Saturday, November 17, 2012

Stockmarket Update 17 November 2012

The pullback I have been expecting the past few months has finally started to take shape.  From the high of 14 September 2012 the ACWI has pulled back 7.7%.  A technical "correction" is defined as a pullback greater than 10% and a new cyclical bear market would be defined as a pullback greater than 20%.  As such, we are approaching "correction" mode.

I still see this as a pullback within an ongoing Cyclical Bull Market moving countertrend to a Secular Bear Market.  Several important support zones are coming into play near these levels and offer a low risk entry to increase equity exposure with reduced downside risk.

CLICK ON ALL CHARTS TO ENLARGE:


ACWI Monthly:



The monthly chart of ACWI remains technically bullish but is struggling to hold prior monthly closing support at 46.60.  Currently it remains above both the 8 and 10 month simple moving averages and both the shorter term uptrend line from the Oct 2011 lows (blue line) and the longer term uptrend line from the March, 2009 bottom (red line).  The technical indicators are weak but remain positive as of Fridays close.

The monthly chart remains BULLISH.


ACWI Weekly:



The ACWI weekly chart has turned bearish the past week with all technical indicators in alignment.  The steep uptrend channel from the June 2012 lows (thin blue line channel) was broken mid-Oct with a 7 week consolidation turning into a downtrend.  However, the larger uptrend channel from the Oct 2011 lows (thicker blue line channel) remains in place.

Support near 46.00 was broken last week and this week price approached the strong support zone shown on the chart at 44.07-44.99 (weeks low was 44.68).  It would be expected price would find support near current levels should this cyclical bull market continue.

The weekly chart has turned BEARISH.


ACWI Weekly Volumetric:



The weekly volumetric chart from the 2009 lows shows the areas where the highest concentration of buy and sell action (defined by volume) has occured.  Many times these zones become important support and resistance zones for future price action.

As can be seen, price is currently within a very strong volumetric zone (44.54-46.73 shown in red) as well as the various uptrend lines.  These should provide support near current levels.

However, should price break this current zone the next important zone would be in the 40.25-42.45 area (shown in dark grey).  A break of this zone and one would have to conclude the bull market from 2009 is over and a new cyclical bear market has arrived.


ACWI Daily:



The daily chart is currently bearish with all technical indicators in alignment.  Price broke the thin support zone at 46.26-46.40 on Nov 8 and is currently sitting right at the 200 day simple moving average (green line).  Very important daily support remains just below at 44.39-44.62.  A break of this zone and a much steeper correction could be expected.

The daily chart remains BEARISH.


Euro Daily:



The Euro continues to be "ground zero" and must be watched closely (due to the current positive correlation between equities and the Euro).

As can be seen, the Euro moved from it's July lows to the strong resistance zone as defined by the yellow band topped near 134.86).  Since then it has fallen to the bottom of the zone near 126.24.

A break of current support and it would be expected the Euro would again fall to 122.5-120.5 area (equity bearish).  Alternately, should Euro strength redevelop over then next few weeks taking out the top of the yellow band (as well as the current downtrend line) this would be very equity bullish.

Only the market will tell us which way it wants to go but the levels are well defined.


USD Weekly:



Along with the Euro, the USD is stuck between support (78.35-78.73) and resistance (81.01-81.63).  A weekly close above the current resistance would be equity bearish; a close below the support zone would be equity bullish.

As shown, we are currently stuck right in this upper resistance zone.

Price has broken the downtrend line and all technical indicators are bullish.  As such, it would be expected over the next week an attempt to close the week above the upper boundary of the resistance would be attempted.  A successful breakout would be equity bearish.


Bottom Line:

The long term monthly charts remain bullish with the shorter term weekly and daily charts bearish.  Corresponding charts on the Euro and USD support the idea we are at a crossroads between "the correction being over" and "further downside" should previously mentioned support/resistance levels be broken on both the equity charts as well as the currency charts.

Ideally we bounce from here.  If so, I will increase my equity exposure to 75% should the short term charts reverse to bullish.  This is a low-risk entry as a subsequent reversal downwards would minimize losses when purchased at current levels vs. near the top in Sept.

Alternately, if the current levels are breeched it must be assumed a much larger equity correction is in the ofting.  Should this occur I will continue to hold my defensive 50% equity position and look to increase exposure at much cheaper prices.

I suspect the outcome to this question will be answered in the next few weeks.  Watch close.


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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