Saturday, July 21, 2012

Stockmarket Update 21 July 2012

From my previous post dated 03 July 2012:
I fear like I am beginning to sound like a broken record but my stance remains unchanged.

The long term monthly chart is bearish, the weekly chart is bearish (bordering on bullish), the daily chart is bullish and the 60 minute chart is bullish. As such, the short term bounce I have been forecasting continues but nothing technically has changed that would allow me to adjust my stance to a more bullish posture. I remain convinced (based upon the current technical’s) that we are in a short term bounce before a possible significant decline to come.

Having said the above, it is imperative in investing to not let your "personal bias" get in the way of the evidence. Should the weekly and monthly charts become bullish I would be compelled to change my stance to a more bullish outcome. If this were to happen, I would increase my equity exposure. Conversely, should the short term charts again turn bearish (indicating the current bounce is over and the next potential decline may be upon us), I would shift my position into a defensive 100% cash position.

Currently the technical indicators indicate either possibility so my current view is to continue to hold a 50% equity/50% USD cash position. I will not attempt to second guess which way this whole thing goes but let the charts tell me when to make the move. Currently they are telling me to stay put.
There has been no change from my previous post.  The market has fallen 0.97% over the past 2 weeks and essentially remains unchanged in technical structure.  The short term charts remain bullish (60 minute and daily) while the intermediate-longer term charts remain bearish.  As such, we are still stuck in a trading range where we could go either way.

Given the little change from my last update, I will include only a daily and weekly chart of ACWI along with a Provident Fund ratio chart and currency charts for the Euro and USD.

Click on all charts to enlarge:

ACWI Daily Chart

The daily chart of ACWI remains strong with all technical indicators on the daily chart bullish.

Price has twice now tried to break above the strong resistance at the 44.39-44.64 level (shown in yellow) but has been unsuccessful in breaking above.  The descending trend line from the April 2012 top along with the 61.8% Fibonacci retracement level is adding to further resistance to the upside.

Should price clear the above defined area there is a strong possibility we are going to push back up to retest the 2012 highs.  A 2 day close above this level would have me leaning heavily towards increasing my equity positions.  Alternately, should price be unable to take out this resistance and break below the lower trend line of the ascending wedge formation, there would be a strong chance we fall back to the bottom price of the wedge formation @ 40.50.

The daily chart remains BULLISH.

ACWI Weekly Chart

The weekly chart of ACWI remains technically bearish with of the 6 of the 9 indicators on the chart bullish.

Once again the well defined resistance can be seen on the weekly chart along with the descending trend line from the top and the defined black "box" I spoke about previous.  Should price be able to push above the resistance zone (shown in yellow) the last 3 technical indicators would come into bullish configuration and I would be increasing my equity allocations.

Currently the weekly chart is BEARISH  but on the cusp of turning bullish on a break of resistance.

Provident Fund Weekly Ratio Chart

The EK Provident Fund ratio chart still indicates the USD as the chosen asset class amongst the 3 broad based asset classes available in the A/B accounts (USD Cash, World Equities, World Bonds) based upon a weekly close above/below the 40 week simple moving average.

USD Weekly Chart

The weekly chart of the USD shows the clearly defined uptrend the USD has been in since the bottom in May, 2011.

Two weeks ago price closed on a weekly basis above resistance (as shown on the chart) at the 83 level.  This level now becomes support on any USD pullbacks to keep the uptrend alive.

Based upon historical trading prices, there is now very little resistance for the USD until the 88 level last achieved in June, 2010.  Given the inverse correlation with equities the past 3 years, this USD strength must be viewed as a negative for equity positions unless/until the inverse correlations reverses.  Currently the correlation is neutral on a short term (daily) basis but I am watching them closely to confirm the current equity move has lasting power.

Euro Weekly Chart

Once again "ground zero" for the current problems lies in Europe.

The Euro is in a well defined down trending channel as shown.  Critical support at 126.75-127.08 was taken out 9 weeks ago (May, 2012).  There is very little support to 119.69 which is my current short term Euro target.

Bottom Line:

The equity markets remain with short term technical indicators positive and intermediate indicators neutral.

It is the summertime doldrums so it is possible for market players to lift indexes on very little volume.  Traditionally there is a "summertime" rally associated with this low volume manipulation but given the current (and very real) prospects of considerable damage to Europe over the next few weeks (not shown today but the Spanish bond auction went HORRIBLE last week with 10 year yields hitting new record highs; this is very, very bad news), it is possible this year may be an exception where the critical debt crisis in Europe over-rides the ability of market players to float the market higher.

Given the current technical indicators, I remain as per my previous post.  There is no indication one way or the other that can allow me to "front run" a move higher or lower.  As such, the prudent course of action is to remain in a neutral equity position until further technical indicators come into alignment.

As of today I remain in a 50% Equity/50% USD Cash position as I indicated in my last post:

-Russell Global 90 Fund: 40%

-Fidelity International Fund: 10%

-Russell USD Liquidity II Fund: 50%

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