Monday, August 1, 2011

The Markets Don't Appear to Like What They See Coming in August

As we start off this first day of August and first trading day of the week the cat is out of the bag, and the market doesn’t like what it sees. The S&P 500 is now trading below its 200 day moving average as of this writing, which indicates further weakness ahead.

The equity markets started out strong, as did crude oil and the dollar. All that has changed now when the manufacturing sector came out and said that things were slowing down quite dramatically. In fact new orders grew at their slowest pace in 2 years in July, with new orders contracting, it represents a troubling development for the economy and the stock market.

Viewers of this report will note that we have been very cautious on the stock market as we felt it was rolling over to the downside based on technical analysis. A close today below the 200 day moving average which comes in at 1285 will be viewed as a negative for the S&P 500.

At this point, the greatest fear is a potential downgrade by one of the rating agencies. Should that happen, more pressure will be put on this market. Many investors have become complacent and this is a real danger in my view. I think there’s a major opportunity to make money in this market as I see the S&P 500 slipping to the 1265 level before any kind of bounce.

Now, let’s go to the markets and see how we can protect and grow your money in 2011.

S&P 500

Monthly Trade Triangles for Long-Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Negative
Daily Trade Triangles for Short-Term Trends = Negative
Combined Strength of Trend Score = – 70
Technically, the S&P 500 is now trading below its 200 day moving average and for many technical traders this is a big negative. If we see the market close below the 1285 level, this will confirm a definitive break for this index. Support comes in to this index at the 1265 and again at 1250. That is the last vestiges of support for this index. Should these levels give way you will see a mass exodus out of all stocks.

SILVER (SPOT)

Monthly Trade Triangles for Long Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Negative
Combined Strength of Trend Score = + 85

The Silver market, like the Gold market, came under pressure early as a knee jerk reaction to a possible debt ceiling settlement. The market has subsequently rallied and is now higher on the day as of this writing. The overbought condition that was in play a week ago has been relieved and this market could still move up and test the target zones we have identified. We are expecting this market to reach its highs towards the latter part of Q3 and early Q4. The intermediate target for silver based on the Fibonacci count of 61.8% is $42.98.

GOLD (SPOT)

Monthly Trade Triangles for Long Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Positive
Combined Strength of Trend Score = + 100

In early trading this market was around the $1,610 level and has subsequently rallied and is now higher on the day. This has to be a troubling occurrence for the administration as it is really a vote of no-confidence in the direction of the country. There appears to be good support coming in at the $1,610 level. We continue to like this market from the long side. We are looking for gold to move higher until the end of Q3 and possibly into Q4. Intermediate targets for gold are $1,640 and $1,650.

CRUDE OIL (SEPTEMBER)

Monthly Trade Triangles for Long Term Trends = Negative
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Positive
Combined Strength of Trend Score = + 70

The crude oil market rallied dramatically, trading as high as $98.50 a barrel before it came under pressure and collapsed to be lower on the day. Our Trade Triangle technology continues to indicate a mixed picture and a trading range for this commodity. The Williams % R indicator is currently in an oversold condition and we are getting close to touching the lower part of the Donchian trading channel. Both of these indicators may represent some support around the $94 level.

DOLLAR INDEX

Monthly Trade Triangles for Long-Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Negative
Daily Trade Triangles for Short-Term Trends = Negative
Combined Strength of Trend Score = – 60
The dollar index has rallied quite dramatically and is currently trading 0.70% higher for the day. We discussed in previous reports that this index encompasses a basket of currencies and is not representative of an individual currency. We further reported that the 73.50 area was an important level of support for this index. This proved to be accurate as the dollar index rallied from the lower levels of being oversold on the Williams% R indicator and the lower levels of the Donchian trading channel. The long-term 200 day moving average remains negative for this index. Resistance remains at 75.50 and support comes in today at 74.00.

REUTERS/JEFFERIES CRB COMMODITY INDEX

Monthly Trade Triangles for Long-Term Trends = Negative
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short-Term Trends = Negative
Combined Strength of Trend Score = – 65

The Reuters/Jefferies CRB commodity index continues to move sideways and remains trapped in a broad trading range. We feel that this index is close to making a low for a potential reversal back to the upside. We would not get excited about being long this index until we see the 352 level broken to the upside. At the present time, our Trade Triangle technology is mixed. Resistance is between 349 and 350. Support comes in at 342.


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