Technical Update: 9/30/2010 - Awaiting Multi-Year Trend Confirmation
It's time for the big hedge funds and whoever controls the U.S. equity markets (Waddell Reed?) to paint the charts and confirm the multi-year market trend. Right now there are two camps. The $12 Billion+ hedge funds (Tepper, Paulson) who are bullish on every asset except for bonds and hedged with a rolling prescription by Dr. Bernanke via 24/7 Fedgreens Pharmacy. Or the deflationists who believe the Fed will fail at stimulating the economy, we're in a new market structure, P/Es are going to single digits and debt deflation from the 30-year securitized credit bubble² will persist in real terms.
If you look at the weekly charts, $QQQQ (Nasdaq) and $IWM (small cap stocks) have been leading the market. Look at the spread between QQQQ and its 200 week moving average. IWM is also trading above its 50 and 200 week moving averages, however, SPY and DIA are still under 200 week resistance in a symmetrical triangle. It will be interesting to see how the "beta" gaps close (SPY->QQQQ or QQQQ->SPY). I say watch tech closely. Mainly $AAPL, $SWKS (Skyworks Solutions) and $NFLX. Also look at the Copper ETN $JJC. The chart looks similar to the Nasdaq and could be setting up for a breakout. Is the action in copper part of the China and emerging markets trade? Or are we about to experience round two of global reflation via QE2 by the Fed.
I posted earlier this month that GLD, SLV and SPY (> the 200 day moving average and capped around resistance) looked like decent trades. The ETFs worked out alright this month. Since 9/2/2010, GLD and SLV are up 4.7% and 10.5% respectively and SPY is up around 2% from the 200 day moving average breakout.
As we move into Q4, I'm thinking we'll see a correction at some point and quite possibly volatility. I'd rather wait for confirmed multi-year direction as we move into October and November. I also think there will be interesting set-ups for trend breaks/reversals in either bonds (high yield or Treasuries), overextended equities, precious metals or overextended commodities.
Regarding equities though, UUP (US Dollar ETF) and SPY (S&P ETF) have been inversely correlated since the beginning of the month. So if King Dollar decides to retest the December 2009 low, the market rally could continue and quite possibly break major technical levels. Maybe the next official SPY breakout will occur when $USD officially breaks the December low. Thoughts?
Below I blessed you with mutli-year weekly charts of QQQQ, SPY, DIA, IWM, JJC, AAPL, SWKS, NFLX, the 1-month performance of GLD/SLV/SPY and UUP/SPY inverse relationship.
Charts courtesy of FreeStockCharts.com