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JANUARY 2011 - MAJOR MARKETS (DOW, S&P, GOLD, OIL) Technical Commentary

HO HO HO! Santa Claus rally did happen (again!!!). Perhaps, this seasonal phenomenon is really worth playing. Following the previous analysis in November, technically the markets were carving out bullish structure across the board with the fundamental backdrop of QE2 – therefore a few conditional (bullish/reversal candles at key levels) calls were made, which went down successfully. However, at this juncture probability increases for sizeable pullbacks and corrections in risk assets.

 

DOW

 

Longs were covered at close of Friday, 14 January 2011. Entry levels were outlined in previous analysis and precise entries based on candle patterns on dailies are explained in Model Portfolio section of this document.

 

Price nicely retested 200SMA on weekly which was also around previous resistance levels and bounced off to break previous highs. However, now it is reaching its previous resistance zone on RSI, perhaps calling for a potential medium term top.

 

The current rally may continue further up to 12000/12090 (pivot resistance) before facing some pressure of at least profit-taking if not outright selling. If the price returns to 10SMA (currently around 11173) or channel support (currently around 10840), then we may look for bullish patterns to go long again. Regions / zones for start looking for shorts are 12500 and 13000 – below these levels, unless a pattern such as double top or head and shoulder emerges in coming days/weeks, there are no technical signs to begin shorting.

 

 

 

On a more worrying note, in November and December 2010, the AAII bullish sentiment index has been at its highest since 2003/2004 and put/call ratios are also at near extreme levels. In summary, it means that the majority of the market is confident that the market rise will continue and it is all rosy from here on – precisely the time to re-evaluate current risk-on positions.

 

 

 

 

GOLD

 

No change from last update which was - Upswing from 682 to 1227 carves out a Fibonacci extension up to 1435 as next resistance. Although, Gold missed to touch that by about 10 points, the resistance has already come into play. I have carved out my buy zone on chart and will only be buying if a right price pattern emerges on shorter timeframe (which is Daily). The buy zone is based on confluencing factors such as previous support becoming resistance around 1227 and 1269, monthly support pivots and two shorter trend lines. The Gold bull story is far from ending - per technical structure and also given the QE 2 / potential risk-aversion backdrop.

 

 


 

S&P

 

Price nicely bounced off the 50SMA and fib confluence zone which was previously identified and where we were looking to go long from (1180) which were closed on 14 January 2011 (same as Dow).

 

Significant resistance seems to be coming into play in the region of 1302 and 1350 (zones marked on chart) look for potential short candle setups there or around current levels in days to come. RSI is also on resistance trend line carved out from and held since March 2010. Fundamentally (macro headwinds around sovereign bonds) and market sentiment-wise (eg, AAII, put/call ratios mentioned in Dow Jones section), a correction is very likely. This is further supported by the fact that VIX is testing April 2010 lows (significant VIX support level) and therefore we prefer to look for selling S&P as it is more technically aligned at present for a short play.

 

 

 

 


OIL

 

Text book example of previous resistance becoming support, Oil was offered several times around 86.9 to 89 zone, but this time it broke through, came back and retested it twice and rallied after forming a double bottom on previous resistance zone. Technically, there is no major resistance until 100 on charts, where some level of resistance coupled with the round number factor may come into play. So 100 is the level to watch for bearish/reversal candle patterns on Oil.

 

 

 

 

Model Portfolio

 

Instrument

Direction

Entry

Stop

Target

Risk position

Closed at

P/L

Balance

Comment

 

 

 

 

 

 

 

 

10,000.00

Opening Balance

Dow

Short

11138

11250

11000

1

11133

5.00

10,005.00

 

Dow

Short

11390

11470

11000

0.5

11180

105.00

10,110.00

 

Dow

Long

11052

10900

1200

1

11775

723.00

10,833.00

Was watching for candle setup around 10980. Entry triggered at 11052 on 18th November 2010

Dow

Long

11282

11141

11600

1

11775

493.00

11,326.00

Trade trigerred on 02 December 2011 and stop moved to b/e on 08 December 2010.

Gold

Long

1227-1269

TBD

TBD

TBD

TBD

 

 

Not trigerred but still valid

S&P

Long

1155

TBD

TBD

TBD

TBD

 

 

Not trigerred - expired

S&P

Long

1185

1170

1300

10

1290

1,050.00

12,376.00

Setup triggered at 1185 on 17 November 2010

Dow

Short

12500-13000

TBD

TBD

TBD

TBD

 

 

Watching for candle setups

Dow

Long

10840-11173

TBD

TBD

TBD

TBD

 

 

Watching for candle setups

S&P

Short

1302-1350

TBD

TBD

TBD

TBD

 

 

Watching for candle setups

Oil

Short

100-105

TBD

TBD

TBD

TBD

 

 

Watching for candle setups

 

 

 

 

 

Price Patterns (to watch for levels /zones discussed above)

 

Levels and zones are potential pivot areas – For trade entries, the price patterns / candles around these levels/zones should be observed or pyramid your entries with money management for aggressive trading approaches.

 

Bullish Patterns

 

Bearish Patterns

 

 

 

 

DISCLAIMER

 

Trading in the financial markets is a challenging opportunity where above average returns are available for educated and experienced investors who are willing to take above average risk. However, before deciding to participate in financial markets trading, you should carefully consider your investment objectives, level of experience and risk appetite. Do not trade / invest money you cannot afford to lose. This website/newsletter is neither a solicitation nor an offer to Buy/Sell/Hold. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on the website/newsletter. The past performance of any trading system or methodology is not necessarily indicative of future results.


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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: No company specific stocks are mentioned in my article.