SeattleTA provides investment managers with technical analysis of the equity, fixed-income, commodity, and currency markets. A cycle low is expected in emerging markets this week and is confirmed by a positive divergence in the daily Coppock Curve. Longer term however, things don t look too good for emerging markets. As noted previously, the Dollar still has strong upside potential despite what might happen in the near-term. Remember, a soaring U.S. currency triggered debt defaults in Latin America in the 1980s. A decade later, the dollar s appreciation forced Asian countries to drop their peg to the greenback, and threw the region into a crisis. Submerging Markets Seattle Technical Advisors The leading authority in Lindsay Market Analysis Market Update August 3, 2015 Ed Carlson, CMT ed@seattletechnicaladvisors.com Seattle Technical Advisors website, PO Box 2415, North Bend, WA 98045, is published as an informational service for subscribers, and it includes opinions as to buying, selling, and holding various securities. However, the publishers of Seattle Technical Advisors are not investment advisers and do not provide investment advice or recommendations directed to any particular subscriber or in view of the particular circumstances of any particular person. ANY REDISTRIBUTION of Seattle Technical Advisors Market Update without the written consent of the publishers of Seattle Technical Advisors is PROHIBITED. Legitimate news media may quote representative passages, in context and with full attribution, for the purpose of reporting on our opinions. Copying and/or electronic transmission of the Seattle Technical Advisors website or content is a violation of international copyright law. Information provided by Seattle Technical Advisors is expressed in good faith but is not guaranteed..
Internal Indicators McClellan Oscillator, on Monday, closed below both -150 and its lower Bollinger Band lending confidence to the Lindsay forecast for a low on that day. By Friday it was back in bullish territory above zero (top). New 52wk Lows (bottom) touched 480 at last Monday s low. This level has been exceeded only once in the last year. VIX gave up 1.62 last week to close at 12.12 and printed an engulfing bearish candlestick on the weekly chart (bullish equities). The VIX has a seasonal tendency to rally from July to October. Sentimentrader.com reports that mutual funds are now holding the lowest amount of cash reserves in history; very bearish. SeattleTechnicalAdvisors.com Page 1
Submerging Markets August 3, 2015 Sentiment AAII Sentiment Survey: Pessimism surged to its highest level in nearly two years in the latest AAII Sentiment Survey. Optimism plunged, while neutral sentiment fell below 40% for the first time since April. Bullish sentiment plunged by 11.4 percentage points to 21.1%. The drop puts optimism at a seven-week low. Neutral sentiment fell 3.7 percentage points to 38.2%. This is the first time neutral sentiment has been below 40% since April 2, 2015 (32.6%), ending a record 16-week streak Bearish sentiment (top) spiked 15.1 percentage points to 40.7%. The historical average is 30.0%. NAAIM Exposure Index, a weekly survey of active investment managers overall equity exposure, from 52.34 to 50.75 last week. Bottom Line: There is so much bearishness in the market today that we could see some (not all!) indices move to new highs. SeattleTechnicalAdvisors.com Page 2
Hybrid Lindsay Originally published in the July 6 Market Update Hybrid Low July 24-31 Middle Sections The high of a flattened top on 2/1/07 counts 1,551 days to the high of the Basic Cycle on 5/2/11. 1,551 days later is 7/31/15. The high of a flattened top on 12/29/99 counts 2,843 days to the high of the Multiple Cycle on 10/11/07. 2,843 days later is 7/24/15. Intervals The breakdown from a flattened top on 3/6/14 counts 74 days to the high of the bull market on 5/19/15. 73 days later is Friday, 7/31/15. A Mirror Image count of 69 days extends from the low on 3/11/15 to the high of 5/19/15 to a possible low on 7/27/15. A 222-day interval counts 223 days from the 12/16/14 low to Monday, 7/27/14. Follow up The forecast for a low during the period July 24-31 was unusually wide but a mirror image count as well as a 222-day interval pointed to a low on 7/27/15 and that was the actual low of the selloff from July 16. SeattleTechnicalAdvisors.com Page 3
Hybrid Lindsay Hybrid High August 12-19 Middle Sections The low on 11/26/07 counts 1,408 days to the low of the Basic Cycle on 10/4/11. 1,408 days later is 8/12/15. Point E of a descending Middle Section on 9/26/02 counts 2,353 days to the low of the Multiple Cycle on 3/6/09. 2,352 days later is Friday, 8/14/15. Cycles The next micro-cycle points to a turn in the period Aug 10-13 depending on whether it runs short or long. Intervals 222-day intervals converge on August 17, 18. This fact, combined with 107-day interval (102-112 days) points to a high in the period August 17-26 makes me think that the high may come a few days later than the Middle Section forecasts but still within the normal margin of error. Look for the next tradable high late in the week of August 10 or early in the week of August 17. SeattleTechnicalAdvisors.com Page 4
US Equities Bear Market Equities were up last week; SPX +1.16%, Dow +0.69%, NASDAQ +0.78%, and RUT +1.03%. Both SPX and the Dow printed engulfing bearish candlesticks on Friday so today could see some selling pressure. There is no confirmation for the rally from BWI yet and 3-day RSI is below 80; bearish. Relative performance (vs. MSCI World) appears to be forming a bearish flag pattern (bottom). For those forced to be fully invested, the US is not the place to be. A break of 2,040 will open the door for a fall to support at 1,977-2,014. The price forecasting model generates a target of 2,010. Coppock Curves: Daily, weekly, and monthly are all declining; very bearish. Seasonality: Early August follows through on late July weakness but spends most of the month advancing. Bradley Model shows a turn near Sept 23, 2015. SeattleTechnicalAdvisors.com Page 5
Europe Bear Market EuroStoxx 50 collapsed on Monday then rallied from the 144-dma for a loss of only 0.03% to close at 3,598 and printed a hammer candlestick on the weekly chart (bullish). The daily chart is starting to look like a bear flag pattern. A decline below the 144-dma at 3,525 would confirm it and forecast a return to support at 3,280. However, equities normally require a negative divergence in the Coppock before printing a tradable high. Watch for a lower high in the oscillator if the index challenges the July high at 3,689. If the Dollar is to reach a higher high, a decline in the Euro will open a path for European equities to climb to higher highs. Cycles point to a short-term low near August 7-10 but the larger weekly cycle indicates that equities are in a decline until the end of August. Coppock Curves: Daily has turned down from being overbought but the weekly is turning up from oversold (!?!). The monthly is rising but failed to confirm this year s new high. Seasonality: August is weak all month. SeattleTechnicalAdvisors.com Page 6
Japan Bull Market NKX225 found support at the convergence of the 21 and 55-dma and gained 0.20% last week to close at 20,585. 3-day RSI remained above 20 during the previous week s correction keeping the outlook bullish. On the weekly chart (top) neither MACD nor the Coppock Curve is confirming the new high in equities; bearish. Resistance surrounding 21,000 is expected. Long-term, the 2015 breakout from the pennant formation (bottom) targets a minimum move to +24,000. Cycles Look for a high early this week. Coppock Curves: Daily is rising but the weekly is declining. The monthly is rising but failed to confirm the June high; bearish. Seasonality: Early August follows through on late July weakness but spends most of the month advancing. SeattleTechnicalAdvisors.com Page 7
Emerging Markets MSCI Emerging Markets (EEM) gained 0.16% to close at 37.12 after testing lower lows (36.27). BWI is not confirming the turnaround but a rally all the way to 39.32 or even 40.25 would not threaten the bear market. Last week s low has been a common level to see a low in EEM. A cycle low is expected in emerging markets this week and is confirmed by a positive divergence in the daily Coppock Curve. Longer term however, things don t look too good for emerging markets. The Dollar still has strong upside potential despite what might happen in the near-term. Remember, a soaring U.S. currency triggered debt defaults in Latin America in the 1980s. A decade later, the dollar s appreciation forced Asian countries to drop their peg to the greenback, throwing the region into a crisis. A symmetrical triangle forecasts a minimum decline to 24.00. Short-term, look for first support at the July 8 low near 36.78 but the price forecasting model calls for a decline to 30.50. Cycles forecast a low near Aug. 5 followed by a rally until Aug 18. Coppock Curves: Daily is falling but not confirming last week s low, the weekly is falling but oversold, and the monthly is declining; inter-term bullish. Shanghai Composite (SSEC) fell 10.00% to close at 3,664 after being turned back by the 38.2% retracement of the June decline. A rally all the way to the 200-dma at the 61.8% retracement of the June decline (4,500) is very possible and would not threaten the bull market correction. Coppock Curves: Daily and weekly are falling. The monthly is rising but overbought; bearish. SeattleTechnicalAdvisors.com Page 8
US Treasuries, TNX TNX fell for the third week in a row with a loss of 2.91% to close at 22.05. TNX is back at the July low after being turned back by the 30- dma. BWI confirms the decline. TNX is still above its 200-dma and a bullish head-and-shoulders (top) pattern measures a minimum rally to 27.50. But if TNX remains in the 2015 trend channel, it will reach its target no sooner than October (which coincides with the crossing of trendlines in the lower chart). Cycles forecast an important low last week followed by a rally into a high in Sept/Oct. Coppock Curves: Daily and weekly are falling. The monthly is rising from an oversold level; short-term bearish, long term bullish rates. Seasonality: 10yr bond prices are bullish May- February. SeattleTechnicalAdvisors.com Page 9
US Dollar Bull Market DXY rose 0.10% to close at 97.44 on the neckline after testing the 34-dma on Friday. Resistance is near 97.95. The correction from the March high is playing out longer and in a more complex manner than originally anticipated (bottom) but a new high is expected given the lack of divergence seen at the wave 3 high in March (top). A cup-and-handle pattern measures a minimum rally to 101.00. A symmetrical triangle on the monthly chart measures a minimum move to 102.00 which is the 61.8% retracement of the 2002 bear market. 102.00 is also a 127.2% retracement of the Apr/May decline. Cycles: A 40wk cycle low is due in September. Coppock Curves: Daily has rolled over but the weekly and monthly are both rising. Seasonality: The first half of August is very bullish but is followed by a pullback later in the month. SeattleTechnicalAdvisors.com Page 10
Euro Bear Market Euro gave up 0.16% last week to close at 1.0971 and still within the engulfing bearish candlestick of two weeks ago. The Euro remains below the 144-dma at 1.1121 although it was tested on Friday. During the previous week, the Euro bounced from the 61.8% retracement of the March rally until being turned back by the 144-dma last week. A close above 1.1121 or below 1.0847 will be considered a breakout. Remain neutral until then. The 61.8% retracement of the 2000 bull market has been breached opening up the possibility for a return to the 2000 low near 0.85. The break of the descending triangle in Dec forecasts an eventual minimum decline to 0.87. Coppock Curves: Daily turned up but the weekly is rolling over. The monthly is still in decline but deeply oversold. Seasonality: Early August is very bearish but is followed by a rally later in the month. SeattleTechnicalAdvisors.com Page 11
Japanese Yen Bear Market JY lost 0.22% last week to close at 80.67 and remains below the 30-dma at 81.15 keeping the outlook bearish. BWI confirms the decline. Support is expected at the July low near 80.37 and then the June low at 79.45. Expectations for higher US interest rates (bottom/upper) correlate with a lower Yen and final leg up in the US Dollar into this autumn. JY is expected to get a big bear market rally but not before the Dollar s final leg up is complete. An 8-yr cycle low is due in 2015. An upward reaction should play out this summer followed by a decline to a new and final low next spring. Long-term, expect a minimum decline for the Yen to 66.00; the next important low is not due until springtime 2016. Coppock Curves; Daily and weekly are in decline. The monthly is falling but setting up a positive divergence as it refuses to confirm the new low. Seasonality: August is very bullish. SeattleTechnicalAdvisors.com Page 12
Crude Oil Bear Market Crude fell for the fifth week in a row for a loss of $1.02 and closed at $47.12. BWI is falling which indicates the decline is long-inthe-tooth. Positive divergences in RSI - as well as the daily Coppock - and a record low in sentiment all combine to make me think crude is at a low. However, if the 78.6% retracement of the March rally is breached (46.30) then all bets are off and the door is open for a decline to the March low at 42.00. I have been expecting higher highs once the Dollar rally is finished. This summer/fall should see crude rally to at least $67/bbl. (the minimum expected 38.2% retracement of the 2014 decline). Cycles: It looks as if the cycle high expected now is going to be a low. Coppock Curves: Daily is rising but the weekly and monthly are both declining; bearish. Seasonality: August is normally bullish. SeattleTechnicalAdvisors.com Page 13
Gold Bear Market Gold rose $9.30/oz. last week to close at $1,094.90 after fulfilling the symmetrical triangle target during the previous week. 14-day RSI is still below its own 20-dma and price action is more sideways than up. The Coppock is low enough to expect a bottom and MACD is oversold as well. Seasonally gold makes an important low in June/July. The previous week s record low in sentiment may require a positive divergence (higher low in sentiment/ lower low in gold) prior to a tradable rally. I would wait for resistance at 1,138 to be exceeded before getting too excited about a long position. A second, later triangle forecasts a decline to 1,000 (top) but it doesn t have to happen immediately. A 4yr cycle low is not due until the first half of 2016 keeping the long-term outlook bearish (bottom). Cycles point to a rally for all of August with the first leg of the rally to end near Aug 7. Coppock Curves: Daily is trying to turn up from oversold but the weekly and monthly are falling; bearish. Seasonality: August is very bullish. SeattleTechnicalAdvisors.com Page 14