Sunday, April 19, 2015

Market Analysis for Week of 4/20/15

The most important day for the dollar is Wednesday, April 29th.  It's GDP and Fed day.  It seems like GDP is going to disappoint and the Fed isn't going to raise rates without a press conference, so I'm thinking the dollar gets crushed and continues the correction to the lower $90s.

Dollar daily is currently holding the 50-day.

Dollar weekly has trendline support around the $95 level.

Dollar monthly has horizontal support at $92.50.  This is the level I'm hoping it gets to.  But it might take a June Fed meeting with no rate increase and a couple average job numbers to get there.  Ultimately, I'm still thinking the dollar goes way higher, more from anti-Euro sentiment than pro dollar sentiment.  If the Fed does attempt to raise rates in Sept it will only help.  In the meantime, a band-aid for Greece, a poor GDP print, and no rate increases from the Fed should continue to pressure the dollar as a natural unwind of extreme positions happens.

Gold and silver are a mess.  I have no idea.  You would think as long as the dollar is correcting lower, the metals would sustain a bid.  I'm not interested personally.

Oil too should benefit from a dollar correction.  The 200-day is currently at $69, which is also the approx area of a 38% Fib retracement of the big down move.

 Oil weekly had classic RSI divergence, which I didn't notice.  I regret not going long, but when it didn't hold new lows that was a warning sign to at least stop the short side.

 One more oil consideration.  Take a look at this China growth chart that shows it peaked in 2007, roughly correlated with the $147 top in oil, which was also the top of the Fed induced housing bubble.  We know China has created the biggest debt bubble in history, so most of that growth is unnatural and unsustainable.  Since the oil bottom in 2009, much of the rally has been fueled by Fed QE and the hopes of it fixing the economy as oil traded in an $75-$115 range.  But what if the natural demand for oil when you strip away all the debt based QE and China fuel is actually in the $40-$75 range?  Meaning, what if everything over $75 is based on the false optimism of QE working and false demand of deficit spending from both the US and China?  I'm no oil expert.  It's just something to consider.  Everyone seems to think below $75 is the aberration.  What if it's the other way around?    

Usually when you see stocks selloff like they did on Friday, it's the first of two or three waves that tend to stair step downward.  There is a trendline at 2057, but I'm leaning toward this going to the bottom of the range at 2037 where I'm looking to be a buyer.  Monday, April 27th is Apple earnings and since Apple is the entirety of the stock market, as long as they come in decent, I'm expecting stocks to bottom and make another move toward the top of the range and likely attempting the breakout. 

If you look at the consolidation in January there were three peaks before it broke out.  We just put in our third peak, so maybe the next time will be the charm.  I'm thinking there could be another range expansion on the backs of short covering and then another rollover.  Without QE there just isn't the conviction of the large players to absorb the amount of contracts they need to sustain new highs.  So what they're doing is buying the bottom of the range, selling the top, getting others short, and then they break it out and expand the range as they unload their longs to the shorts forced to cover.  Then there's not enough new buyers so it rolls back over.  I would expect this process to continue until there is some kind of catalyst one way or the other.  The bulls haven't lost control of this market for one second.  It just seems that way at times.  

The ideal scenario is the start of a breakdown below 2037 that runs into a black hole of buying that closes near the highs.  Every move from bottom to top and top to bottom of these ranges have seen pretty violent intraday swings, and if it works again, this time won't be any different with GDP and the Fed upcoming, so it's not exactly the easiest trade to sit through.  But if you want to be long you have to buy when it's hard at the bottom of the range.  Use smaller size to start.  This way if the range breaks down you take a small loss and can fire another bullet at the monthly trendline closer to 1940.  I'm thinking Apple, GDP, and the Fed will all be bullish catalysts though.  The other thing these long sideways ranges do is create room to the upper channel line.