Technical Update 4.09

The major averages staged a weak 2.5 day rally after last week's "price too high" breakout above 850 (S&P) and subsequent rejection. Yesterday's afternoon decline from a gap and run to 850 was an interesting test. The 20 day EMA has now fallen to that same 850 level, which also happens to be the midpoint of the bollinger band. I think the Wednesday rejection was a telling one. I'm expecting an imminent expansion in volatility and declines in the major averages below November's levels - perhaps substantially so. The Dow has continued to lag behind, refusing to confirm any rally. It has been making mincemeat out of it's psychological 8000 level, closing below it a number of times over the last two weeks. The Nasdaq has been acting better, but with all the major components (Google, Apple, Amazon) already providing their positive earnings, I fail to see a catalyst big enough for the index to lead the others higher.



The price action in commodities are leaving lots to be desired. The repeated inability for oil to gain any upside momentum should be worrisome for energy bulls. I favour a move lower. How much lower, I don't know. But below the previous low should be enough for most to completely throw in the towel and allow for a significant rally. I would consider buying some if we get near a "2 handle." I have a terrible record in predicting energy prices, so take that with a larger grain of salt than usual.



As a function of asset class deflation, I think we will continue to see the US Dollar strengthen against other major currencies. The Canadian Dollar looks particularly vulnerable here. An accelerating collapse in the Mexican Peso could trigger a rush of Mexicans buying physical Dollars. I'm looking for a move to 100 in the USD index. If this is indeed a "Wave 3" in Elliott terms, that could turn out to be conservative.



I've got my eye on Russia right now. The pot appears to be coming to a boil there and both the ruble and the stock market are looking extremely weak. Jim Rogers doesn't even think the country will survive in one piece by the time all is said and done. I tend to agree with him on that. From a generational perspective, the Russians are undoubtedly heading toward their "generational crisis" era (the last one being the Bolshevik Revolution). Mass protests, which are a rare sight in politically paranoid Russia, are stepping up. It is yet another country tumbling toward chaos, and is further along the line than most.



In a completely unrelated anecdotal observation, I went to the local Muenster Saturn (large German electronics department store) to buy a new printer on Saturday. It was completely packed and had lines 20 people deep at the cashier. There was no extreme discounting in effect that I could tell. Affluent Germany seems to be relatively unharmed - so far.