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Re: Sliding Market - Technical Perspective:
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Wednesday, November 10, 2010 10:41:18 AM
- Technical Perspective:
BULLISH PERCENT INDEX CHART:
The Bullish Percent Index charts below (each representing its own index level of buyer sentiment) reveal that the market remains powered by buyers pressuring the stock market (higher risk, higher paying premiums) upwards. However, one might also note that Bullish Percent Index (BPI) seems to have topped as they are revisiting the 80's level. Is this signaling the end of risk-seeking market? I believe that it is, especially as it seems to synchronize with a US Dollar technical low, from which a rally is becoming very probable.
For instance, taken from a technical vantage point, the bullish percentage lines for each of their respective indices seem to have lost momentum. Although the chart indicates that the market remains characterized by a strong buying bias, I would soon watch for the Bullish Percentage line to start migrating southwards, especially if the 80-line continues to become a slippery level. When and if these Bullish Percent indices fail the 80-level, I would expect some added deterioration in their respective market indices at a pace that should synchronize with the BPI level. What I mean here is that further breakdown should accelerate the lower BPI resides on its 80 to 40 transitional range, although confirmation of market sentimental reversal (i.e.: from a predominantly buyer-controlled to predominantly seller-control conversion) should still occur at the 50-level.
RISK FLOW MAP:
Given a closed monetary and valuation system, one can assume that two indices (one representing the US Dollar Index, while the other representing the "entire world" index minus the US Dollar index) can be compared to add further insight in this concept of risk flow. Put simply, the US Dollar index should rally when its counter index ("rest of the world index", here $MSWORLD ex USD) declines. Pushing one step further, any technical rules still apply for either on of these indices. One last step further should allow one to assume that this inverse relation of rallies and decline occurs in a closed system, wherein cash put in one devalues the other, and vice-versa.
Hence, the "Risk Flow Map" chart, which I have used in broad, general purposes when looking into risk aversion (i.e.: seeking safety in the safe-heaven dollar would cause a rally in this currency, vs. a risk-appetized market, seeking positions that would cause the USD to decline, and likely cause the "rest of the world index" (i.e.: MSWORLD ex US Dollar) to rise.
So, a close look at the chart indicates that the US Dollar has inversely evolved against the antipodal index, but also that the current level of the US Dollar Index corresponds to a significant technical support. I am taking the liberty to loosely interpret this observation as a return to risk aversion.
On a more focused level, the SPX seems to respond well to this assumption that:
1 - World markets are still not convinced of a global recovery
2 - The US domestic economy has not bloomed into any convincing level of recovery
3 - Technically, the SPX remains unable to rally over its significant 61.8% Fib level (corresponding to resistance around $1,228.74)
Internal weakness within the SPX can also be noticed in its two smaller elements: $SML and $MID, charted below as well.
Overall, the technical picture favors a US Dollar rally, the strength of which remains uncertain. However, the charts I have on my SC.com public list do favor a rally in the $USD, UUP and a significant resistance in $XAU and $GOLD,
for the moment
. This technical convergence may suggest that a momentum in favor of the US dollar may be simmering. Time will tell.
BULLISH PERCENT CHART:
RISK FLOW CHART:
$SML CHART: Weekly and Monthly Views
$MID CHART: Weekly and Monthly Views
$USD - 10-Year, MONTHLY Chart:
$USD - 36-Mo., WEEKLY Chart:
$USD ETF Bull - PowerShares DB US Dollar Index Bullish Fund (UUP)
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