Light Crude Oil chart analysis

This past week, crude oil rebounded from oversold situation with above than average volume (based on ETF USO information), how long will this rally last?  Is this rally short term, intermediate term or long term?  As you can see from the chart below, crude oil is facing triple resistance ahead at ~$77 area (50DMA, 50% Fib retracement and lower trend line of July-August rally channel).  Let's put aside reckoning of how much probability that crude oil will break this triple resistance, just focus on reactions: if it does break above that resistance, then we should long the equities, otherwise the trend remains down.

Monthly Intraday Chart for 2010 August

This is a monthly series of intra-day charts for S&P 500 Spider ETF (SPY) and Shanghai

S&P 500 ETF (SPY)

Shanghai

FOMC Meeting and Economic Cycles

Today, Moody's economist Mark Zandi predicts that Fed will take QE action "in a few months" due to the fact that economy will be a bad shape.  I don't want to endorse the validity of his prediction, rather it makes me feel interested with the actions that Fed took during the crisis between late 2008 and early 2009, and how market reacted to them.   By analyzing these Fed actions and market's reactions, we can get important information about dynamics that drives market timing.

More analysis on FOMC statements will come under this topic.

Protective ETF chart analysis: VXX and QID

VXX

QID

Both ETFs have bottomed and booked higher low in early August comparing with the low in late April.   Together with the huge volume associated with the advance from April low, these evidences indicate the long term down trend since March 2009 for these two ETFs has reversed.

Baltic Dry Index and Paragon Shipping (PRGN)

Chart analysis of Baltic Dry Index and one of dry bulk shippers (PRGN)

Baltic Dry Index

PRGN

BDI is facing resistance at both 50% retracement and neck line at around 3000.  Watch closely to what BDI will do at that point, if it breaks above the resistance, then double dip recession won't be real and S&P 500 will not tank.  If it breakdown by resistance, and resume falling, then prepare for S&P 500 crash.

Now We have a Trend, and It's DOWN

Today's drop confirmed yesterday's rally was a lower high in the trend started Wednesday last week, so we have steep down trend lines (red lines) drawn in the US big 3 indexes.  The orange lines are previous down trend lines from late April to late June, blue lines are arbitrarily drawn between the two confirmed down trend lines.  For all three indexes, this trend is a little steeper than the previous one from April to June, indicating this time the market will take shorter time to drop the same magnitude than previously. 

Trend lines help people time the market.  The red lines draw us road maps of the first leg down.  After the first leg, I expect these trends to be broken to the upside then at some point market will turn back down again, at that time new pivot points will develop to form less steep trend lines in the next few months which will indicate road maps for those down legs.  So the timing of final bottom of this down trend is not clear right now, but I do have target prices of big 3 indexes bottom:

• S&P 500: 836, about 23% lower than today's close 1075
• NASDAQ: 1626, about 25% lower than today's close 2179
• DJIA: 8173, about 21% lower than today's close 10271

S&P 500

NASDAQ

DJIA

3 Reasons for Immediate Market Decline Coming

The market dropped big today with no news, but rather after investor digested Fed's decision yesterday.   My gut feeling is that today is start of big scale market decline in next few months, for three reasons:
1. Technical.  The bull market since last March was filled with rising wedge formations.  One from last March to this January, it ended with a 8% drop; the second from last March to this April, it ended with 17% drop; and since early July to early August, market (or SPX) is forming the third rising wedge, and with no exception, it stopped to the down side.  Both previous rising wedge formation stopped with waterfall like declines, I see no reason this time is different.
2. Dollar.  The US Dollar has retraced about 50% of its gain since last December to this June, and rebounded at its historical important support level, the rebound is convincing with big volume, this indicates that Deflation is real.
3. Bond.  The Treasury yield has been in firm down trend since early April, and bond prices have been in strong up trend in the same time.   This again sends a clear message that recession is near and Deflation is real.  It's very rare that bond investors mistakenly judge the direction of economy since they are more sophisticated and more focused on economic fundamentals than equity investors.

Is Shanghai Index Chart indicating 10 Year T-Note Yield Will Bottom Soon?

10 Year T-Note Yield

Shanghai Index

Look at the two charts above, 10 Year T-Note Yield chart now looks so similar to Shanghai Index at the end of June.  Then shortly after Shanghai bottomed, and staged rebound.  My gut feeling is that 10-Year T-Note yield will bottom soon.  Then are deflationists wrong?  Maybe not, but if QE2 comes, they will be.

S&P 500 chart update

S&P 500

VIX

NASDAQ UltraShort ETF (QID)

As I previously noted, S&P 500 was still trending up in a upward wedge as we have seen so many times in this bear market rally since last March.