ChartWatchers

Bearish Weekly Key Reversals for US and World Indices

Last week's trade was rather bearish from a technical perspective, for many of the US and world indices forged "bearish weekly key reversals" to the downside. To us, this suggests that a larger correction is underway - perhaps -10%...but perhaps a greater percentage. For now, one can only say that a correction is warranted; it appears here - the question is only one of depth.

Transports 1-24-14

To this end, we are focused upon the Dow Jones Transportation Average ($TRAN), for it was a leader for the rally higher. Quite simply, longer-term trendline resistance connecting the 1998-2007 highs has been tested, and a bearish weekly key reversal lower has formed. Moreover, the 20-week full stochastic has turned lower from overbought levels, which supports further weakness. In terms of next-level weekly support, we have to drop all the way back to the January-2013 breakout point above the previous highs at 5500 - as well as the 180-week moving average. A return to this level would imply a rough -27% decline...which would classify as a clear bear market. A signal this scenario is underway would be a breakdown of trendline support at roughly 6500.

Hence, there is risk in being long at the present time - and rarely does one have the benefit of weekly key reversals to the downside to manage one's risk. Be prepared.

Good luck and good trading,
Richard Rhodes

Major Breakout on Hold

Friday's US Employment Situation Report was much less-than-expected at +87k. Many believe this to be an aberration given recent strong employment data, but the aberration may be a longer-than-expected aberration given 10-year note yield may be telling us that a "soft patch" is directly ahead.

10-yr note 1-11-14

Quite simply, let us preference this with the fact that 10-year note yields have indeed broken out above long-term 200-week moving average, which tells us yields are going higher over the longer-term. However, major trendline resistance is once again starting to prove its merit, with distance above the 200-week moving average having traded into overbought levels at the +20% level. In the past, this distance has been "as good as it gets" for yields, and a decline develops thereafter.

Our downside target is obviously the bottoming 200-week moving average currently trading at the 2.47% level. But make no mistake, we are only looking for yields to correct and then begin to trade at much higher levels.

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Good luck and good trading,
Richard

US Dollar Bear Market

In the fundamental economic forum, the balance of economic data has been "positive" as of late with the exception of the housing market. And this data has engendered a belief that the Fed shall begin to
pullback on its bond-buying campaign - which shall simply be US Dollar positive. We don't believe so, for what is now being called the first world "synchronous expansion" since 2007 suggests that the relative nature of trading equities puts the European and Asian markets in a position to "out perform" in the years ahead. Hence, money shall leave the US for riskier markets if the viewpoint holds up.

Usd 12-7-13


And to this point, the technical environment for the US Dollar remains "bearish" given the break of trendline support as well as both the 180-day and 420-day moving averages. Of particular concern for US Dollar bulls is that prices failed at this latter juncture just recently, with a number of individual currencies consolidating their recent gains, and now appearing as of yesterday to be "lifting off." Attention is to be paid.

If this shall be bullish of currencies, then the New Zealand Dollar is our choice. But if one is looking towards equities, then we'll look at the Energy and Materials groups.

Good luck and good trading,
Richard

Buy Japan, Sell US

With the equity markets hitting all-time highs in many cases, we think it prudent to look around the world and determine if there are any better risk-reward countries into which one can invest or park money for the long-term. To this end, we believe that the multi-decade decline of Japan's NIKKEI versus the US's SPX has come to an end, and a multi-year bull market has begun.

Nikkei-spx 11-23-13

Our reasoning is technically simple: a bullish wedge breakout has occurred in tandem with a breakout of the long-term 170-week moving average. Moreover, this breakout is consolidating in sideways fashion - which we deem to be bullish. And over time, we expect the NIKKEI to outperform SPX by roughly +50% as the ratio above moves from 8.5 to resistance at 15.

Now, this isn't a short to move to be sure, but one that has merit over many years. Adjust accordingly. And may everyone enjoy as Happy Thanksgiving!

Good luck and good trading,
Richard

Head and Shoulders for Light Crude

For the past 9-weeks, Crude Oil has weakened from $112/barrel to below $95/barrel. This is a rather sharp drop indeed, but the fact of the matter is that the fundamentals are bearish Crude Oil, and so is the techncial state of prices. Moreover, the technicals could very well become much worse upon further weakness in the weeks/months ahead.

Wtic 11-3-13

Quite simply, the 300-week moving average serves as a mean reversion target for prices, and in the past 5-years it has held more than 10-different times dependent upon what one would call a test or not. Regardless, this level is a very important support level - currently at $87.95, and it becomes more so given the proximity of the "head & shoulders" neckline crossing through the $85-to-$86 zone dependent upon the width of one's pencil. If these levels are violated, then a likely acceleration to lower levels becomes a high probability, with a low forecasted within the $55-to-$60 zone.
 
Therefore, at a minimum - a test of the 300-week moving average is likely given the seasonally weak period for Crude Oil is September through December, with the 20-week stochastic confirming further weakness...not to mention it is far from oversold levels. Hence, we are sellers of Crude Oil on rallies.

Loss of Faith in the US Dollar

The US Congress came through at the 11th hour once again as many expected they would in opening the government and raising the debt ceiling, but only for a short while really. However, the decision to "kick the can down the road" is causing the US Dollar to experience a great deal of "indigestion." Our premise is that the current US government dysfunction is bearish for the USD from a fundamental point-of-view; and it is also backed up from a technical point-of-view.

Usd 10-19-13

Technically speaking, the trend has turned bearish this summer when the USD broke below the 180-day moving average fulcrum point between bull and bear markets, and it has broken trendline support off the 2011 low. Thus, one should be sellers of the USD on rallies. However, the real "fireworks" if you will shall begin once the 78-to-79 zone is breached, for it has provided support to the USD since the beginning of 2012. A break of this zone would target the lows at 73-to-74, and perhaps even lower.

Our choice for shorting the USD is a long Swiss Franc position, for it has broken out of a longer-term "head & shoulders" bottom, and should lead all the currencies higher...including the Japanese yen. This is the price of continued government dysfunction...a loss of faith in the currency.

Good luck and good trading,
Richard

Lower Interest Rates May Prove to be Headwind for US Dollar

The capital market starting to trend once again. The 10-year note yield has risen rather swiftly in recent months, which has caused both the stock market and the US dollar to trade in a sideways movement. In each case, we believe it to be a distribution phase that will lead to lower prices in the months ahead. If we had a crystal ball, then we would simply note that the 10-year note yield risk-reward profile is setting up towards lower rates given the upside "head & shoulders" bottom target is on the verge of being achieved. This may not happen immediately, as a period of distribution may set it. But the fact of the matter is that lower interest rates will be fundamental headwind for the US dollar.

Rhodes-2

Quite simply, the USD technical picture is one of breaking down. After a new highs was forged in early-July, sharp weakness has ensued, with the 180-day moving average "fulcrum point" having been violated once again. Now, this violation isn't yet material, but given rising bull market trendline support is on the verge of being violated as well - then the prospect for lower prices is growing quite rapidly. We would view a breakdown below the 80.55 previous low as sufficient to "call a high", and then look for a test of the April-July 2011 lows around the 73-level. If we are to trade individual currenices, then we would look to be long the Swiss Franc.

Good luck and good trading,
Richard

New All-Time Highs for NASDAQ Composite coming?

The NASDAQ Composite is a "forgotten index", as it led the tech bubble higher into the 2000 high. Now, it is the NASDAQ 100 that garners all the attention given it consists mainly of Apple (AAPL) and Google (GOOG). But that aside, the Composite is on a bullish run that looks to hit new highs in the years ahead as the long-term bullish triangle breakout remains in force. However, in the interim - a rather sharp and nasty correction is anticipated.

Nasdaq 7-20-13

Technically speaking, prices have now rallied again into long-term trendline resistance connecting the 1990 and 1992 lows, and as in previous cases - a decline is expected to occur. Also, note that post-bubble price behavior has faltered from trendline resistance in tandem with the 14-month RSI hitting the overbought 70-level. Thus, the risk-reward is skewed towards the downside, with a test of the longer-term 35-month moving average expected.

Lastly, the depth of the correction can be up to -20% given current price levels and the rising 35-month moving average. But in reality, it will likely be something less than this, but otherwise a very good downside trade...which hasn't occurred in quite some time. Now, if the 35-month moving average is violated, then we would understand that a decline far greater than -20% were underway, and a clear bear market. We don't anticipate this at this time, for the evidence isn't there to support it, but it does have a place in the probability distribution curve.

Good luck and good trading,
Richard

British Pound and Euro Poised for Sharp Decline

This past week, the monetary policy world shook once again as the Bank of England and the European Central Bank provided the markets with "dovish" comments regarding leaving o/n funding rates low "for an extended period of time." This was clearly reminiscent of the Fed's proclamation some years ago; and served to buttress a move into risk assets. Whether or not this is the case this time is up for debate, and will be known in the fullness of time.

Euro 7-5-13

However, what we do believe to be true is that the British Pound Sterling and Euro are embarking upon declines that will carry them very sharply lower. In particular, our focus is upon the Euro chart, and the fact that a larger bearish consolidation was confirmed in February, with prices simply consolidating since then. But, the fact of the matter is that during this time, a right shoulder of a bearish "head & shoulders" top pattern has formed, of which neckline support is on the verge of being given. We believe the odds are rather good for such a decline given the 40-day stochastic is just now turning lower from less than overbought levels.

The downside target measurement is 1.2000...a full 8 "big figures" from current levels. However, let us forewarn our readers, a move to this level would cause significant long-term technical damage on the monthly chart (not shown). Quite simply, this would break the neckline of a 10-year "head & shoulders" top pattern, which would then target the 2001-2002 lows near .9000.

In any case, the bottom line is that it is proper to be sellers of Euros at current levels - now and into the future as both the fundamentals and technicals are lining up in proper order.

Good luck and good trading,
Richard

US Dollar Bear Market

The US Dollar has declined rather sharply over the past 2-weeks, which given the scope of the decline - has likely pushed it into a bear market. The reasons for this could be myriad; or simply that the Fed will continue upon the bond-buying campaign far longer than the consensus believes. Now, this doesn't mean they will not taper, but perhaps the new Fed Chairman will extend this campaign through 2014...which means that the market is pricing the appointment of Vice Chair Yellen as the Fed Chairwoman.

Usd 6-15-13

Regardless, the technical picture is breaking down. The decline has violated the flattening 180-day moving average, which in the past has led on balance to more significant declines. Moreover, the 40-day stochastic has turned lower in negative divergence with prices. This posits a continuation of the current weakness, with major support at 79 the short-term target. Longer-term, one can expect a test of the lows at 73 to materialize soon and perhaps faster than anyone anticipates.

Therefore, sell USD rallies. Our favorite currency to the upside...the Swiss Franc.

Good luck and good trading,
Richard

The "Great Rotation" Has Begun

The Great Rotation is in its early stages. For those initiated to this concept, it is simply that rising interest rates will cause asset allocators to sell bonds and buy stocks. And we shall posit that it shall become more pronounced in the weeks and months ahead as interest rates are on the verge of rising faster than many believe at this point.

Technically speaking, this is due to the 10-year note yield developing weekly "head & shoulders" bottom forming on the weekly chart. We'll mention that a bullish monthly key reversal to the upside is also forming, but the basis of this sharp move lies in the confirmation of the "head & shoulders" bottom on a close above 2.03%...a mere 8 basis points higher. Further, the volatile manner in which the 10-year note is trading would suggest it could happen next week, which would then target the 2.90% level...last seen in July-2011.

Tnx 5-18-13

So, although the S&P 500 and other indices may be overbought in the short-term, then can remain so for quite some period of time. And we are correct in our 10-year note yield assessment, then our target of the S&P 500 is 2000...and that is not a typo.

Good luck and good trading,
Richard

Oil Service About to Play "Catch-Up"

The current S&P 500 rally to new all-time highs may very well be the beginning of a "bubble-like" move to much higher levels in the weeks and months ahead. However, make no mistake, there is a great deal of risk in being long many stocks at this juncture, but there are sectors/industries that haven't participated...and very well may be ready to do so given the trading patterns of the past two weeks.One such sector and/or industry is the energy sector (XLE), and in particular the oil service group (OIH).

OIH-SPY 5-4-13

Technically speaking, when we look at the relative OIH/SPY ratio, we find it at levels extant during 2012 and 2008, and we find the overall pattern a bullish multi-year wedge. Moreover, the longer-term 40-week stochastic is at oversold levels, which in the past have allowed for OIH to rally relative to SPY. Currently, prices stand at .27, but we look for a move towards the .42 level that in the past has proven to be major resistance.

Hence, if one needs or wants to be long in the current market environment, then OIH and its component stocks are the place to be.

Good luck and good trading,
Richard

Sharp Correction Ahead for Crude Oil?

Our attention has turned to the crude oil market, where a rather large "head & shoulders" top pattern is in development. The focus is upon how prices challenge and hold the 300-week moving average, and if not...whether neckline support is violated. A breakdown of these levels would lead to a virtual free-fall in prices towards the $51 target level.

Crude 4-20-13

Of course we are ones to wonder what the world economy and the world's stock markets would look like under such a scenario. If past is prelude, then we should expect a rather nasty correction...and it very well may be quick and sharp. Aware is prepared.

Good luck and good trading,
Richard

Made in Manhattan

April has not thus far been very kind to the economic bulls. The various world and US PMI reports have been "less-than-anticipated", while employment is showing weaker-than-expected figures via the weekly jobless claims, ADP private payroll and non-farm payrolls. This economic deceleration is simply part and parcel of the lagged effects of the payroll tax and the sequester. Moreover, this weakness has pushed down  10-year yields down to 1.69% from its recent highs of 2.06%, a rather large percentage move to be sure, and not far off the lows at 1.394%. Ultimately, 10-year note yields are headed to new lows below this level; and this "should", and we stress "should" be the "final move" that will provide for a generational low in yields.

Tnx 4-6-13

Technically speaking, the downtrend in 10-year yields remains in place, with the 20-week stochastic having turned lower from overbought levels. This rollover supports a decline yields into lower trendline support, which at this point has three very clear touches...thereby solidifying its importance as major support. Too, we should note that 10-year yields tend to bottom out at -50% below the 200-week moving average, which given its current reading of -32%...leaves roughly -18% of a decline before major support is found. This figures to be at 1.38%...slight new lows. However, we do believe that once these new lows do print - then an a minimum upside mean reversion target of 2.65% lies in the future.

So, as we enter the "sell in May and go away period", then perhaps one of the "biggest" trades on the technical landscape will see 10-year note yields finally rise on the order that everyone has expected over the past several years...but only after new lows print. And, it is an inevitability that prices will trade back to, and then above the 200-week moving average (only rarely in the past 12-years); and our bet it that the move off the lows will begin in 2013.

Good luck and good trading,
Richard

Bullish Consolidation Suggests Sharp Rise for Crude Oil

The stock market's uninterrupted gains in recent months is giving rise to talk of a bubble, and perhaps this is the case within the scope of time. It is still far too soon to determine this, although further gains will cause us to consider sharply higher prices within the context of anemic economic growth. With this said, we are watching the Crude Oil futures market rather closely, for on a monthly basis - a bullish pennant pattern is forming that projects sharply higher prices...to new highs above the $150/barrel level. This would come as a surprise to many, but the fact of the matter is that there is likely to be a series of rolling euphoric moves across all asset classed stocks, commodities and bonds. Right now, it is simply stocks. But we are starting to see signs of more interest in the commodity groups than we have previously.

Wtic 3-16-13


Therefore, we are interested in various energy stocks to participate in this rally, which by-the-way can occur within the context of a lower stock market just as occurred in 2007-2008. Our choices are several of the "laggards" such as Apache (APA), National Oilwell-Varco (NOV) and others. If there is risk in the long energy trade, then we would look for a monthly close below the 50-month moving average at $85/barrel level. In effect, this would suggest a mean reversion exercise towards the 200-month moving average that occurs roughly every 7-years. In this environment, we hate to think of what the world economy looks like, but suffice to say there will likely be very few long hiding places.

Good luck and good trading,

Richard

Wailing and Gnashing of Teeth in the Gold Market

The past two trading weeks in the gold market has been rather dramatic:  a sharp decline followed by a sharp rally and then a recent test of the lows. The end result - quite a bit of wailing and gnashing of teeth. And, we think the wailing shall become louder before gold finally bottoms and turns higher towards new all-time highs. Quite simply, gold is in the process of providing those longs accumulated over the past 2-years with losses, and a resultant "puke point" lies ahead.

Gold 3-2-13

Technically speaking, we are looking for a test of the rising 150-week moving average at $1539 - much in the same manner as was seen during late 2008. However, one need understand that this moving average is likely to be violated for a short period of time, and it is likely to test the rising 40-month moving average currently trading at $1494. So, we have a zone in which to consider buying gold for an initial position; and then we would use a breakout above the 30-week moving average to add to the trade and get very very aggressive. Until then, we can wait for the yellow dog to bark.

Good luck and good trading,

Richard Rhodes

CURRENCY WAR

There has been quite a bit of banter recently about a "currency war" developing given the Japanese Yen has fallen dramatically against the USD - roughly -15% in the past 11-weeks. This is a rather major move for a currency; and it is such that it is providing cover for Japanese exporters against those in Europe and the US as well as other emerging markets. Remember, the US continues to print money via QE-4, while Europe has simply said it "has what it takes, and believe us - it is enough. Japan on the other hand, simply said they would raise their inflation target from 1.0% to 2.0%, and employ an open-ended asset purchase plan...beginning in January 2014. One must wonder aloud why the Japanese aren't doing so now; and whether or not they are following the Europeans by jawboning the markets. In light of this, it would be wise to consider the technical condition of the US dollar as the "race to the bottom" looks to get much more interesting in the weeks and months ahead.

USD 2-2-13

Quite simply, the US dollar is forming what is clearly a bearish "head & shoulders" topping pattern, and is on the verge of breaking down below neckline support. This would be a major violation, and thus would target the waterfall lows formed back in May-2011. And with volatility growing in the currency markets, then this decline could be just as quick over a couple of months. That said, one would ostensibly wonder which currency or currencies one would buy against the US dollar to take advantage of just such a move. In our opinion, the Euro and the Swiss Franc - with the Swissy being our favorite currency given her outstanding fiscal situation.

Lastly, we should point out that the US dollar decline to the May-2011 low was accompanied by increased volatility in the stock market - and a majority of this volatility resulting in a sideways trading pattern...ultimately resulting in a sharp decline into September 2011. So, caution is advised; especially given the recent euphoria.

Good luck and good trading,

Richard

A Close-Up on AAPL

Next week, the markets will be focused upon the incoming earnings reports; and in particular - Apple's (APPL) earnings after Wednesday's close. Over the past several months, AAPL has declined rather sharply off its highs around $700 down to its current trade at $500; which is due in large part to an increase in competitiveness of other product manufacturers such as Samsung - and a report out that AAPL is downsizing its number of component orders. Presumably, this means less iPhones and other gadgets.

Aapl 1-19-13

Our interest in this stems from the technical viewpoint, which in our opinion is "slightly bearish.". The reason we believe at least modestly lower prices are ahead stems from the fact prices have violated the 70-week moving average crossing at $531. The last time this occcured was 2008, with prices falling roughly -50%. Now, we aren't expecting this substantial a decline, but certainly if the earnings report is less-than-hoped for, then we very well could see trendline support violated and the $300-to-350 support zone tested. Moreover, we only have to go back to late-2011...not so long ago really.

Our only concern is the oversold 20-week stochastic; however, it has simply entered into oversold territory, but it could be a number of weeks before it bases and turns higher. Hence, while the short-term appears rather challenging for AAPL; it will be setting AAPL for a larger back towards the highs. Its all a matter of timing.

Good luck and good trading,
Richard Rhodes

THE LOW IS AHEAD

January 2013 has rolled in, with the "fiscal cliff" solved for the moment; and now there are concerns "QE-4" will end sooner rather than later...and perhaps below 2013 ends. Collectively, the passing of the fiscal cliff and the new QE-4 concerns pushed 10-year note yields higher; however, given "QE-4" has begun, and the growing concerns over raising the US debt ceiling - all should contribute to pushing 10-year yields lower...in all probability to new lows below 1.394%. This is our opinion; and it is our opinion this should be the "final move", and prep the landscape for a generational low in yields.

Tnx 1-5-13

Technically speaking, the downtrend in 10-year yields remains in place, with the 20-week stochastic having turned lower from less-than-overbought levels. This failure should allow yields to move into lower trendline support, which at this point has three clear touches...thereby solidifying its importance as major support. Too, we should note that 10-year yields tend to bottom out at -50% below the 200-week moving average, which once new lows do print - should provide an upside mean reversion target in the future.

So, as we enter 2013 - perhaps one of the "biggest" trades on the technical landscape will see 10-year note yields finally rise on the order that everyone has expected over the past several years. It is an inevitability that prices will trade back above the 200-week moving average (a rare occurrence in the past 12-years); and our bet it that the move will begin somewhere towards the of 1Q or 2Q 2013. Be prepared.

Good luck and good trading,
Richard

KEEPING AN EYE ON GOLD

In the past several weeks, the FOMC has voted to "expand" its balance sheet until which time economic growth is strong and getting stronger ($45 billion long-term treasuries/$45 MBS). One would have reasonably thought that Gold prices ($GOLD) would have rallied rather sharply - we certainly were of the opinion. But it did not happen given the gamesmanship exhibited by President Obama and House Speaker Boehner. However, the "game" is not over; there is still time for gold to find its footing and finally move to higher highs above $2000/ox upon which the media shall be all over this.

Gold 1222-12


Technically speaking, if we take a longer-term viewpoint of Gold ($GOLD), then we find the uptrend still intact, although probably a bit long in the tooth. However, that doesn't sway from the fact that a monthly bullish triangle is forming, and the fact prices managed to hold the 20-month moving average last week. Historically, the 20-month has been a very good support level - outside of the late-2008 correction that managed top hold the 40-month moving average. Too, we find the 9-month RSI tends to bottom around the 50-level on these corrections - which is exactly where it is at present. Therefore, we suspect the probabilities favor that this current test of the 20-,month will be succesful - hence a modicum of patience is warranted in holding a long position.

But that having been said, the alternative would be for prices to clear break the 20-month and fall very quickly towards the 20-month support level at $1455/oz. That is and of itself would be no tragedy to the gold bull market, but it it would certainly deplete many trading accounts to be sure. Regardless, we believe gold prices ($GOLD) have one last "blow off" move in them before a larger correction takes place. Its only natural, for gold is cyclical as well.

TRANSPORTATION ON THE VERGE OF BREAKOUT

The Dow Jones Transportation Index ($DJT) is on the verge of a major breakout that could see prices rise by up to +20%. Quite simply, the developing bullish pennant pattern would suggest that once a breakout of trendline resistance materializes, then a measured towards the 6000 to 6200 zone becomes a reality. In further support of this viewpoint, note the 20-week stochastic has turned higher from near the 50-level, while the 65-week moving average continues to provide major support to declines. Collectively, the risk-reward of long $DJT positions is rather good given one can measure their risk at the recent lows.

Djt 12-8-12

The manner in which to play this trade is several fold. One could look at the Dow Transports ETF (IYT) to mimic the index. Or, one could look at the the risk-reward of the particular stocks that make up the index such as the rails, truckers, and air freighters in general. Our particular focus is upon all of these, with CSX Corp. (CSX); FedEx (FDX) in particular, with Arkansas Best (ABFS) having potentially the largest percentage gain...but it has its flees so to speak. As with all of these stocks; do your technical homework.

Good luck and good trading,
Richard

ARE CONSUMER DISCRETIONARY STOCKS ABOUT TO CLIFF DIVE?

There is quite a bit of newsprint lately regarding the US "fiscal cliff"; and the impact of whether it goes through or not. Regardless or not of whether it is extended or not, we think it instructive to analyze the consumer discretionary stocks as they will be inordinately impacted.

Xly 11-17-12

First, let us state that since the 2009 bottom, consumer discretionary stocks have rallied rather strongly through the halcyon days of the mortgage "cash out" period in which money were flowing towards all sorts of goodies. Thus, we were rather surprised at the veracity of this rally given the end of the housing bubble and the negative impact of the "cash out" refinancings. If fact, the current rally has continue to levels were never thought possible. However, there are there, and now we believe they represent an opportunity to be short a number of names int he group, or via the S&P Consumer Discretionary ETF (XLY) itself.

Second, the technical situation has begun to show signs of breaking down. The rising trend-line off the 2009 and 2001 lows was just violated, which should allow prices to plumb towards lower levels and into major support at the 120-week moving average rising towards $40.00. However, we would posit the decline will be deeper into the shaded area as this represent prior low and high support, as well as the 38.2% retracement moves. Too, the 200-week moving average crosses inside of it. This grouping if you will tends to act like a magnet - especially given the 30-week stochastics has formed and confirmed a negative divergence. Also, note the distance above the 120-week moving average in the PPO frame; it hit just above 20%, whereas in the past this has proven to be extremely good resistance.

Collectively, we would say that all the moons are lining up for traders to start exiting Consumer Discretionary shares and buying other sectors that have better defined risk-reward parameters. Certainly at TRR we will be putting our our recommendations for short positions soon; and perhaps acting upon them as well.

Good luck and good trading,
Richard

Technology Buyers Beware...

Last's week's early market rally seemingly disavowed all the bad news; which is of course what this market has been doing since the summer. However, we may be premature - but we are certain the market is changing its stripes from focusing upon "benefits" and tail-wind of QE-3; and focusing more upon the poor earnings and revenue reports coming out of corporate America. Quite simply, the European and Chinese slowdowns were bound to have an impact upon US stock prices; it was only a question of "when" within the context of an increase in monetary liquidity. Note the Google (GOOG) debacle this week; note the poorly received Microsoft (MSFT) figures - and one gets the sense that Technology in general has already made its bull market highs and lower lows lie ahead.

Sp tech 10-19-12

To that end, we've provided a monthly chart of the S&P Technology Sector, which is a longer-term outlook of where we have been, and the critical resistance/support levels that are in play. First, note the bearish rising wedge off the 2009 lows, which failed into overhead trendline resistance from an amalgamation of highs and lows. This seems to be rather important, for prices aren't likely to breakout above the highs forged in September. And if that is the case, then we must be worried about rising trendline support off the 2009/2011 lows...and prices are hard upon it. Further weakness will break this important support level, which would put the 33-month moving average in play at 415 as well the 100-month moving average at 359...a full 20%+ below current levels.

Therefore, technology buyers beware...there are lower prices upon which we'll be able to be comfortable buyers...but not here and not now.

Good luck and good trading,
Richard

BEARS GONE, BULLS BEGIN FOR NATURAL GAS

Quite simply, a bear market has ended, and a bull market has begun in the Natural Gas market. This has been quite some time in the making, for the relationship between natural gas and crude oil has been skewed for a number of years in favor of natural gas. Now, we feel confident in the fact that the trend has changed in favor of natural gas on both an absolute and relative basis versus crude oil as well as the S&P 500.

Perusing the weekly Natural Gas chart, one can easily see that the simple downward sloping trend-line was violated after several touches. This simple, but elegant breakout suggests prices are headed higher over the next several years, with the 155-week moving average at $4.00 being the first target, with the $5.00 to $6.00 zone being the intermediate-term target. And, over time - given the relative valuation versus crude oil - we could very well see the highs challenged.

Natty


With that said, "natty" is a very volatile futures contract to trade, but there are various ETFs available to take advantage of this price rise. However, we'll urge some caution, for the "roll" between months tends to be unfavorable. One only remember trading the Natural Gas ETF (UNG) over the past several years to see the "roll" work against you. At some point, and we think that point is soon - it shall work in one's favor.

In any case, getting the "natty" trend right is paramount; with natural gas stocks such as Devon Energy (DVN) being a good proxy. Keep it simple: buy corrections against the main trend...and enjoy the ride.

Good luck and good trading,
Richard

ENJOY LOW RATES WHILE THEY LAST....

Well, finally the past economic/political week has passed, and we find ourselves starting down the barrel of QE-3. There is no need to go into the particulars of QE-3, but suffice to say that the Fed is buying mortgage-agency debt rather than adding to their Treasury debt holdings. This put downward pressure upon agency debt yields of course, but then it also provided for a rally in both the 10-year note yield as well as the 30-year bond. Our interest lies in rally in the 30-year bond, for it would appear that the long bear market of a decline in yields is "over", which in our mind is a "watershed" event that means higher Treasury rates for the months and years ahead.

If we look at the monthly chart of the 30-year bond ($TYX), then we find previous support at 2.50% has held; we find the distance below the 115-month moving average tested its -40% oversold level and bounced - and we are starting to see the 14-month stochastic turn higher. This all argues for higher bond yields. But what we find more than a passing interest, is that since QE policy moves have come into being since 2008 - each and every announcement always led to higher yields and a test of the 115-month moving average. If that is the case now, then we'll see the 30-year bond move from 3.08% upwards of 4.37% in the months ahead.

30yrbond 9-15-12


Now, we aren't worried about this yet, for market participants will use any rally in bond yields as "fuel" for the stock market. However, the higher the 30-year goes, and the speed at which it gets there - if too fast - then will certainly cause concern at the Fed as well as on Main Street. Higher rates are not what the Fed wants, but at this juncture - it would appear this could be the "unforeseen" consequences of stepping on the QE gas pedal.

Enjoy while it lasts; higher rates are going to be with us for many years into the future.

Good luck and good trading,
Richard

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