Trader's Tips Stock Market Newsletter

Published June 01, 2009 ...by oextradingresources.com
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Stock Market

After the May trading month, the OEX made it's third positive close in a row on the monthly chart, a more than 114 points advance since the March low. The May advance also resulted in a monthly MACD reversal but has yet to cross it's moving average. The last time this occurred was in Dec. 2007, right after the Oct. 2007 major high. The 13 - 34 EMA trend chart also shows no crossover yet.


OEX  monthly chart



Smart Money (Commercial Futures Traders) is still positioned heavily on the Short side, despite this market advance. As of 05/26, the COT Report (Commitment of Traders) shows they are net Short the market with - 77,545 contracts. Chart courtesy of timingcharts.com

As for the Elliott Wave situation, this could be the last stages of a wave a structure from the March low, as part of an a-b-c corrective wave 2 of Primary degree developing to the upside. So the market could be ripe for a short to mid term pullback (wave b) these days, a view supported by the fact the OEX is close to an important weekly trendline and the early stages of a downside pressure phase in weekly Cycle10. Any clear weekly close above this resistance area, could prove me wrong about this view.

Additional technical factors favoring market weakness ahead:

  • Volatility, as reflected by the VIX Monthly chart, reached trendline support in May. So the outlook for higher volatility (fear) in the market, usually means a lower stock market. Chart courtesy of stockcharts.com

  • The Yield (TYX) May close came above important long term trendline resistance. Higher interest rates could put pressure on the stock market. See the Yield section below for more details.

  • The upcoming 06/03 date is another factor, see the Bradley section below.

    QQQQ - Nasdaq 100 Index Tracking Stock
    The tech market, as reflected by the QQQQ stock, also shows topping signs. Near term, by this week's move to new highs, up against daily trendline resistance and with RSI 25 at the same time tracing out a bearish divergence. This is often a warning of being near a top, especially with current RSI readings above 60.

    And mid to longer term, by the Hammer candlestick formed near first Fib. resistance on the QQQQ Monthly chart, with RSI 25 facing trendline resistance.


    qqqq monthly chart



    Short & Mid Term

    DGL - Dynamic Gann Levels
    The recent weeks of consolidation found support on the L2 DGL before the market pushed higher again. A bearish RSI 25 divergence is developing, so a top could be near.

    OEX daily chart



    Murrey Math Lines
    After a pullback from the 4/8th MML (Murrey Math Line), the OEX closed higher Friday and is probably going for a test of the 4/8th MML.

    Gann Angles
    The 05/14 GA apparently had some impact on the market, starting a near term pullback after entering the GA time window. The next daily GA is found on 07/17, 2009, +/- 1 day. It marks 90 trading days from the March low and 144 TD from the Aug. 2008 high, a strong GA worth keeping an eye on, for a potential market reversal.

    Individual Stocks
    An update on the GE stock, shows a break of weekly trendline resistance, with RSI 25 below mid readings, so no overbought condition yet. Chart courtesy of stockcharts.com

    Bradley Indicator
    For those new to Bradley, here is an excerpt from an earlier Outlook Report:
    ..."The Bradley Siderograph is a popular indicator many traders rely on, to get an overview of possible larger turning points in an upcoming trading year. It is known for it's inversions, so it's not so good in showing whether highs or lows are coming but more so ... when major highs and lows can be expected. So using other indicators in combination with the Bradley, could give useful clues about future larger tops and bottoms."...

    Bradley dates indicating market turning points in 2009, dates in bold marks more important turning points:

  • June 03
  • June 26
  • July 14
  • September 14
  • October 22
  • November 11


    bradley

    Chart courtesy of amanita.at



    Sentiment

    Investors Intelligence
    This survey report is used to determine the percent number of Bulls to Bears, to find sentiment extremes that can lead to market reversals. I.e. readings above 55% - 60% Bulls reflect extreme optimism, which can be seen with indexes at record highs. This usually means a bearish reversal is due. Readings below 20% reflect extreme pessimism and a positive market reversal is likely.

    As of 05/26, 2009 the II Chart shows:

    40.9 % Bulls
    28.4 % Bears




    Charts courtesy of market-harmonics.com


    Bullish Percent Index
    05/29 - BPI Daily closed at 63 Friday, near overbought levels. See the description for this sentiment indicator.


    Chart courtesy of stockcharts.com



    Forex - Currency Market
    The EUR/USD pair blew through the 1.3671 target mentioned in the previous update, easily overcoming the 6/8th Pivot MML and trendline resistance. The May close came near the month's high, so the June outlook is also positive for this pair. It could go for a test of the 7/8th MML at 1.4648 in the coming month(s), as monthly momentum has not yet reached an overbought state.

    The results of the recent Forex Surefire Trading Challenge (6 champions):

    Samuel A. 2,956.16 % (in one month)
    Olga A. 388.54 %
    Mebs W. 278.04 %
    Nurudeen U. 129.85 %
    JanettMarie B. 156.23%
    Oren S. 87.89 %

    Results are documented. Email notification is available for full access to the systems, when membership re-opens soon.

    eur/usd monthly chart



    US Economic & Fundamental Condition

    A few facts about the economy:

  • As of April, the unemployment rate is right under the 9 % mark.

  • Q1 GDP: - 6.1% (quarter to quarter)

    unemployment

    Chart courtesy of bullandbearwise.com


    Consumer Confidence
    CC has improved, as of 05/26 at 54.9 + 14.1 and important trendline resistance overcome.

    Consumers represent two-thirds of all domestic spending in the United States. So measuring consumer opinions is an important part in gauging future consumer spending and in turn the economic condition. High Consumer Confidence holds up the economy.

    consumer confidence

    Chart courtesy of market-harmonics.com



    Debt - Last updated, April 2009
    As pointed out in an earlier published article about the 60 year Kondratieff Cycle the purpose of the Winter part (from 2000 --- >) of that economic cycle, is to cleanse the economy of debt via payback, liquidation and usually bankruptcy. This process creates tremendous stresses to the economy and financial system. The next Spring should again bring growth and prosperity. As the below chart shows, for the first time in many decades, consumer debt has actually turned down, reflecting the ongoing cleansing process in this current Winter cycle.

    consumer debt

    Chart courtesy of elliottwave.com


    --------------------------------------------------------------------------------------
    From the May 2008 Update
  • 2007 total debt per person was $175,154, up $13,065 from $162,125 in 2006. This compared to $29,722 in the late 50's, measured in inflation-adjusted 2007 dollars.

  • Last year's debt per family of four increased by $33,781, to $700,616. 2007 total debt of $53 Trillion was 11 times higher than the $5 Trillion debt in the late 50's.

    - 2007 total debt increased $4.3 trillion (up 8.9%)
    - Federal government debt (incl. added debt owed trust funds) increased $549 billion (6.3%)
    - Household debt increased $877 billion (up 6.8%)
    - Business debt increased $1.1 trillion (11.7%)
    - state & local government debt increased $184 billion (up 9.2%)
    - Domestic financial sector debt increased $1.6 trillion (11.1%).

    Each sector reached a new, all-time high. As of 2006, 26% ($1 Trillion) of the total debt increase of $3.9 Trillion was owed to foreign interests, up 11%.
    Source Michael Hodges

    debt



    Yield
    The TYX actually managed to make a monthly close above the longer term resistance area and could even go for a test of the channel roof resistance, (4.8 area) in the coming month(s), if it breaks through the minor (red) trendline, closing basis.

    USD Index
    The USD sold off strongly in the May trading month, closing below trendline support and with it, turning the picture bearish for this index. But any reversal candlestick forming at key Fib. support, in the coming month(s) could still mean this was a temporary correction, within an ongoing overall positive trend. If it fails to find support here however, this scenario would be less likely.

    Real Estate
    As with the stock market, the Real Estate market has improved in recent months, as reflected by the Dow Jones REITs Index But the Hammer like candlestick formed after the May trading month, suggests a pullback is coming this summer.

    REITs



    OIL
    The XOI broke above trendline resistance and closing near it's May high. And also taking into account there is plenty of RSI 25 room to the upside before it's getting overbought, this gives a positive outlook for OIL this summer.

    Gold
    Gold is trading within two converging trendlines. A breakout should occur before the Apex (where the two trendlines meet) of this triangle is reached. This directional breakout (whether bullish or bearish) could set the tone for Gold in the months thereafter. Any clear monthly close above trendline resistance and especially the all time high, could lead to an explosive advance in Gold rates.

    On the other hand, any test of the all time high, with RSI 25 showing a bearish divergent reading at that point, could mean a major Double Top pattern is forming and these patterns are quite bearish in nature. So we are near a pivotal point in this market.

    Charts courtesy of stockcharts.com

    XAU - Gold & Silver Index
    The XAU broke through Wedge and key Fib. resistance after the May trading month, which opens up for further strength in this market. This is also supported by RSI 25 at mid readings, so no overbought condition yet.


    Good Summer!

    -AM
    info@oextradingresources.com
    http://oextradingresources.com

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