Last week saw a massive volatility as well as an accompanied large range where the S&P500 dropped below the 55EMA, extended to a support line in a day, and bounced back over the next three days. This is evident in the weekly chart where we see an extremely long candlestick tail for last week. While I would jump to say that it is a very bullish sign, and is likely headed for a new historical high, I would be doubly cautious, considering the development of the global events, as well as the underlying chart technicals. The global events are, in my humble opinion, a historical milestone, one which would be looked back upon as the turning point. This milestone of mid-2019 confirms the changes that would be upon us for as far as the next 20 years. It is not a US issue, neither a China, but one of a global scale. Much like the onset of a proverbial global war, and the effects of such a scale of war effects major destruction to the global citizens. Then again, this is a topic for another day, which I am piecing together via various sources and collaboration with close intellectual friends. Right now, let us see what the technical aspects present…
As mentioned earlier, the weekly S&P500 futures chart ended the week with a very bullish looking candlestick with a rather extraordinary lower long tail. The technical backdrop belies within an ascending wedge (which breaks down eventually), a cross down in the weekly MACD with bearish divergence (lower left panel, bearish bias indication), and in the midst of a TD (bearish) Setup. The daily S&P500 futures chart (right panel) shows the week’s development that actually ended with a bearish harami candlestick at the expected strong resistance level, consisting of a TD resistance, the daily 55EMA and a previous gap. On the contrary, the MACD crossed up in support of the ongoing bullish TD Setup. Overall, the S&P500 is at best described to be VERY cautiously bullish.
Looking for alignment, we look into the other leading indicators…
The high yield bonds (JNK) and the Nasdaq futures have a similar technical outlook as the S&P500; however, the Russell2000 and the DJ Transports lacked the spectacular recovery and suggest a larger bear in the background instead. I would particularly be paying attention to the latter two charts as they may be the first to move to signal a turn the the markets.
Turning attention to the other indicators, the Value Line is clearly most bearish of them all, with a weekly doji at best, after a lower high, failing the 55EMA and almost clocking a lower low. The MACD is clearly bearish with the MACD turning down in the bear territory. The volatility index, VIX, broke out of a smaller triangle formation only to pull back. The MACD suggests that the following weeks should see more of volatility increases (bearish indication here). The Treasury Bond ETF, TLT, had gone parabolic over the last two weeks and surpassed the upside target. There should be some consolidation above the gap if this trend is strong and should continue, which would be more of an expectation than observation. The US Dollar gained strength after the FOMC cut rates the previous week, but was unable to maintain the gains and ended with a long upside tail. This was followed by last week’s weakening dollar forming a failure at resistance. Oddly enough, the MACD appears bullish for the USD… and breaking that resistance would take a significant event, like a crisis of sorts.
The weakening of the USD last week may have accentuated USD denominated commodities such as oil, gold, and silver. Crude oil futures is inherently bearish with a lower high failing the 55EMA, and MACD down in bear territory, despite a long tail bottom side. Support is at the last low, and is expected to be tested again. Gold and silver, on the other hand, is so bullish that Gold went on a parabolic run, possibly bringing along Silver as well. Gold reached the upside target (set since earlier this year) on higher than usual volume and should push slightly further to close within target. Silver would likely be playing catch up after the first surge upon testing resistance turned support (while line). The weakening of the USD would help in Gold and Silver price acceleration, only accentuating the indicated safe haven money flows.
Another safe haven money flow indicator is the TLT, which was presented earlier. Another two safe haven inflows are the USD/SwissFranc and USD/JapaneseYen pairs. Both continue to be bearish, indicating that there is a flow of USD into these safe havens. Both of these do not corroborate with the USD futures and suggest a bearish backdrop.
Putting it all together…
There are very short term bullish indications, with a mid to long(er) term bearish undertone. Hence, it is a little less obvious what this week would bring, despite only expecting volatility to pick up further. Hence, Very Cautiously Bullish for the week, with a risk of bear in the horizon.
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