Waning Long Term Momentum?

With the elections behind us we are taking a refreshed look at the long term picture and where we may be heading in the final two months of 2012 and beyond. In mid September equities embarked on a complex correction, which after many twists and turns relieved the S&P 500 of about one hundred handles.

And that frankly is rather moderate, especially when put into context with previous corrections in the past four years. The monthly chart above also tells another story, and it is one of depleting momentum. For this exercise I have considered any downside correction lasting more than one month as being meaningful. Thus, single monthly lower closes have been counted as natural components of upside trends.

When adding up all candles of the four major advances since March 2009 we arrive at the series shown above: 14, 10, 6, and finally 4 months. I would have loved to see a three there at the end but I do think these numbers speak for themselves. To me they suggest that despite repeated rounds of quantitative easing and ‘pull out all the stops’ support for floundering financial institutions across both sides of the Atlantic, the long term upside momentum in equities appears to be waning.

This is the same series but instead showing all four price advances. The first stab higher from 666.79 advanced 553 SPX handles before a meaningful correction took hold. The second two are statistically close with both near 350 handles. The recent one only lasted 208 handles; once again the trend appears to be pointing down here as well.

You may recall the bouncing ball analog I suggested a while back. It is possible that we are near the point where gravity once more takes over, resulting in a major correction? Looking at our weekly stochastics (a chart that has treated us extremely well in the past few years) I do see possible signs of concern. Mainly, it is still pointing down and that suggests a possibility that this correction may not be done just yet. If you know how to read stochastics then you probably are also aware of the possibility of the signal becoming embedded below the 20% mark. A good example of such an occurrence is shown at the beginning of this year, except that it happened on the upside and thus produced a brutal short squeeze.

Given all the above let’s look at our P&F chart – which currently seems to be satisfied with the bearish price objective of 1380 which was met last week. I do think a bounce here is absolutely necessary as a slide lower may trigger a red candle cascade.

The weekly panel seems to agree on that point as we just sliced through the 25-week SMA, a level that last time led us back to the 100-week SMA. Thus it’s not unreasonable to suggest that a lack of buying interest here would once again lead us lower toward 1320. The onus now is on the bulls to pull the cart out of the mud and that pronto – failure here is not an option.

More long term perspectives below – we are looking at crude, gold, the dollar, and the Euro:
More charts and non-biased commentary below for anyone donning a secret decoder ring. If you are interested in becoming a Gold member then don’t waste time and sign up here. And if you are a Zero or Geronimo subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.

Gold is throwing us a bit of a P&F curve ball. After suggesting a rather ambitious bearish price objective of 1560 it now triggered a low pole reversal wanring on the 7th. This means the current PO is on notice and that we are somewhat more neutral than before.

Obviously we have been trading the swings rather well and if you recall last week’s update then you know that the daily is now right at the 25-day SMA – it’s first major hurdle. However there is more! We are also sitting at a brand spanking new weekly NLBL which will become active on Monday. On the monthly panel we apparently snug by a monthly NLBL, thus we should be mostly concerned with the weekly and daily panels. If we manage to push above the 1730 mark then it’s quite possible that gold will shift into four gear and potentially even head toward new highs.

Crude on the other hand continues to look bearish. The price objective of 77 remains intact and we may even drop through another support zone near 95.

Last week’s candle managed to retest the 25-week SMA but then an inverted hammer. That could be bullish, so let’s see what happens here the coming week. If we close below this week and the monthly NLSL then a trip to 77 is almost guaranteed.

The Euro (shown here the FXE) is also still pointing down, the active bearish price objective being 122. I am seeing possible support around 125, so let’s look at the LT interval chart:

The EUR/USD panel appears to be in sync here as the 25-week SMA is at around 1.263 and could drop a bit more by the time we get there. Thus I would be happy to start for reasons to be long near EUR/USD 1.26.

Finally the Dollar, which has been on track after triggering a bullish price objective a few weeks ago. I still think the 85 target is a bit optimistic, we certainly won’t get there in one smooth move. Not on Bernanke’s watch! 😉

The long term panel shows us some weekly resistance near the 81.5 mark. But it is the monthly that has my attention as it shows us back below the 100-month SMA plus a diagonal resistance line that has been in place since March of 2009. Now – wait a minute – that date rings familiar somehow, doesn’t it? That’s right – it marked the end of the 2007/2008 crash and the beginning of the current bull market. Now, what would happen if we broke not only above 81.5 but somehow pushed above 82 and higher, perhaps even satisfying our P&F price objective?

In the context of the very first chart above and the waning momentum on the equity side this poses some very interesting questions. Is this the ‘last kiss goodbye’ for the Dollar before it descends into the mirky abyss of currencies? Or are we at the threshold of an explosion higher as debt consolidation and economic slow down worldwide causes a rush back into the old greenback? And where does that leave gold?

Frankly, I don’t know (yet) – but what I do know are my charts. And they are telling me that the Dollar is heading into some mighty resistance. As we arrive near 81.5 I want to be short – but as soon as we push above 82 I most definitely would want to be long. I actually think that the Dollar chart should be our most trusted prairie home companion for the year 2013.



This entry was posted on Sunday, November 11th, 2012 at 10:56 am. Both comments and pings are currently closed.

  • wrc1k

    Your topic this morning prompted me to Google for some long term data myself.

    I found this: http://www.aabri.com/manuscripts/121230.pdf

  • captainboom

    Thanks for the update Boss.  Gives me something to ponder as I do some yard work before the snow flies.

  • wvobiker

    I want to short OTM Comex Gold puts.

  • http://dartht.blogspot.com/ Darth_Gerb

    DeMarkian counts?  some people swear by them.
    I credit them a little better than lunar cycles.

    I don’t think there can be any deep underlying reason as to why 4, 9 and 13 work (a comment which I would argue holds for any mechanical system that involves counting bars). According to Perl, DeMark was fascinated by Fibonacci numbers – which takes care of 13. DeMark had hoped that 8 worked the best and was disappointed that 9 (non-Fib) was better. But since TD Setups have a 4-period look-back, 4+9=13, bingo.

    TD Sequential is simply an objective indicator that aims to pick turning points. Perl points out that there will be times when TD Sequential doesn’t work for prolonged periods and, because entry is countertrend, it can be very tough to stick with after a bad run.

  • pouquinhos

    I dont know…..South is the way…but in my modest opinion, my system decided the action to take. I’m only a servent, because is my master.
    A little smell of what this system can be.

  • Th3_Acist

    Definitely scaling out my Euro short for a nice profit, too much support looming…

  • Tronacate

    Where have we been on soybeans?……have gone off a cliff

  • fast and steady

    Negative divergence in the euro?
    edit: i mean positive

  • http://www.facebook.com/profile.php?id=100001131611045 Exar Kun

    W.r.t. hourly – Interestingly it forms a positive divergence followed by a negative, so I went long then short, currently all cleared.

  • http://evilspeculator.com molecool

    Let’s play a little game – price is a free week of the Zero: Who can tell me the two movie references in the last episode of Family Guy? Email me to admin@

  • newbfxtrader

    daily target looks like 1403. On the hourly thins are oversold. you could try play a bounce.

  • http://evilspeculator.com molecool


  • fast and steady

     I too have been using the zero to trade the pair. :) Except for a major fuckup last week in /es and eur.usd correlation trading everything has been peachy.

  • http://www.facebook.com/profile.php?id=100001131611045 Exar Kun

    That’s great! Where r u from? Looks like only 3-4 pple active during Asia-Pacific trading time. Good to share heads-up abt the zero?

  • fast and steady

    I’m in France but I am usually active during the asian session. I started using the zero last week and I am still getting up to speed. I’m Spanish though.

  • http://www.facebook.com/profile.php?id=100001131611045 Exar Kun

    Hi, Nice to meet you. I stay at Singapore. Also started using the zero 2 weeks ago.

  • fast and steady

     Very cool place.

  • http://evilspeculator.com molecool

    Does the Zero work in Asia? Isn’t it upside down?

  • fast and steady

    Shorted eur/usd on the spike.

  • http://www.facebook.com/profile.php?id=100001131611045 Exar Kun

    Yeah, how else do you think i trade? – With the monitor flapped over.

  • http://evilspeculator.com molecool

    ¨°º¤  S H A K E   N ¤º°¨ 
    ¸„ø¤º° B A K E !“°º¤ø„¸

  • fast and steady

     and flipped it. That was fast.

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