Monday, August 10, 2009

Technical Update 30.09

Apologies for not getting anything out sooner. I was away for the weekend and didn't feel like I had much to add.

There were some negative divergences showing themselves last week as the S&P managed to make marginal new highs, but the Nasdaq failed to confirm the move. Volatility is also failing to budge and the advance/decline line is putting in lower highs as the market marches higher, signaling growing skepticism about the rally's sustainability. This could be seen as bullish or bearish depending on how one looks at it. On the one hand, it could be said that there is more "capitulation" to come by squeezing shorts. But on the other, the weakening leadership is typically a sign of looming tops.

As usual, I think the currency markets are acting as the real driver for the equities. And Friday's action spoke volumes to me about what is possibly around the corner. First, we saw the Yen get smacked along with the other currencies in the Dollar Index - not typically something one sees, and perhaps a "shot over the bow" of some imbalances being unwound somewhere. But what is really compelling about the dollar index's strength on Friday was that it marked a near perfect elliot wave ending pattern of a corrective A-B-C from the highs last fall. Strong reversals are characteristic of these ending patterns, especially when there is decent follow-through - something we're seeing in today's (Monday's) session.

As a corollary to further US Dollar strength, I think that the precious metals are setting themselves up for a fairly low risk short opportunity, despite seasonal strength that is on the horizon. I've been bearish on the precious metals from a technical standpoint since about July of '08, while maintaining that they do represent one of the fundamentally "safer" investments available. I still think the '08 lows will be exceeded to the downside at some point, but believe that will prove to be a long term buying opportunity of the non-speculative variety. We shall see.

I'll have some deeper insights later on this week for those interested. I will also be working on some site improvements going into the fall. Stay tuned.

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1 comment:

Mike said...

I saw this morning that Prechter is also saying that the dollar has hit a major bottom, and that he expects it to rally strongly for the next year or two. Here is the link to the story:

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