Currency update 22 June 2009

A quick update on the USD (click on all charts to enlarge).


USD 10 year monthly chart:



As I blogged previous, the USD closed the month of May/2009 below the 12 month simple moving average (blue MA 12 line currently at 82.26). As such, from a long term perspective it can be assumed the USD has begun it's next long term decline.

The final piece to the puzzle will be a confirmation of the 12 sma signal with a cross of the Stochastic below the level of 50. It is currently at 55.84 and declining rapidly.

Of particular concern to me is the fact the USD was unable to breach the 38.2% Fibonacci level from its decline from 121.29 to 70.70 (shown in purple). It is common in Elliot wave analysis for price to retrace either the 50% or 61.8% Fib levels before continuing the current trend (which has been down for the USD since 1985). This weakness does not bode well for the USD in the future.

The USD is up +1.23% for the month of June so far and is attempting to break above the previous support level (now resistance) at 80.39. Next target to the downside will be the current support line at 77.69 followed by the previous low at 70.70.

The long term view on the monthly charts is Bearish.


USD 3 year weekly chart:



On the 3 year weekly chart the USD has had a 13 vs 34 week ema cross as well as an MACD cross below the zero line.

The USD is currently oversold on a weekly basis and appears to be correcting the stochastic oversold condition.

On a weekly basis this chart is Bearish.


USD Point and Figure Traditional chart:



The PNF traditional chart shows the trend switched to negative when price printed a closing price of 82.0. The chart projects a price target (based upon the structure of the chart) of 71.0.

The medium term PNF chart is Bearish.


USD .10 Box Point and Figure chart:



I like to use the shorter term .10 box PNF chart to drill down more closely into price patterns. This chart moves around a lot so it is not something you can trade with (other than day trades) but it does show nicely areas of support and resistance.

The chart turned bearish on Friday and currently projects a target of 79.20. Some reasonable chart support is evident at 79.80-79.90 but below 79.80 there is very thin support all the way down to the 78.40 low on this chart.

Based upon Friday’s closing price, this chart would be classified as Neutral.


USD 2 year daily chart:



The 2 year daily chart clearly shows the uptrend line that was broken in April. Along with that, price penetrated below the 200 day moving average (green line), the 38.2% Fib (82.39) and the previous support at 82.69.

Price appears to have formed a descending channel and has found support at the 61.8% Fib at 77.93 along with the support line at 77.85. Price is currently stuck between the 50% Fib and resistance levels of 79.96-80.38 (Friday’s close 80.31).

Momentum is positive (MACD in an uptrend), price is not overbought (Stochastic <80) and the Relative Strength Indicator (RSI) is neutral..

This chart is neutral with a very slight uptrend bias.


USD 6 month daily chart:



This 6 month daily chart is one of my "working man's" charts so it may appear a bit busy to those who are new to technical analysis.

Keys to note:

-the downtrend channel (black lines) from the 89.62 top is clearly defined.

-the previous downtrend channel-within-a-channel was broken to the upside in mid-June.

-price has moved above the Bollinger band midpoint (thin dotted black line) which is bullish but has been riding the midpoint band downwards. Note the midpoint band has now flattened and the USD needs to decide if it wants to break back to the downside or continue up.

-price appears to have begun to form an uptrend channel and Fridays lows did not break the channel. This is bullish.

-A move to the upside of the channel would take the USD to appox the 82.50 level. This falls in line with the 50% Fib (purple lines) of the most recent decline (82.61), the 38.2% Fib (lime green lines) of the decline from the top (82.65), the 50 day moving average (blue line) at 82.48, and the current resistance at 82.63.

Based on the above, the short term is still Bullish for the USD with a price target of 82.63-82.67.


Bottom Line:

The USD has begun its next long term and medium term declines. Short term it is neutral-to-bullish and there is no indication the next leg of the decline has begun (yet).

I will remain in the USD until the short term charts turn back bearish. At that point I will exit all long USD positions and reposition into other investment vehicles.

If history is any guide, recent declines in the USD have been net positive for equities, commodities and foreign currencies. My currency of choice is currently the Australian dollar (as a play on both commodities and the China exposure) followed by the Canadian/New Zealand dollars, the Swiss Franc, the British Pound, the Japanese Yen and the Euro (in that order).

In my trading account I have been holding the Australian, Canadian and Yen. When the next USD downtrend resumes, equity purchases will be in non-US ETF's (which will gain in value from both the rise in equities that these countries will see along with currency appreciation against the USD). I will primarily look to the ASX (Australia) and TSX (Canada) indexes along with Asian (non Japan) ETF's.


No changes to my provident fund holding as of the weekend. Still 88% USD and 12% equities.



**Strategic allocated percentages are as per how funds were originally allotted. Due to market fluctuations and ongoing equity monthly purchases these amounts vary several % from that posted (refer to current % holdings).

Legal Disclaimer: The content on this site is provided without any warranty, express or implied. All opinions expressed on this site are those of the author and may contain errors or omissions. NO MATERIAL HERE CONSTITUTES "INVESTMENT ADVICE" NOR IS IT A RECOMMENDATION TO BUY OR SELL ANY FINANICAL INSTRUMENT, INCLUDING BUT NOT LIMITED TO STOCKS, OPTIONS, BONDS OR FUTURES. The author will reveal his current market positions and holdings but actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility. The author is currently not licensed to act as an investment advisor in the UAE and as such cannot provide specific investment advice to individuals and/or institutions.



dwaynemalone1@gmail.com

Stock Market Update 17 June 2009

Since my last stock market update a little over 3 weeks ago (23 May) not much had changed. However, in the last 2 days there have been some interesting developments that need to be watched closely.

As always, click on the charts below to enlarge.


SPX 6 month daily:



The first chart is the 6 month S & P 500 Index chart. Price topped in early May at 930.17. It then entered a consolidation phase between 930.17 resistance and 877.86 support. There was no clear indication of direction so placing a trade in either direction (other than short term swing trades) was a coin toss.

On June 01 price broke above the 930.17 level but did not have sufficient power to break the 943.85 resistance set in early Jan, 2009. While tempted to buy that breakout; the volume did not confirm the price break so I sat and watched.

Over the next 8 trading session’s price remained in the tight range between 930.17 to 943.85. The lack of volume and the inability to break this resistance told me we were in for the correction I have been waiting for. We have it now.

Price broke the support level at 930.17, the Bollinger Band midpoint and the trend line and is now looking to test the 200 day moving average (907.91). I have "partial" sell indicators on my short term trading chart but they have not all confirmed (yet?). As such, at this time the short term picture could be considered neutral.

Should the 200 dma be taken out, the next price target would be the 50 dma (892.42) followed by the 877.86 support level once again (coincident with the Bollinger Band bottom band).

Ideally what I would like to see is price decline back to the Fibonacci 50% retracement level (811.51) over the next 2-3 weeks. That would set up a great short term buying opportunity (more on that below).

In any case, for now I will watch this short term chart and see where the market wants to take us.


SPX Point and Figure Traditional:



The SPX point and figure chart turned bearish on a price print of 925. It currently projects a preliminary price target (based upon the structure of the chart) of 870.


SPX 3 year weekly:



This 3 year weekly chart nicely shows the decline from Oct, 2007 and current rebound.

The keys to note on this chart:

1) most importantly, the blue 13 week exponential moving average (13 ema) has not crossed above the red 34 week ema. This is one of the key indicators I use to define whether we are in a bull or bear market. We are still in a bear market.

2) the 38.2% Fibonacci retracement from the current decline from 1440.24-666.79 (black line at 961.55) has stopped this rally cold. This level is very close to the previously mentioned 943.85 and is an important hurdle this market will need to overcome.

I don't want to get any hopes up at this point but there is a very interesting chart pattern that appears to be forming. It is an inverted Head and Shoulders pattern.

It appears the left shoulder completed in Nov/2008 (741.02), the Head in Mar/2009 (666.79) and we appear to be starting to set up the formation of the right shoulder.

Ideally in order to make this pattern work we would like to see a decline to around the 800 level (see my previous discussion about the 811.51 level above). At this point IF the daily charts were to turn positive and IF we were able to break the "neckline" around 960 the projected target for the pattern would be approximately 1254.

Whether this pans out or not remains to be seen but I am watching it closely.


SPX 10 year monthly:



A reminder once again that until the MONTHLY CLOSING PRICE gets above the 12 month simple moving average (currently at 962.16), we must still assume we are in a bear market.

Price is allowed to spike above the level intra-month but at the close of the month is when the decision is made. We are not there yet.



Mid Year Update

I've had several subscribers ask for my longer term "crystal ball" view. Once again, I am the first to admit I have 2 balls and neither one of them is made of crystal! Having said that, using technical analysis as a "windsock" to tell me which way the wind is blowing, here is my mid-year update for the next 30 years. I hope this is far enough out for you all.

-I believe we are in a secular bear market that began in 2000. The market decline from 2000-2003 and the subsequent rally from 2003-2007 formed nothing more than a huge consolidation pattern. I believe long term this pattern breaks to the downside and we could lose as much as 90% on the Dow Jones Industrial Average and the S & P 500 index. Those that use a "buy and hold" strategy during this time will be decimated financially.

-We are in "winter phase" of the 60 year Kondratieff Wave (I have blogged about his previous; search the blog or Google to get more information). This should have begun in 2000 but due to US Fed manipulation (through the credit markets and the ensuing real estate bubble), it was delayed until 2007. On an "average" a Kondratieff winter lasts 15 years. Using this rule of thumb, we should not see "spring" until approximately 2022. There will be shorter term rallies within this period but the entire trend will be down until then.

-Major long term bottom in the US markets occur approximately every 40 years (1903, 1942, 1982). The next major "all clear" bottom of this market should occur around 2022.

-We are on the cusp of a 10 year "Decennial" cycle top (discovered by Ned Davis of Ned Davis Research many years ago). It has been proven that US markets tend to peak in the 9th year of any given decade, correct into the middle part of the 2nd year of the following decade, and then regain modestly into the end of the 4th year. Most (or all) of the gains tend to occur in the second half of each decade (in US history, there has never been an overall down period in the 2nd half of any decade in the 20th century).

This pattern is telling us that the worst is to come over the next few years (between late-2009 to mid-2012).

-We will be coming into the 2nd year of the 4 year Presidential cycle. This cycle tends to have down years for the 2nd year of the presidential term followed by 2 years of gains running into the next election. As such, we would expect to see a down period between late 2009-late 2010 followed by a moderately strong market into late 2012.

Putting these 2 very potent cycles together (combined with the Kondratieff Winter), I am expecting a significant decline (market crash?) from sometime in mid-late 2009 into mid-late 2012. The best possible "near term" buy and hold buying opportunity will be in late 2012. Until then, any buying is speculative and dangerous. You can make money in the market but it has to be selective and timed. Buy and hold will kill you.

Short term, I think the most dangerous time to be in stocks will be past Aug-Sep 2009. We may have already started the decline but I don't think so. I think we have 1 small retracement lower followed by 1 more push upwards before the next "oh....fuck" event. Anyone who is still in stocks in their provident fund would be wise to exit to cash before Sep 2009.

-Narrowing in to the current short term, once this current short term decline ends:

-If I were to make a technical analysis "educated guess", we will be higher by the end of summer than we are currently (as noted previous). I intend on moving partially into equities once this short term correction has completed to attempt to catch this rally. When and how far; who knows. I will let the market tell me. Note this will be a short term in-and-out to catch the corner. There is no buy-and-hold plan here.

Medium and longer term, I am still VERY bearish. I think this upcoming fall will be devastating and I am still of the opinion we could see a #5 as the 1st number in the SPX before year end and a #2 as the 1st number in the SPX when this finally ends. I plan on having my trading account seriously short going into the fall.

-I do not believe we have seen the end of this decline. I think we are in the "eye of the hurricane" where things are relatively tame and many are letting their guards down ("green shoots"......?????). I think we will see the next stormy part of this financial hurricane very soon.

Having said all the above, the only thing that matters is PRICE. I will let it be my guide.

Bottom Line:

No changes to positions. Still approx 12% in equities in the EK provident account (due to ongoing monthly provident fund purchases and current market rise) and 88% in "nervous" USD cash.

The USD has begun the bullish retracement I spoke about previous. Continued dollar strength over the next few weeks will be bearish for the markets.

I intend on staying in the USD positions until this short term rise ends and then will exit the USD as it is in a long term downtrend (as noted in a previous blog). I expect when I exit it will be into a 50% equity/50% International bond position but will not know until the event occurs and I can assess the charts.

I will blog some info on the USD shortly (tomorrow) as well as gold (a request from several subscribers).

In addition, I will blog if I make any changes to my provident fund positions immediately.



**Strategic allocated percentages are as per how funds were originally allotted. Due to market fluctuations and ongoing equity monthly purchases these amounts vary several % from that posted (refer to current % holdings).


Legal Disclaimer: The content on this site is provided without any warranty, express or implied. All opinions expressed on this site are those of the author and may contain errors or omissions. NO MATERIAL HERE CONSTITUTES "INVESTMENT ADVICE" NOR IS IT A RECOMMENDATION TO BUY OR SELL ANY FINANICAL INSTRUMENT, INCLUDING BUT NOT LIMITED TO STOCKS, OPTIONS, BONDS OR FUTURES. The author will reveal his current market positions and holdings but actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.

dwaynemalone1@gmail.com