SeattleTA provides investment managers with technical analysis of the equity, fixed-income, commodity, and currency markets. While equities are expected to take a hit this week, the big news is expected to be a trend change in the US Dollar and its effect on commodities and interest rates. The rally should be a last gasp for Dollar Bulls before the expected summer swoon. Last Gasp in the Dollar Seattle Technical Advisors The leading authority in Lindsay Market Analysis Market Update May 18, 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..
Last Gasp in the Dollar May 18, 2015 Internal Indicators VIX lost 0.48 last week to close at 12.38. The weekly Coppock is now low enough to expect an important rally in the VIX but the daily, which has turned down from overbought typically needs to fall further before making a bottom; shortterm bullish equities, longer term bearish. VXV/VIX ratio (top) is high enough to look for a top in equities now. McClellan Oscillator closed over zero but remains below +150 the key level referred to as necessary to achieve escape velocity by the McClellans. CBOE Skew index (center) is warning of a top in equities. Breadth Thrust was triggered. This is typically a sign of a bullish market for at least two weeks but doesn t rule out normal day to day volatility. Put/Call Ratio (equity-only) breached its lower Bollinger Band on Friday. The lower band often marks a high in equities (bottom). SeattleTechnicalAdvisors.com Page 1
Last Gasp in the Dollar May 18, 2015 Sentiment AAII Sentiment Survey: Optimism set a new twoyear low for the second consecutive week in the latest survey (contrarian bullish!). Neutral sentiment stayed above 45% for a sixth consecutive week, tying a 27-year record. Bullish sentiment fell 0.3 percentage points to 26.7%. This is the lowest level of optimism since April 11, 2013 (19.3%). Neutral sentiment rose 0.8 percentage points to 46.9%. Bearish sentiment fell 0.5 percentage points, to 26.4%. This is the 16th week this year where pessimism has been below its historical average of 30.0%. NAAIM Exposure Index, a weekly survey of active investment managers overall equity exposure dropped from 80.23 to 60.38 last week. SeattleTechnicalAdvisors.com Page 2
Cycles 168 trading days Since late 2012 a cycle of 168 days has done a remarkable job of successively forecasting highs in the S&P 500 index. Its forecast for a high on May 22 gives confidence to the Lindsay forecast for late May/early June top but causes me to wonder if expected top to the bull market may come a little earlier than expected. It may be that the Dow and SPX top on different dates. SeattleTechnicalAdvisors.com Page 3
US Equities Bull Market Equities were up last week; SPX +0.31%, Dow +0.45%, NASDAQ +0.89% (printing an engulfing bullish candlestick on the weekly chart), and RUT +1.29%. By Thursday SPX had closed over 2,117 the high of the consolidation pattern since early March but there has been no confirmation from BWI and the breakout was on low momentum. Equities often see a change of trend after option expiration week (last week). An ascending triangle forecasts a minimum rally to 2,194 but the price forecasting model forecasts a high at 2,171. Cycles: Short-term cycles had us expecting a low at this time but, as explained in Friday s Daily Commentary, those cycles may have inverted to become a high. With internal indicators pointing to a top last week, that would seem to be the case. However, it is still possible we get a low early this week. Coppock Curves: Daily and weekly are rising. The monthly is declining. Short-term bullish, long-term bearish. Monthly MACD is rolling over its signal line. The bearish signal is confirmed by a negative divergence in RSI. Seasonality: May (in pre-election years) experiences a big decline before stabilizing late in the month. Bradley Model shows turns on May 26 and June 9. SeattleTechnicalAdvisors.com Page 4
Europe Bull Market Correction EuroStoxx 50 erased the previous week s gain with a loss of 1.64% to close at 3,544 and printed an engulfing bearish candlestick on the weekly chart; confirmed sell-mode. The 21-dma at 3,600 continues to provide resistance A bearish head-and-shoulders pattern has been triggered which measures a minimum decline to 3,300. A bear flag will be triggered with a break of 3,520 and measures a minimum decline to below 3,300. A support zone exists at 3,275-3,400. If the expected low in DXY/high in Euro is soon to be upon us, equities should experience a bear market rally and the price targets above will be delayed. Relative performance (vs. MSCI World) has broken its 2015 bull trend as has the index itself. Cycles: Short-term cycles point to a high near May 28. Weekly cycles forecast a decline into mid-june. Coppock Curves: Daily turned up on May 8 before declining low enough to expect a bottom. Weekly is falling and the monthly is flat and not confirming the 2015 highs (negative divergence). Seasonality: May experiences a big decline before stabilizing late in the month. MSCI European Bank index (bottom) continues to do surprisingly well in both absolute and relative terms. SeattleTechnicalAdvisors.com Page 5
Japan Bull Market NKX225 rose 1.83% last week to close at 19,733 on the 21-dma and still below the Oct bull trendline and resistance from the Mar high at 19,825. BWI has turned down in non-confirmation of the advance. The daily Coppock failed to confirm the Apr high. It has not yet declined to a level where a low in NKX would be expected. The 55-dma at 19,432 has done a good job of providing support. Look for a minimum decline to the 38.2% retracement of the 2015 advance near 19,000. A break of 19,000 will trigger a head-andshoulders top which measures a minimum decline to 17,800. Cycles point to a high last Fri and another turn on May 19. Weekly cycles show a low in mid-june. Longer-term, the 2015 breakout from the pennant formation targets a minimum move to +24,000. Relative strength (vs. MSCI World) is holding its breakout to new highs implying higher highs will be seen after the correction. Coppock Curves: Daily is declining, weekly has turned down, and the monthly is rising; intermediate-term bearish. Seasonality: May experiences a big decline before stabilizing late in the month. TOPIX Banks relative performance successively tested support last week. The index has support at 229. A break would open the door for a return to 210. TOPIX Small Caps Relative performance has broken its 8mo bear trend and the index is holding above its Oct bull trendline. SeattleTechnicalAdvisors.com Page 6
Emerging Markets MSCI Emerging Markets (EEM) erased the previous week s loss with a gain of 0.65% to close at 43.15. No confirmation from BWI for the rally yet. A support zone is at 41.50-42.00. A bullish head-and-shoulders pattern measures a minimum move to 45.00. If the Dollar is set to rally, EEM will find it difficult to reach that target. Commodities (upper) have broken their 2014 bear trend on weakness in DXY. Longer term, EEM has been forming a triangle since its high in 2011. An upside breakout at 45.00 measures a move to 60. A break of the lower trendline will measure a minimum decline to 24.00. Cycles called for a low in early/mid-may. Longer term, cycles point to an important high in late June/ early July. Coppock Curves: Daily is falling, weekly is rising, and the monthly is flat. Shanghai Composite (SSEC) gained back half of the previous week s loss, +2.44%, to close at 4,309; confirmed sell-mode. 14-day RSI is below its 20-dma and 3-day RSI never made it above 80; bearish. The May 7 low at 4,112 is pivotal. A break will open the door for a return to the 55-dma at 3,896 but would not violate the bull trend. Coppock Curves: Daily is falling, weekly is rising but negatively diverging from the high in Jan., and monthly is rising but overbought; bearish. SeattleTechnicalAdvisors.com Page 7
US Treasuries, TNX TNX lost 0.42%% last week to close at 21.41 after the daily Coppock reached high enough to expect a short-term top; confirmed buy-mode (buy the dips). BWI turned down in non-confirmation of the dip. I suspect BWI will turn up with a break of the 30-dma. Look for support at the 30-dma near 20.30 or perhaps even higher at the neckline of the bullish head-and-shoulders pattern near 21.41. The pattern measures a minimum move to 27.55 but probably won t be seen until the summer swoon in DXY. The detrended oscillator is oversold warning of a bounce today or tomorrow. Cycles: A six-month cycle forecasts a high in Sept. Shorter term cycles point to a high in late May but we may have seen that high last week particularly if the Dollar begins its final rally this week. Coppock Curves: Daily turned down but the weekly is rising. The monthly has stopped falling and is oversold; long-term bullish rates. Seasonality: 10yr bond prices are flat during the first half of May until a rally begins in the second half. The yield spread between 30s and 5s printed another new high since the break of the 2014 bear trend. A widening in the spread was seen at the equity bull market highs in 2000 and 2007. SeattleTechnicalAdvisors.com Page 8
US Dollar Bull Market DXY fell 1.82% last week to close at 93.18 just slightly below support at 93.50 (too close for bulls to give up hope ). BWI is no longer confirming the decline. The daily Coppock has reached a bad oversold level which forecasts a temporary bottom but a return to these levels - or lower - in the future. A symmetrical triangle on the monthly chart measures a minimum move to 102.00 warning of higher highs after the current correction. Cycles point to a change of trend last week. Seasonality implies the next important cycle inflection point, June 17, will return to being a high. A 40wk cycle low is expected in late Sept (or later). Coppock Curves: Daily has turned up but the weekly is falling. The monthly is still rising (albeit very overbought); bearish. The expected summer decline should continue until a weekly cycle low this autumn. Seasonality: A big rally begins after the first week of May and continues into mid-june. SeattleTechnicalAdvisors.com Page 9
Euro Bear Market Euro rose 2.31% last week to close at 1.1469 and very close to our price target, 1.15. BWI is no longer rising in confirmation of the rally. The Coppock has reached a good overbought level which forecasts a correction and then a return to these highs after the correction. An ascending triangle measures a minimum rally to 1.1500 very close to the Feb high. Cycles point to a high last Fri or today followed by a low no earlier than June 4. The 61.8% retracement of the 2000 bull market has been breached (bottom) opening up the possibility for a return to the 2000 low near 0.85 after the expected summer rally. The break of the descending triangle in Dec forecasts an eventual minimum decline to 0.87. Coppock Curves: Daily is in decline but the weekly is rising. The monthly is still in decline but oversold. This looks like a good set-up for a tradable rally lasting possibly until a long-term cycle high in October. Seasonality: May is very bearish. SeattleTechnicalAdvisors.com Page 10
Japanese Yen Bear Market JY rose 0.44% to close at 83.87 last week, above the 30-dma, but printed a hanging-man candlestick on Friday. BWI turned down in nonconfirmation of the rally. Important resistance is at 84.30. A symmetrical triangle is apparent on the daily chart. A break of 83.28 will trigger a forecast for a minimum decline to 80.00. An 8-yr cycle low marks the Dec low in the Yen. However, five waves down imply that the larger trend is also down. For now, expect a multimonth upward correction once this pullback is finished. 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 turned up and the weekly is flat. The monthly is falling but setting up a positive divergence as it refuses to confirm the end of year new low; long-term bullish. Seasonality: May is historically very bearish. SeattleTechnicalAdvisors.com Page 11
Crude Oil Bear Market Rally Crude gained $0.30/bbl. last week to close at $59.69 and still above support from the Dec high at 58.80. Crude has left a double-top at the price target from the bullish head-and-shoulders pattern. The daily and weekly Coppock Curves are both high enough to expect a top in crude. The expected final rally in DXY should put downward pressure on crude. A breach of 58.80 will signal a return to the 34-dma near 56.00 at a minimum. The weekly Coppock confirmed the Jan low. Given the bad oversold nature of its decline, expect a test of the Mar low at 43.46 (at a minimum). We should eventually see crude rally to at least $67/bbl. (the minimum expected 38.2% retracement of the 2014 decline) but not before the expected June high in the Dollar. Cycles: The next lows are expected near May 25 and June 4. Coppock Curves: Daily is in decline, the weekly is rising but overbought. The monthly is still declining but oversold. Seasonality: Crude rallies for the first half of May only to give up all its gains by early June. Last week total rig count dropped 6 to 888 - the smallest decline since December 5th. SeattleTechnicalAdvisors.com Page 12
Gold Bear Market Gold gained $36.40/oz. last week to close at $1,225.50 and above the 89-dma which has been a short-term marker of trend change in the past. BWI confirms the rally but both the short-term price oscillator and the detrended oscillator are overbought. I d like to see how gold behaves after the expected pullback before getting long. Even assuming a breakout from resistance at the Dec highs at 1,230, I don t see any reason to be long gold until it can close over its 21mo moving average at 1,248 (bottom). Cycles (short-term) forecast a high last Fri. Weekly cycles point to a high in late May and monthly cycles forecast an important high in June but I can t help but wonder if the cycles will invert given expectations for a high in DXY then. Coppock Curves: Daily is flat but the weekly is declining. The monthly appears to be rolling over; bearish. A declining triangle measures a minimum move ultimately to $950. A 4yr cycle low is not due until mid-2016 keeping the long-term outlook bearish. The 2011 decline shows five waves down. Five waves down imply another big decline in the future but not before an upward correction (bear market rally). Look for that rally once DXY completes its expected rally into June. Seasonality: Gold sees a nice rally into mid-may and then drifts off for the remainder of the month. SeattleTechnicalAdvisors.com Page 13