A Detailed Technical Update of the S&P cash, S&P futures, DJIA cash, Gold futures, the VIX and the US Dollar Index ... as well as a look into the "Crown Jewel" of Dubai
The ES (continuous contact S&P 500 futures, current basis December, ESZ09) has four resistance levels at previous support on the daily (marked above by white horizontal lines) and recently gapped from above the upper FIB to below the lower FIB (click on any chart to see a larger in crystal clear detail). Until the 11/06/09 closing level of 1066.25 is decisively broken, this weakening uptrend of narrowing breadth and its multi-week topping process will continue. For Fox-like anal-ytic balance for the bulls, short-term upside targets would be 1121 (the 50% retracement of Primary wave 1 (circle)) and 1127 (where the downward sloping monthly 34 EMA currently lays).
When charted on the weekly with semi-log scaling, the ES has met ‘key trendline’ resistance that connects the October 2007 all-time high with the May 2008 high (Intermediate wave (2) of Primary wave 1 (circle). The S&P 500 has reached a multiple confluence of inflection points, not only in terms of price but also in terms of both time and sentiment.
Since the March lows (and especially since April) several technicians have pointed toward DJIA price targets of either 10K (round number) or 10,356, which is the 50% price retracement of the entirety of Primary wave 1 (circle). And in terms of a time retracement, many of those same technicians have steadfastly pointed toward Nov. 17th, 18th (trading days) & 23rd (calendar days) as possible terminal inflection points for this strong upward correction, which, in the parlance of Elliott Wave is termed “Primary wave 2 (circle).”
Since the Bullish Marubozu weekly candle that closed 7/17/09, 10470 became the updated price target, as measured from the 7/10/09 closing low of 8146.52. As an aside, March 6th itself provided several clues that the 17-month downtrend was abating (after a Bull Harami candlestick pattern plotted on the $INDU alongside a High Wave on the $INX). The real star of 3/6/09 was the $BKX (KBW Bank Index); where a Doji candle plotted on the hourly, closed 15:00, while the next hourly bar (closed 16:00) plotted a wildly bullish wide-range bar after blatantly failing a new low at 17.80 by just four cents.
When charted on the weekly with linear scaling, the SPY (S&P 500 ETF) has also come into the same ‘key trendline’ resistance.
Continuous contract Gold futures (@ GC, current basis February, GCG10) registered a Strong ‘Cycle Top’ sell signal last Thursday (11/26/09) on the 144-minute interval period after failing to eclipse $1200. The next session gave attentive traders a very nice present in the form of an outsized intra-day swoon of approximately 5%; every $1 profit/ loss on the spot price of GC (gold futures) equals $100 per contract. Not a bad day’s work even if ya only caught part of the move.
Over the past two weeks, innumerable folks with access to a keyboard and an internet forum have staked their reputations on guarantees that gold would grab “$1200 within the next day or two.” Apparently, none of those folks has access to technical indicators that actually work. Ours do.
Gold bugs are an interesting crowd. They tend to be driven (almost exclusively) by fundamental data points and emotionally laden personal opinions. With gold in a secular bull market since late-September 1999, we at Fibozachi believe that the shiny, yellow metal will see much, much higher prices years down the road. Our long-term personal belief out of the way, the synthetic-cash asset of gold remains the only commodity (if not the only non-cash asset) to have escaped the guillotine over the past two years/ one decade.
Our intermediate-term personal belief, which is far from the hard right edge (the next bar on a chart, coined by Alan Farley), is that the spot PoG (price of gold) will be heavily depressed by the next all-encompassing round of deflationary pressures. We think that a monstrous DX/ $USD rally combined with an “all-the-same-markets” deleveraging of assets across the board will depress gold back toward prior inflection points between 760 and 660 over the next 21 months … before precious metals (as a collective group, denominated in all G-8 currencies) resume their long-standing date with destiny in Q3 of 2011, during the next leg of the fiat currency death spiral. Again, this is merely off-peak anal-ysis, which, at the end of the day, is nothing more than semi-educated personal speculation.
Such personal opinion and off-the-cuff anal-ysis during off-peak hours has absolutely nothing to do with either the Identification, Isolation, Timing, Execution and Management of actual trading signals during peak-hours or the Probabilistic Nature of Trading. Fundamental data points and fevered speculation (albeit warranted) about blatant central bank manipulation versus technical indicators and actual trading signals; we’ll leave the emotionally laden adjectives to others, recommend that any trader read/ re-read Mark Douglas’ seminal work, “Trading in the Zone”, and continue to focus on things that will actually make us money (technicals and price action).
As Douglas teaches, “anything can happen” … only the fullness of time will decide who wins this recent battle. Will our fractal technical indicators and advanced inter-market analysis prevail over the emotionally driven fundamental arguments of stalwart gold bugs? We think so. And if a daily buy signal registers then we will be among the first technicians/ traders to weigh its potency and report our findings.
Gold futures registered a moderate ‘Cycle top’ sell signal on the daily during Thursday’s session (11/27/09) as per our Elite Oscillator™. And by the close the daily plotted two noteworthy candlestick patterns: a Hanging Man and a Tweezer Top. Please note that the last time a daily EO sell signal plotted (6/1/09) that it directly preceded the only significant correction within gold’s monstrous rally. Friday’s high-low range of 64.90 was the largest daily range since 3/18/09, which just edged it out with a 67.40 range.
It is worthy for bulls to note that this recent one-day swoon held the 11/19/09 continuous contract intra-session low of 1,131.60 by a single tick (gold futures have a minimum fluctuation of 0.10 per troy ounce). Futures traders would also be wise to note that the front month contract (current basis February, GCG09) is currently testing the 76.4% upward price retracement of its 11/27 swoon at $1182.4 (as of 02:33).
The DXY/ US Dollar Index remains beneath a critical daily trendline (four distinct touches) and Spectra-Trader™ has yet to plot a long signal since last January-March.
Much like the extreme DSI readings (daily sentiment index) for gold and the extreme weekly investment advisor readings for equities (AAII), the short DX/ $USD trade has become exceptionally lopsided by rampant retail speculation. And much like how the broader, secondary US equity indices have blatantly failed to confirm new highs in the DJIA … silver, copper, oil, the entire CRB (Commodity Index) and even actual measures of inflation have all blatantly failed to confirm gold’s new nominal highs (denominated in US Dollar$ alone). Furthermore, new highs denominated in only the $USD without any confirmation from other G-8 currencies amounts to a glaring negative divergence.
without the $USD at decade lows;
without the €EURO at fresh highs;
without inter-market confirmation from either Aussie (NYSEARCA:AUD) or Swissie (CHF);
without secondary confirmation from new highs in the HUI/ XAU (Amex Gold BUGS Index), DJ-15 (Utility Index), DJ-20 (Transportation Index), TSX (Toronto Stock Exchange), SSEC (China’s Shanghai Composite Index) Bovespa (Brazil’s BM&FBOVESPA), XAO (Australia’s All Ordinaries Index), JSE (S. Africa), OR even the GDX (ETF replication of the GDM, the Amex Gold Miners Index); and
without actual inflation to speak of today or point toward tomorrow … we can’t help but sit back, scratch our heads and wonder whether anyone remembers last July, when oil was over $140 ($170 futures) and rice shortages were feared across the globe.
Look folks: commodity market tops are like equity market bottoms, they each tend to be sharp affairs surrounded by extreme collective sentiment; commodity tops of significance almost always plot parabolic spikes before they pop and tend to be marked by bouts of widespread public fear. This is in sharp contrast to significant equity tops, which tend to be ‘rolling’ affairs that take time to flesh themselves out by expending the last bits of remaining firepower from latecomers to the party. For more detail about this particular nuance of technical analysis please see Gold vs Silver, the US Dollar vs Gold and the US Dollar Index, Technical Profiles of 8 Key Stocks and 6 Primary US Equity Markets.
On the weekly, the $DXY/ US Dollar Index has strong support at a rising trendline from the Q1 - Q3 lows of 2008 as well as a strong band of horizontal support that surrounds 74.48. Spectra-Trader™ remains firmly red and price continues to ride the underside of the lower FIB as it searches for a significant multi-month low, which will have serious ramifications for global equity, commodity, credit, currency and bond markets. A breakout that plots two consecutive closes above the upper FIB will provide a strong signal that a significant reversal is underway; any close above 76.89 (a previous wave iv (circle) of Minute degree) will effectively shift the DX/ $USD’s profile toward a decisively bullish posture.
Drilling deeper down into the hourly: watch out for any close above 75.88, which would be unabashedly bullish. As we wrote on 11.18.09, within Gold vs Silver, the US Dollar vs Gold and the US Dollar Index:
“…. until there are two consecutive closes above 76.89 there is NO uptrend to speak of. The EURO appears to be initially confirming a possible USD bottom. Swissie (CHF) and EuroYen (EURJPY) are the next two majors/ crosses needed to confirm any possible US Dollar bottom. For a more detailed explanation of both the VIX and the $DXY/ US Dollar Index, please see Comparing the 6 Primary US Equity Markets, VIX Fibonacci Cycles and the US Dollar at a Critical Juncture.”
The VIX found support at a previous swing low on Wednesday, held above 20.00 and then leapt from well below the lower FIB to well above the upper FIB on Friday. A previous close at 20.48 plus a ginormous gap open at 25.75 equals an overnight gain of 25.73% on the open; not bad for those playing futures and front month options. Friday’s shortened session marked one of the strongest daily opening gaps in the relatively short history of the VIX; unfortunately, for complacent longs and sellers of premium, it gapped in the wrong direction.
1) two consecutive hanging man candlestick patterns on the Wilshire 5K daily (the single most comprehensive measure of US equity market breadth;
2) continually narrowing market breadth, most clearly exhibited by a noteworthy transition of US equity index leadership from the Russell 2K to the DJIA;
3) universal cat calls for the demise of the US Dollar Index;
4) universal cat calls for the spot PoG (price of gold) to reach [insert $ symbol and ridiculous # here]; and
5) achieving numerous measures of time, price and sentiment, detailed over the past few weeks, here, here, here and here;
… what could be more Socionomically fitting for the US equity markets’ kickoff to Primary wave 3 (circle) than the stench of default from Dubai, the crown jewel of 21st century capitalism.
Click anywhere in this sentence for a press release, er, article, entitled “Emaar unveils The Palace Residences, the ‘Crown Jewel’ of Old Town Island."
Click anywhere in this sentence to examine the floor plans, pricing and specific amenities within this “Crown Jewel” that opened its doors on 11.25.09 … just hours before the decadent mirage of an opulent Dubai was irrevocably eviscerated. At the ‘all inclusive price of 28.35 million AED per villa as of 11.25.09, a simple conversion from United Arab Emirates Dirham to US Dollars equates to approximately $7.7 million.
As the first “news article” above states within its very first sentence, this development's opening was going to be special:
“Further establishing the appeal of Downtown Burj Dubai as one of the most sought-after and premier lifestyle destinations in Dubai, Emaar Properties has unveiled an iconic residential project, The Palace Residences, to strong investor response.”
Unfortunately, for Emaar Properties, The Palace Residences of Dubai will become infamous in its timing, much like the China South Locomotive IPO of August 2008.
Here is what one of us said on 8/20/08:
[8/20/2008 11:05:28 PM] <Chopshop> china south locomotive .. remember that name bc it will be a mkt trivial pursuit question some years from now ... when you are asked what was THE last IPO before [Minor wave 3 of Intermediate wave (3) of Primary wave 1 (circle) of cycle wave c] took hold, you will know, lol
[8/20/2008 11:11:23 PM] <Chopshop> ok, let's just get goldman to buy neuberger from leh already, let's hear some nonsense about wachovia, let's hear msft for yhoo for the 19,000th time, maybe rimm or aapl can get a licensing deal for angola or mozambique worthy of an upgrade and lets pick this puppy up for one last stroke before we paralyze her … and get JP Morgan Chase Mutual - ovia
All joking aside, we at Fibozachi firmly believe that equity markets have reached another momentous inflection point with yet another tidal wave fast approaching. And while it will take a bare minimum of 2 - 4 days for possible confirmation of a significant downturn across both domestic (US) and global equities … in terms of technicals, what could possibly be a more appropriate way to kick off Primary wave 3 (circle) down then the VIX holding above 20 just before entering full-blown liftoff?
As always, we hope that this quick overview is helpful and thank you for taking the time to read our thoughts.
Disclosure: we anticipate becoming long the $DXY US Dollar Index via DX futures and short ESZ09 once a multiple confluence of proper trading signals confirm themselves; during any given session we may trade either of these instruments bi-directionally.
For similar technical takes, market calls and insights, please visit our brand new website, www.fibozachi.com. There, you can view both our complete body of analytic work as well as detailed explanations of the unique design development and technical methodologies within the proprietary technical indicator packages that we use daily to perform a comprehensive technical analysis of stocks, options, ETFs, futures and FOREX across interval periods of time, tick and volume.