Sunday, January 4, 2015

Market Analysis for Week of 1/4/15

I hope everyone enjoyed their holiday.  Let's start with the dollar monthly.  While I still think we're headed for the 99 handle, there is an upcoming point of resistance at $92.60 that could lead to a profit taking pullback.  If you look at how the dollar trended up in the late 90's, it's rare to see 7 months straight up.  This also corresponds to an upcoming support level in the Euro.

Here's the dollar daily.  I'm not personally interested in stepping in front of this train to short it unless it creates the perfect scenario where it establishes a high and then retests it and gets rejected nearly to the penny.  Sometimes that happens intraday and if you happen to be sitting there watching it, you can literally have like two ticks of risk for a shot at the pullback.  That's the only way I'd do it.  The uptrendline, which was the bottom of the Fed day pullback, is a buy until it gets taken out.

Here's the Euro futures weekly.  It looks like it has its eyes on the 1.1880 horizontal support. Also take a look at the EUR/USD monthly.  The risk/reward for staying short diminishes as we approach those levels.  The next Draghi day isn't until the 22nd.   Ideally, it would be nice to see a dollar and Euro push into their levels for NFP, pullback for a few weeks, and then return to trend resumption on Draghi Day.  But he's a very disappointing man, so we'll see what he comes up with.

USD/JPY monthly.  Not sure if it can make it to the 124 handle if the dollar index respects the resistance line at $92.60, but this too could align altogether.  Just something to be aware of.  It would be nice to see a cup and handle form here.  Japan has no shot of avoiding inevitable default, so I can't see how their QE ever ends until the Yen is worthless.

The ES popped right back to the upper channel line from yet another VIX crush into Dec expiration.   I decided to trail a stop under the 20 period EMA on the 4-hour chart and got knocked out as a victim of The Law of Trailing Stops: when you take profits, you should have trailed a stop, and when you trail a stop, you should have taken profits.

I'd like to see how it acts this week before getting involved again for more than a day trade.  Every time the ES has taken out a swing low for the past couple years it has rather quickly made a new high.  Until we see a swing low get taken out and then fail to make a new high, I'm not interested in the short side.  I'd rather just wait for support.  The first spot to watch is the 2014/20 area of old highs and uptrendline from Oct lows.  Below that is the weekly trendline at 1990.  

NQ monthly.  There's room to pullback quite a ways and still be extremely bullish.  I don't see any reason for dire concern of a final top yet.  Is the oil meltdown problematic?  Yes it is.  But that could take months for real world effects to kick in.  There's all kinds of other reasons that could happen first, but until one of them does, it ain't ovah.  Yet.

 Nasdaq Composite monthly.  Dot-Com bubble highs.  Why not?

NQ daily.  It held the 50-day on Friday but not convincingly.  I'm waiting to see if we test the old highs again around 4100.  

Gold is doing its triangle thang.  I'm thinking it breaks down, but I am noting the extended dollar and the possible need for a pullback.  I will short the downtrend line but that spot is an inflection point.  If it closes to the upside, I will likely look to go long for a short-term trade.  I'm currently expecting that downtrend line to hold, but the market tells me what to do, not the other way around.  Note the two previous lower highs at $1255 and $1240.  Gold usually respects its trendlines, but it could maintain that structure by putting in another lower high in the $1220s and remain bearish, but it should close beneath the trendline if that happens.  I'm also looking at the 1200 area where the 50-day EMA is for a possible rejection short.

Same thing for silver.  Any move up to the downtrend line is a gift until proven otherwise.  This looks more like a bottom than gold, but it ain't acting like one.  If the metals break down it will get ugly fast.  $13.10 silver is my next target.  Like gold, if it happens to breakout of that downtrend line for whatever reason, I will look to go long.  I just don't think I'll have to do that.

Oil monthly.  I would be surprised if oil doesn't bounce at the monthly uptrendline around $47.70, possibly as high as $68-$70, but I would think the Commercials will be eager to lock in prices, and the longs currently have the fear of God in them, so it seems more likely we'll see a return trip back down in the months ahead.  And if it fails on the return trip, all hell breaks loose in that industry, which may finally affect equities.

Oil daily.

Bonds weekly.  I had the right idea for bonds in 2014 but I didn't trade them much.  I should remedy that.  I would think the short end would come up in yield until the Fed realizes it has to back off from its tightening fantasy, but the long end should continue pricing in the depression we're headed for and headed higher in price.  Maybe we get some short-term positive data that causes the long end to pullback to its uptrendline, but I'm thinking they grind up to the downtrendline off the highs and eventually resolve this giant triangle to the upside.

I don't really trade the Russell, but check out the weekly TF.  If this consolidates along the highs and holds its uptrendline and breaks out, watch out upside in equities.  At the moment, though, it's a failed breakout, so time will tell, but it's worth noting.

I updated the VIX chart, using the index this time.  The vertical red lines are monthly expirations.  Eventually, there will be news driven price action that overrides this, but if it's working, it's working.

Draghi Day is Thurs Jan 22nd
Fed Day is Wed Jan 28th
Options expiration is Fri Jan 16th