Stretching Out the Bear Market Rally

Includes: DIA, DUG, GLD, SPY, TLT
by: Richard Suttmeier

Yields, the dollar, gold, copper and crude oil – convoluted logic continues. Stocks are ripe to challenge the September 23rd highs. We will soon find out how much camouflage paint regional banks have when they begin to report quarterly results next week. Charts courtesy of Thomson / Reuters.

If you are bullish on the US economy and stocks yields should be rising, not falling.

The weekly chart for the yield on the 10-Year favors lower yields, but weekly resistance at 2.95 should limit the yield decline as the chart will soon show that the yield decline is overdone.

The daily chart shows that the decline in yields failed at the 200-day simple moving average following the weak employment data last Friday. The 10-Year yield needs a close below the 200-day, now at 3.15.

If the decline in yields stops between 3.15 and 2.95 the risk is to monthly support at 3.677.

The Dollar Index hits a new 52-week low of 75.68 getting the stock market Bulls fresh lather.

The dollar versus Japanese yen is well above its 52-week low of 87.15 and the euro and British pound are not at 52-week highs, so dollar weakness is not across all crosses.

Look at the weekly chart for the Dollar Index and you see an up trend connecting the lows of April and July 2008. This support is between 74 and 75 with the Index extremely oversold with MOJO at 1.6.

Comex gold continues its breakout, but is becoming overbought on its weekly chart.

At this point gold is not worth chasing as the upside for this move should be limited to my quarterly and semiannual resistances at $1094 to $1102, where profits should be taken.

Comex copper and Nymex crude oil still doubt the global growth story.

The weekly chart for copper shows the metal below its 200-week simple moving average at 292.27 with MOJO declining below the overbought reading of 8.0.

The weekly chart for crude oil shows Texas Tea below its 200-day at 75.07 since mid-June with MOJO declining with a reading at 6.8.

Right or wrong, a weak dollar has been pushing US stocks higher.

For the Dow, my annual pivot at 9,750 continues as a magnet with the September 23rd high at 9,918. My monthly support is 9,306 with annual resistance at 10,012.

For the S&P 500, holding the 21-day simple moving average at 1052.65 targets the September 23rd high at 1080.15, as the Bear Market Rally can stretch to the daily up trend at just below 1100.

The NASDAQ lags its September 23rd trading range of 2130.34 to 2167.70 despite the weak dollar. This is a sign that the weak dollar, strong stocks is starting to diverge. Holding my weekly pivot at 2101 indicates potential strength to monthly resistance at 2183, which takes out the key reversal levels.

I am not altering my longer-term bearish view, but showing the divergences as the convoluted bullish consensus continues to defy fundamental logic.

Next week three key regional banks will put on their camouflage paint for Q3 earnings results.

JP Morgan (NYSE:JPM) reports Wednesday morning pre-market. Citigroup (NYSE:C) reports Thursday morning, and Bank of America (NYSE:BAC) on Friday. Goldman Sachs (NYSE:GS) also reports on Thursday.

Disclosure: I Hold No Positions in the Stocks I Cover.

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