Sunday, May 16, 2010

Stock Market and Currency Update 16 May 2010

Stock market and currency update as of the week ending Friday, 14 May 2010.

(edited for date typo post publication)

I am currently on the road and do not have access to all my charting data. However, I thought I would put together a quick update based upon the past weeks market activity.

For the week the markets were up 2-5% with the oversold bounce I spoke about previous taking place on Monday. The current market mayhem seems to be centered in Europe and China. Either of these two situations could spill over and totally derail the current world market advance so they need to be watched closely.

I will speak about the U.S. charts 1st followed by China and Europe:

Click on all charts to enlarge:


SPX 11 year monthly:



The long term monthly chart remains bullish until the monthly closing price closes below the 12 month simple moving average.

No changes from my previous comments; the long term remains BULLISH.


SPX 3 year weekly:



The weekly chart looks neutral. Price recovered to the Bollinger Band midpoint. The RSI has regained >50 and the Stochastic remains >50 (but continues to point downwards). These are all longer term bullish signals.

We are now in week 3 of the current downturn (note the previous 2 downturns in this bull market took 4 weeks to unfold as previously mentioned). The other indicators remain neutral to bearish.

The overall medium term picture is currently NEUTRAL.


SPX 3 year weekly with volumetric:



The weekly volumetric chart shows the largest weekly chart support/resistance in the 1120-1050 area. Price has retraced back to the 50% Fibonacci at 1121.44 along with a backtest of the previous downtrend line as well as what could be the bottom of a slightly less steep rising price channel I have tentatively drawn on the chart.

This indicates we are at an inflection point but at strong support.


SPX daily with volumetric from Mar, 2009 bottom:



The daily volumetric chart from the March, 2009 bottom shows us nicely sitting on a large amount of support (dotted black lines). It would have been preferential for price to break the top of the resistance around 1170. If it can do it next week it appears we will be on track to attempt the tops at 1220.

If price breaks current levels we test 1050 followed by 1040. Note the decreasing volumetric support all the way down to 940. That would be my target if the longer term charts turn bearish.


SPX 6 month daily:



The meltdown from the previous week and subsequent partial recovery this past week is evident. The fact that 1150 was nicely re-gained Mon/Tue but could not be hold on the daily chart bothers me.

The daily closing low near 1110 now becomes very important along with the recent closing high near 1170. This 1110-1170 range can be considered as the consolidation zone; a break above a bullish indication and a break below a bearish indication. Right now it is neutral but the technical indicators suggest more downside is yet to come.

Another thing I don't like about this chart is the increased volume on the down day on Friday compared with lesser volume on the Mon/Tue/Wed up days. This is classic bearish divergence.

The short term charts remain BEARISH.



Bottom Line:

I remain long term bullish on the markets. There is nothing in the longer term charts that indicate we have begun a new bear market decline. As such, until they do so I remain in "Buy" mode.

A significant amount of panic has come into the market in the past week. My proprietary breadth indicators remain neutral to bearish so short term we could have some more downside. Also Friday is options expiry day so that will increase the volatility this week.

The short term looks neutral to bearish so I have not committed my remaining 25% into equities. I think the uncertainty that is currently in the markets may become a great buying opportunity but it is still too early to commit the last of my cash. As such, I am keeping my powder dry for the next week and see what unfolds.

The ECAM Asset Allocation Fund (my personal C account) remains at a 45% invested/55% cash position as of this weekend. It is strictly technical analysis driven and is currently invested in U.S. stocks (large cap and small cap), U.S. Real Estate, U.S. bonds (both domestic and inflation protected) and gold stocks.


Emirates Provident Fund:

As of today my "strategic positioning" within the Emirates Provident Fund A and B accounts is a 75% Equity/25% USD cash position.**


Current positions as of 14 May 2010:

-Equities: 74.6%

-USD Cash: 25.4%


** "Strategic positioning" percentages are as per how funds were originally allotted. Due to daily market price fluctuations and ongoing equity monthly purchases within the provident fund account these amounts will vary several percent from that posted. Consult "current positions" for updated actual positions held.


Emirates Capital Asset Management (ECAM) Asset Allocation Fund:

The ECAM Asset Allocation Fund is currently 45% invested (40% core holdings invested + 5% discretionary invested) and 55% cash.

As mentioned last week,the fund rotated out of non U.S. Developed Markets, Emerging Markets and Commodity positions several weeks ago. I am comfortable with it's somewhat defensive positioning at this moment given current market conditions.

Currently only gold stocks (GDX) are held in the discretionary portion of the fund. Gold continues to outperform all asset classes at present.

Current holdings:

Core Strategic Asset Holdings (90% of holdings):

-U.S. Large cap equities:10% (VTI)
-U.S. Small cap equities: 5% (VB)
-U.S. Real Estate Investment Trusts (REITs): 10% (VNQ)
-U.S. Domestic bonds: 10% (BND)
-U.S. Inflation protected bonds: 5% (TIP)

-Cash: 50%
(in cash for portions of fund allocated to non-U.S equities, non-U.S. Real Estate, Emerging market equities, hard and soft commodities and managed timber assets).


Discretionary (10% of holdings):

-Gold mining stocks: 5% (GDX)
-Cash: 5%



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 FINANCIAL 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 not licensed as an investment advisor in the UAE and therefore cannot provide individual account advice to individuals and/or institutions.

dwaynemalone1@gmail.com

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