising two year trendline resistance and did not look back until it ran near the 10 year resistance line at 1917.00. The Relative Strength Index (RSI) remains elevated, but under 80 and the Moving Average Convergence Divergence (MACD) indicator continues to move higher. These indicators along with the Simple Moving Averages (SMA) sloping higher and volume increasing point to more upside for Gold in the coming months. Support for any pullback now stands at 1720 and 1550 below that while a move over 1970 resistance may slow it down.

West Texas Intermediate Crude, $CL_F

Crude Oil printed a Hammer candle this month, a possible reversal if confirmed higher, giving hope that the short move lower may be ending. But the RSI continues to look lower as it hits the mid line and the MACD is about to cross negative, both suggesting more downside to come. The upside should be capped by the overlapping Fibonacci levels a between 95.36 and 96 if it can get above the Upper Median Line of the bearish Pitchfork. Downside support comes first at 84.10 and then 79.12 and 74.43 before strong support at 71.

US Dollar Index, $DX_F

The US Dollar Index continued its series of tight doji’s after breaking the symmetrical triangle lower in March. The RSI continues to linger near 40 as the MACD stalls in negative territory. Both give no guidance for the future. The SMA’s continue to slope lower adding to the understanding that the trend is still lower. Any upside should be capped at a retest of the triangle near 77.50 and the downside support levels of 73 and 71.50 are the only thing between it and targets of 52 and then 40 on Measured Moves (MM) out of the triangle and from the 120 top in 2002.

US Treasuries, $TLT

US Treasuries, as measured by the ETF $TLT, broke above the two year symmetrical triangle on massive volume. It has a RSI that points higher and a MACD that has just crossed positive both supporting more upside. It printed a double top near 112 and pulled back slightly just above the Bollinger band top, so it may consolidate. But longer term this chart looks bullish. If it can get over 112 it has a MM on the pattern break to 137! If that double top wins out and it moves lower, suggesting the volume is indicative of a blow off top, then support lower comes at the previous top in 2010 at 104.80 and the top rail of the triangle at 101.26 before a move back to the 95.30-97.50 area. Again, the chart favors the upside.

Shanghai Stock Exchange Composite, $SSEC

The Shanghai Composite continues to honor the resistance of the falling trendline. The RSI is now moving lower like the shorter SMA’s, and the MACD remains flat and not useful. Look for more grind lower from this Index with any upside moves capped at 2715. Support on the downside comes at 2415 and then 2050.

iShares MSCI Emerging Markets Index, $EEM

Emerging Markets, as measured by the ETF $EEM, rejected at the 48.20 resistance level and fell hard before recovering and retaking the 42.20 support level. The candle for the month, suggests more downside, despite the long shadow, and is backed up by a RSI that is rolling down hard and a MACD that is about to cross negative. Look for more downside in the coming months with any move higher capped at 44 and then the 48.20 area. Support for the anticipated move lower may slow it down at 42.20 followed by 37.40 and 36.

VIX, $VIX

The Volatility Index looks to have printed an interim double top at 48.22 this month with a long upper shadow similar to the other topping candle. With the Bollinger bands expanding it could be prepping for more upside. If so resistance should come at 35 and then the previous top at 48 followed by 60. But it appears more likely that the longer term move will be lower with support at 25.50 followed by 22.30 and 20.50. The charts above give a mixed view on the future of the $VIX so keep watching.

SPY, $SPY

The SPY continued down along the Upper Median Line of the bearish red Pitchfork during August, printing a long bodied red candle with a long lower shadow, technically a Hanging Man since the long uptrend. The RSI pointing lower and the MACD heading towards a bearish cross negative suggest more downside to come. Any move higher over 123 can expect resistance at the Upper Median Line, near 131.20 and then 136.62. Support on a continuation downward comes at 118.50 and then next at 116 and 114 before 108.77.

IWM, $IWM

The IWM also continued down along the Upper Median Line of the bearish red Pitchfork during August, with the same characteristics of the SPY. The RSI pointing lower and the MACD heading towards a bearish cross negative suggest more downside to come. Any move higher over 73.60 can expect resistance at the Upper Median Line, near 81.15. Support on a continuation downward under 72.40 comes at 68 and then next at 66 and 63 before 61.37.

QQQ, $QQQ

The QQQ continued to consolidate near its highs but with a wider candle reaching down from the Upper Median Line of the bearish red Pitchfork. Also a Hanging Man, it is bearish if confirmed lower next month. The RSI pointing lower and the MACD heading towards a bearish cross negative suggest more downside to come. Any move higher can expect resistance at 57 and then 60. Support on an expansion downward under 54.26 comes at 50 and then next at 46.20 and 44 before strong support at 42.20.

The monthly outlook suggests the upside for Gold and US Treasuries will continue while the trend lower for Crude Oil and the US Dollar Index will also continue. The Shanghai Composite and Emerging Markets look to continue to move lower as well. Volatility can go either way but looks to remain above the lower range experienced in the last six months with the VIX in a wide range between the mid 20′s and 48. Despite that uncertainty, the Equity Index ETF’s SPY, IWM and QQQ are set up to continue lower in the coming months. As noted on the individual charts there is room for some short term upside without breaking the downward bias. Use this information to understand the long term trends in Equities and their influencers as you prepare for the coming months.

See the original article >>

Macro Week in Review/Preview September 3, 2011

by Greg Harmon

Last week’s review of the macro market indicators looked like the unofficial last week of Summer would bring Gold to bounce around in its uptrend while Crude Oil slowed at resistance and turned lower. The US Dollar Index seemed content to move sideways while US Treasuries were biased lower. The Shanghai Composite and Emerging Markets were biased to the downside with risk of the Chinese market running a little higher first. Volatility looked to remain elevated keeping the bias lower for the equity index ETF’s SPY, IWM and QQQ, despite the moves higher the previous week, with the QQQ looking to have the best chance to break the bear flags higher.

The week began with Gold meandering sideways and Crude Oil hitting the breaks at resistance. The US Dollar Index was behaving as anticipated but US Treasuries were finding some support. The Shanghai Composite drifted lower while Emerging Markets caught a bid and moved higher. Volatility tailed off but only marginally as the Equity Indexes SPY, IWM and QQQ rose. And then Friday happened pushing Gold and Bonds higher and Crude Oil and Equities lower. What does this mean for the coming week? Lets look at some charts.

As always you can see details of individual charts and more on my StockTwits feed and on chartly.)

Gold Daily, $GC_F

Gold Weekly, $GC_F

Gold spent most of the week building an ascending triangle under resistance of 1840 before launching over it on Friday to resistance near 1875. The daily chart shows a Relative Strength Index (RSI) that held well over the mid line and is moving higher and a Moving Average Convergence Divergence (MACD) indicator that is about to cross positive. The weekly chart remains bullish with upward sloping Simple Moving Averages (SMA), a MACD that is increasing and a RSI that remains high. The only concern about more upside in these charts is that the weekly RSI is over 80, and volume has been decreasing, but not a reason to sell. The triangle break has a target of 1930 with resistance at 1900 along the way. Look for Gold to head toward that target and possibly beyond in the coming week to the Measured Move (MM) of 2225 if it gets over 1940. Any pullback should find support at 1840 and 1800 below that.

West Texas Intermediate Crude Daily, $CL_F

West Texas Intermediate Crude Weekly, $CL_F

Crude Oil found resistance at the long term support/resistance line at 88.50 and fell back Friday. The RSI on the daily chart is now rolled lower and pointing down and the MACD is starting to fade. The SMA’s have been successively rolling lower also with only the 200 day SMA left. The weekly chart reinforces the rejection with the rising resistance line, but shows both the 100 and 200 week SMA as support underneath. The RSI on this timeframe has been trending lower but currently cricked higher, while the MACD is negative but has been flat. Look for Crude to continue lower next week toward support at 84. A move below 81 would trigger the next leg down with a target of 77. Any move above 88.5 will find resistance at 90.

US Dollar Index Daily, $DX_F

US Dollar Index Weekly, $DX_F

The US Dollar Index broke higher above the descending triangle with in the 73.50 to 76 channel this week. It has a RSI on the daily chart that is rising and a MACD that has crossed positive, both suggesting more upside to come. The weekly chart is more middle of the road looking with the range in tact and the RSI shuffling along just below the mid line while the MACD stays near zero as it moves one week closer to the first Fibonacci fan line. Look for the Index to spend time in the top half of the channel next week. Any move over 76 should find resistance at 77.50 and a move below 73.5 support at 73 and 72.

iShares Barclays 20+ Yr Treasury Bond Fund Daily, $TLT

iShares Barclays 20+ Yr Treasury Bond Fund Weekly, $TLT

US Treasuries, as measured by the ETF $TLT, consolidated higher for most of the week before breaking to new highs on Friday. The RSI is in bullish territory and currently rising while the MACD has moved back to the zero line and looks ready to cross higher, on the daily chart. The weekly chart shows a strong white candle closing nearly on the high in a bull flag. The RSI is elevated but not extreme at 77.17 and the MACD continues to increase. Look for more upside in Treasuries next week with targets higher on a MM to 120.70 and then 137 from the symmetrical triangle pattern breakout on the weekly chart. Any downside move should find support before 104.80 at either 108 or 106.

Shanghai Stock Exchange Composite Daily, $SSEC

Shanghai Stock Exchange Composite Weekly, $SSEC

The Shanghai Composite is in a bear flag or continuation symmetrical triangle and moved lower in it this week. The daily chart shows the RSI indicating for more downside with a MACD that is rather flat. The weekly chart shows the flag is right at the 50% Fibonacci level of 2571 form the move up from 2008 to 2009. The RSI is heading lower and the MACD is flat on this timeframe. Look for more downside in the coming week with support lower at 2500 and then 2450. A break below that leads to a test of the 61.8% Fibonacci at 2357 and a target on the MM lower at 2260. Any upside surprise should find resistance at 2590 and then 2695-2700.

iShares MSCI Emerging Markets Index Daily, $EEM

iShares MSCI Emerging Markets Index Weekly, $EEM

Emerging Markets, as measured by the ETF $EEM, made a move higher early in the week only to be contained by what might be the beginnings of a symmetrical triangle as resistance and close lower Friday. The RSI met the mid line and rejected lower while the MACD peaked and is now waning on the daily chart, with all of the SMA’s sloping lower. The weekly chart shows the reach higher with the long shadowed candle but unable to hold over the 42.54 support/resistance level. The RSI is suggesting upside on this timeframe and the MACD is starting to improve. The path in the short run looks lower with any upside contained at 42.54 with a hold over that level leading to a shift in thinking. Next week support comes at 39 and a break below that puts a move to to support at 35.91 on the way to a MM at 32 into play.

VIX Daily, $VIX

VIX Weekly, $VIX

The Volatility Index pulled back but held support at 30 before rising to close the week. The RSI on the daily chart bounced higher after hitting the mid line and the MACD peaked negative and is now improving. The weekly chart has the RSI falling and the MACD starting to move back toward zero. Divergence between timeframes. Look for volatility to remain elevated relative to the first 7 months of the year but a move below 28 could change that quickly. Conversely a move over 38 should lead to a retest of the 44 to 48 range. Look for more in the 28 – 38 range next week.

SPY Daily, $SPY

SPY Weekly, $SPY

The SPY rose early in the week but fell hard Friday after printing a Tweezers Top with topping tails halting at the 20 day SMA. The RSI on the daily chart turned lower at the mid line and the MACD is waning. On the weekly chart the long upper shadow may be foreshadowing more down side out of the bear flag. The RSI however is rising off of the low and the MACD is improving on this time frame. The trend is lower and look for that to continue next week with any upside move held at 121.50 or 123.40 above that. Any more and the down trend is in question. To the downside if support at 112.4 does not hold then the next levels down for support come at 111.15 and 104 on the way to the MM target of about 95.

IWM Daily, $IWM

IWM Weekly, $IWM

The IWM rose early in the week but also crashed Friday after printing a topping tails at the 38.2% Fibonacci retracement of the move lower, halting under the 20 day SMA. The RSI on the daily chart turned lower at the mid line and the MACD is waning. On the weekly chart the long upper shadow at the extended neckline of the previous inverse Head and Shoulders is showing more down side out of the bear flag. The RSI is rising off of the low but cricking back down and the MACD is improving on this time frame. The trend is lower for next week with any upside move held at 71.60 or 73.60 above that. Any more and the down trend is in question. If the downside support at 65 does not hold then the next level down for support comes at 62.8 on the way to the MM target of about 48.

QQQ Daily, $QQQ

QQQ Weekly, $QQQ

The QQQ also rose early and fell hard Friday after a Tweezers Top with topping tails at the 50 day SMA halting just above the 20 day SMA. The RSI on the daily chart turned lower under the mid line and the MACD is waning. On the weekly chart the long upper shadow may be foreshadowing more down side out of the bear flag. The RSI however is rising off of the low but cricking lower again and the MACD is improving. The trend is lower for next week with any upside move held at 54.26 or 55.50 above that. Any more and the down trend is in question. if the downside support at 50.00 does not hold then the next levels down for support come at 48 and 46 on the way to the MM target of about 40.

Next week looks like the moves that revealed themselves Friday will continue. Gold and US Treasuries are ready to continue higher. Crude Oil looks poised to drop further and the US Dollar Index to move sideways in the top of its range. The Shanghai Composite and Emerging Markets look to continue lower. Volatility looks to continue elevated with the US Equity Index ETF’s SPY, IWM and QQQ ready to continue lower in their bear flags. US Treasuries breaking out and Gold racing higher again could be the catalyst for a break of the bear flags lower. Use this information as you prepare for the coming week and trade’m well.

See the original article >>