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Global Trade Desk- Oooops! Where To Now?

Daily Client Note

Global Markets Review

Oooops! Where To Now?

 

The calls to get short the S&P 500, or move to cash were issued to clients with breaks of 1325, 1295, and again 1250. We have said for many years that buy-and-hold equity indices strategies are flawed, and that short-term global trading is key to longevity.

For those caught over-exposed to equity positions we will find a solution for you as this week unfolds. Markets will move quickly. We will monitor the futures and regional market reaction, and gauge the global correlation levels. Updates and signals will follow.

 

The Dollar:
The great unknown is how the world will view the continued strength of USD reserves held by central banks. It is unlikely that 72.50 on the dollar index will easily break in one go, but probable that it could get tested in August. The 76.90 area looks to be near-term resistance.

The dollar was sent on a roller coaster ride as debt and growth questions were raised in 2008 and the same ride may be ahead. This will not be for those with a weak constitution (pun intended), as market correlations will be violently tested.

The last dollar index (DXY) 4-hour chart signal was generated on Aug 01 11 with a move above 74.30 that targeted 74.50 and 74.90. DXY is trading around the 50 and 100-day SMA area at 75.00 which has created twelve mid-term buy and sell signals in the last three months, matched by a similar number of S&P 500 trade signals around 1295.

These were pivotal areas for the dollar and stocks in 2009 and 2010, and will undoubtedly be important again in August. The fundamental outlook on global risk and debt will change day-to-day, which will determine the direction of USD trade. Traders will see technical reversals, fundamental break-outs, and tipping points dominate price action in the near-term, which will create volatile intra-day movement as each global region opens and closes.


The S&P:

After a  week of pricing in a collapse in growth outlooks the S&P 500 downgrade may have tempered it potential to wreck havoc on equity valuations. Near-term chart indications and Market Updates have called for nothing other than equity weakness or moves from stocks to cash.

The last S&P 500 4-hour (Mid-term) chart signal was generated on Jul 27 11 with a break below 1295 that targeted 1275, and highlighted 1200 as a possible target 3 area. The mid-term trend is short after a month of sideways crawl which turned into increased selling pressure in-line with US debt issues remaining unresolved.

Now is not the time to be looking for any equity positions ahead of a volatile period of trade. 

Trade potential for those wanting to risk stepping in front of the equity locomotive is for intra-day trades that get banked at near-term targets. The average period for stocks being bought and then sold in 2010 was eight seconds, which shows how dominant high frequency trading has become; the time span in 2011 is likely to be shorter.


Bullion:

The last 1-hour chart Silver Bullion signal was generated and sent to clients on Aug 01 11 that moved from 40.15 to targets at 41.80 and was closed. The last Gold Bullion 4-hour chart signal was generated Jul 05 11 with a break above 1515 that targeted 1525 and subsequently 1650 which has completed its cycle.

Gold and silver each have a different look and feel at the moment, with Silver looking more susceptible to heavy reversal moves. This follows violent test of support that recently revealed buy-the-dips patterns of trade on bullion are back in place.


WTI Oil:

The last West Texas Intermediate (NYSE:WTI) 4-hour chart signal was generated Jul 27 11 with a break below 96.50 that targeted 94.90, which highlighted 89.00 as a target 3 area.  The previous signal was generated on Jul 12 11, with a break higher from 97.00 that targeted 97.50.

Potential for new trade signals to form is weak, after intra-day moves recently tested the 200-day SMA area at 93.00, and resistance at 97.50 which is the 50-day SMA area. Now is not the time to be holding WTI positions for the long term, as valuations look lost.