Recently it seems everyone has been watching the large coil that had formed since early November 2009 in the SP. It had a “breakout” to the upside….but a few things to watch going ahead with this.
1. There has been no strong move yet out of this range to the upside. This may be due to the occurrence during a holiday period where no large players are around, maybe and maybe not. There has not been volume to the upside on this breakout.
2. The Dow Index is within a stone’s throw of major Fibonacci resistance at 10588.
3. The Transportation Index has not made new highs with this “upside” breakout.
4. The Russell index also made it to new highs, but not a huge push out of the range either.
The New Year should be interesting to see whether the large money players agree with this upside.
For those of you who follow our pattern recognition you will see there are also sell patterns up at these new highs.
Have a safe and Happy New Year

One of the stronger market correlations in recent years has been the relationship between the Australian Dollar and the S&P index. Traders can look at the daily chart of both to see the extreme similarities in rally in 2009. Over the past couple of years the only significant instances of the markets going their separate ways was in early 2008 when the Aussie beginning to plunge in July (while the S&P’s  were weeks away from their own plunge) and then in early 2009 when the Aussie turned bullish earlier than the S&Ps.

The weekly chart of the Australian dollar shows that the rally of 2009 has elevated the currency to the same levels where the collapse of 2008 began.  From a technical perspective this area is resistance on the first retest.

The Daily chart of the Aussie shows a head and shoulders top pattern has formed and prices have broken below the neckline. So the question is are these two markets diverging or ..as was the case in 2008…is the Aussie a leading indicator of what’s to come for the S&P?

Kevin Riordan

After prices reached some extreme overbought levels Gold futures have slid more than $100 an ounce since the start of December. But as we head into the Christmas holiday we find Gold at strong daily Fibonacci support between $1114-$1105 basis the Feb Gold futures.

The first test of strong support levels is the most important one for traders to focus on since these levels most often produce a correction of the previous sell off. In the case of Gold, prices did consolidate at the daily Fib support level and had a modest rally out of that area in Friday’s session. The 400 tick chart shows an ABCD buy entry at the $1105 area.

Coil Patterns such as rectangles, triangles, sideways lines, etc. can be thought of as stored energy. When that energy is released out of the coil, one direction or the other, the moves can be dramatic and with force. Currently the SP 500 index has been forming a coil that can be seen on the daily charts since early November. Possibly the FOMC announcement this week may be the catalyst to move it out of this coil.

Japanese Yen Futures completed some long term bearish patterns in November and then in the first week of December had the largest one week drop in a over decade. First let’s look at the monthly chart. The monthly chart of Yen shows the market completed a butterfly reversal pattern on the last leg up on the rally.

After dropping to the weekly time frame we see the Yen formed an ABCD sell pattern that completed at the 1.27 extension of the AB swing. We can clearly see the weekly bearish engulfing candle that formed in the first week of December.

Based on these two bearish patterns on the higher time frames, traders should be looking for opportunities to enter the market short by dropping to lower time frames and looking for sell patterns to develop. The 4000 tick chart shows an ABCD sell pattern that completes and the low of the Candle that reached both the monthly butterfly and the weekly ABCD sell patterns. If the bears are in charge of this market as the analysis suggests, that area should be defended well on any rallies.  

The Dow Jones Transportaion Index is a trusted leading economic indicator that today consists of 20 stocks of Railroad, trucking and Airlines companies. The transports often show signs of an economic recovery before other sectors since it measures moving raw materials from A-Z….long before the goods make it to the shevles in the stores. If our economy is truly turning the corner the Transports should continue higher. From a techncial perspective the Dow Jones transports have rallied back to an important resistance level. A look at the monthly chart shows that the market just below a level that was the lower end of the trading range in 2007 & 2008. This level was stong support at one time now is viewed as resistance.

The daily chart of the transports shows that a 3-month consolidation or “money box”  pattern has formed just as prices reached this area of long term resistance. A breakout of a money box that is on accompanied by a long bar and strong internals can set the stage for an extended rally. However, breakouts that fail and reverse iback into the money box can lead to a retracement back to the lower ends of the pattern. The DJT have just broken out of this pattern and are right at the monthly resistance noted above and a 1.27 extension of the recent consolidation. In light of the fact that the Transport are testing long term (monthly) resistance for the firt time, failures at current levels could trigger deeper retracements.  The success or failure of the recent breakout in transportation index needs to be monitored closely by all stock index traders.  

 Kevin Riordan