The long awaited “Technical Analysis” has arrived. July ended with incredible gains in all fields of the market (stocks, indices, commodities, currencies) and August is shaping up to do the same. The Dow Jones Industrial Average kicked off with a bang, ending yesterday with a plus 2% gain.

So far the indice is making a substantial comeback/retracement from the major selloff back in May. After the European debt crisis unraveled (Especially the Greece situation), fear and uncertainty created panic in the market which (not surprisingly) sent investors on a selling frenzy. The Market dropped from a high of $11,200 to $9,500. Since then the crisis has lifted as European Banks find safety in the “Governments Aid Package” and positive “Stress Tests” results (some say it’s a distraction/temporary fix while the public is fixed on US issues). In one month price has rallied from the low of $9,500 to $10,640, an 1100 point/65% gain.

As you can see in (figure 1), price has closed above the 61.8% Fibonacci level indicating bullish sentiment. Also shown is the reversal price pattern (currently in motion), “Bottom Head & Shoulders.” In determining a target, measure the distance between the peak of the first shoulder and the trough of the head and then adding the value to the previous resistance level. So since price has broken the resistance level/neckline (about $10360), watch for a gradual uptrend to 11,100 (major resistance level) or higher.  

DJIA (figure 1)

This analysis is purely technical. As for fundamentals, they do not support this bullish rally. If this does play out on a technical level it will most likely be a volatile, slow creeping push to the top.

In the 1st quarter of 2009 the US Dollar Index took a major hit, trading at a high of $89 and falling to a record low $74. As 2010 opened up, the USD made a dramatic reversal reaching the previous high of 2009. Once again, 2009’s bearish pattern is reaccuring as the USD is more than half way to the all time low. Also, on a large scale view, a Massive Double Top formation is currently in motion. It is unlikely that the pattern will play out on account of the size and extended periods but non the less, keep it in mind. As you can see in (figure 2), price has closed below the 50% Fibonacci level and is rapidly approaching 61.8%, which also happens to be a major support level at $79.80. If price continues its bearish trend, breaks the Fibonacci/support level, there are no significant levels to keep it from reaching $74.

US Dollar Index (figure 2)

July started very bullish for US equity markets as well as other global economies. So far Blue Chips (DJIA) are up over 6% and continue to rise daily. One of the “cause and effects” can be described by just one word: *Earnings*. Alcoa Inc. (mass aluminum producer) and CSX (one of largest railroad co) opened the earning season with better than expected gains. The bullish news sparked a rally in the markets and sent the “S&P 500 index” right up to its 50-day moving average, signaling possible trend reversal. 

Yesterday the U.S equity markets rallied almost 2% and risk aversion ($VIX) fell 2.21%. As a result, the low-yielding Japanese yen and U.S. dollar made the worst performances. High debt levels continue to plague the greenback. On the other hand, positive fundamentals pushed the euro and British pound higher. The Australian dollar underperformed the kiwi because of weak business confidence. Also, the Canadian dollar did not match expectations - despite strong crude oil - because of its link to the U.S. economy through the two nations’ strong trade relationship. The Swiss franc recently lost some of its appeal as a safe-haven currency because risk appetite increases demand for the franc’s major peers.

US Retail Sales came out worse than expected. Consumers as a whole continue to be skeptical of the economy’s health, (can’t blame them) purchasing less goods and utilities for the second straight month in a row. One thing to note is during summer months history shows that these figures tend to drop anyways.  Retail Sales

Today the U.S. dollar and Japanese yen were the two worst-performing major currencies due to increased risk appetite. The greenback suffered the biggest loss as investors began to shift their assets back into the embattled euro, which is more bearish for the U.S. dollar because of the two currencies’ strong rivalry as reserve currencies.

Economist’s current assumption is that the euro-zone economy may be stabilizing and the risk of fragmentation for the 16-member union is beginning to dissipate.

Addition information on todays Market:

Market Rallies

Breaking News in Japan, or “Expected News:” New Lending Campaign information.

Lending the Yen

The Markets are on the run but will they hold?? Keep posted with AAP “Updates” and stay tuned for addition info on the “Chat.” 

The Dow Jones Industrial Average rallied more than 400 points from last week’s low, closing the week down near 10,150.  Gold gave up ground when equities rallied, gapping down $20 per ounce before clawing back $10 per ounce last Friday. Crude oil continued to trade between $70 and $76 per barrel for the week and finished near $74 per barrel.

 In the image shown above there are two prices to pay particular attention to. The first one ($9880) has proven to be the most significant level for the last several months. The previous post discussed this level and whether or not it will hold. Since then we saw it bounce up, return down breaking below support, and bounce right back up thus confirming its iron clad grip. A new question now stands: is this the ”New Low.” The next level ($10,313) created a ”Higher Low” by bouncing off old support/resistance. Also, price was unable to break above the 38.2% fibonacci level, adding significance to the fibonacci retracement. If you refer back to “May 20th post” you will notice that price is trading in the 400ish pt. channel mentioned in the post. The next phase is to watch this new channel and look for break outs or continuation in trend.

Bear Market Rallies

Oil/Market News

Interesting things going on in the markets. Take this info into account while trading and keep in mind the importance of the levels and such. Successful trading and keep up the great work. 

(DJIA)

Is the Dow done dropping? It’s everyones question in the market this week. In the image above we can see that price has hit a “Major” support level and it’s holding strong. For now we still play the trend which is down but as traders we must be prepared unexpected movements. This week alone has shown very possitive economic news with an increase in ”CC” (Consumer Confindense) and “New/Existing Home Sales.” With the market being VERY oversold and possitive news theres a chance we’ll see a major pull back. Analysts are speculating a pull back as soon as this week. More info on that in the article below.

Analysts Prediction

As mentioned in the “chat” and “market updates,” several currency pairs, indicies, commodities, etc. are forming, what could be, “double bottoms.” If that price pattern confirms, movements can be expected to retrace as far as old highs/lows. With that being said, wait for confirmation because price rules all and these markets could just as easily continue on down.

In this (crude oil) image you’ll see several points where price has created very significant support at $70. Price is currently sitting around $70 area and seems to be holding. If support continues to hold we’ll most likely see a bounce to $75 area or higher. If support folds, the next significant level is $65.

Currency Correlation: The Canadian doller (CAD) has a strong “possitive” correlation to oil. When Oil is bullish, the CAD will stregthen, vise versa for bearish. Bristish Pound (GBP) also ties strongly into Oil but with less significance to it’s movements.

How to apply this information: If Oil bounces off that $70 support level look to buy loonies. The USD/CAD recently hit a strong resistance at 1.0750 and bounced off. Wait for confirmation and look to sell this pair. If Oil breaks thru $70 level look for buying opportunities at a break of 1.0750.

DJIA

As you can see from this image the DOW has several significant S/R levels to be mindful of. Its currently sitting in a 420 pt. channel so look for a bounce or break of 10,260. Recent trend has been down so if it does break, the next major level is 9,880. If correlations stay true expect to see a continuation of sell offs in Comm currencies and more doller/yen buying.

This is a great recap from market watch covering many of the important topics of last week and surely important issues going into this week.  Have a look at the following articles, they are interesting and relevant to what could be seen happening in the market this coming week.

Enjoy,

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Drop for first time in a year will put further pressure on the Federal Reserve to keep interest rates low to stimulate more growth.  See full story

Rescue your retirement from inflation’s threat

The global recession had largely muzzled inflation’s bite, but actions being taken to cure the developed world’s economic ills could revive threats to bond investors and savers and spoil many Americans’ retirement plans. See full story

Abandoning Treasurys for safer bets overseas

Investors have begun to question whether the U.S. Treasury bond market can still enjoy its generations-long standing as the safest investment in the world. See full story

The second debt storm hits nations

The financial crisis never really went away. The debt mountain that brought down some of the world’s biggest banks and dragged the international financial system to the brink of disaster has simply shifted to governments. See full story

Officials deny report of Sarkozy euro-exit threat

French President Nicolas Sarkozy has reporedly deined threatening to pull his country out of the euro zone unless other members promised to help debt-laden Greece. See full story

The Japanese yen outperformed after equities priced in the possibility that this weekend’s proposed European bailout package may not be enough to fix the problem, but only stop the bleeding temporarily. U.S. stocks rallied through the U.S. trading session because of reports that the U.K. Conservative and Liberal parties agreed to form a united government with a new prime minister. The pound sterling was the day’s big winner. The U.K. currency had been sold off because of concerns the political bickering may drag on. Of course, the euro was the big loser over concerns that countries, such as Portugal and Spain, may not be able to pass tough austerity measures that will reduce budget deficits and the demand for additional funding from other central banks. Lower commodity prices weighed on the aussie and kiwi but the strong U.S. dollar buoyed the Canadian dollar against its commodity-related counterparts.

Analysts Prediction, Euro/Gold

Europe Situation in “Depth”

More updates to come. Next I’ll be posting snap-shots of Indices, commodities, and Futures index concerning “Significant support/resistance levels” and ”Correlations” to currency pairs. Take care all and happy hunting.

Last week we saw the most extreme panic since the global market crash in the end of 2008. Whether or not it was largely artificial, there was definitely “blood in the streets.” Last week The early increase in risk aversion was the result of Greek protests over the passing of austerity measures needed for the country to receive proposed aid from Germany and the International Monetary Fund (IMF) to avoid debt default. Ultimately, the Japanese yen significantly outpaced all its major counterparts.

In fact, the low-yielding Asian currency has risen between 5.5% (kiwi) and 8.5% (euro) against all majors, except the U.S. dollar. The greenback sat at breakeven against the yen, but a flight-to-safety sentiment led investors out of currencies and into other assets like gold. Better-than-expected inflation data lifted the Swiss franc against the euro. Lower risk appetite pushed the New Zealand dollar back down against its U.S. counterpart after strong employment results temporarily helped the commodity currency stay flat against the dollar.

BLOOMBERG ARTICLE