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Welcome to the August edition of II Insight.
This month we take a look at the bigger picture for the major global indexes as the short-term direction is hazy. Yes indexes seem to be in rally mode but summer volume remains thin and that raises the potential considerably for fake outs in either direction. Our advice from the July report still applies - do nothing! Have a BBQ, go to the beach…
Also in this issue we review the usefulness of one of our many indicators, the NYSE 10-day advance/decline. Although it is giving no signals at present, it's something worth keeping an eye on once volume confirmation returns in September.
Tarquin Coe, Market Technician
In Asia, China's Shanghai Composite (SHCOMP) has been flirting with its 500-day simple moving average (SMA) for a year now. Going into August, the index is testing this average from the underside. August 2009 also saw a potentially similar underside challenge. That visit resulted in the index pulling back sharply down to a low in September 2009. Whether history repeats itself will become clearer over the next few weeks.
Japan's Nikkei 225 (NKY) is one of the weakest in Asia. The index is beneath long, medium and short-term moving averages. Furthermore, a break of 9000 would activate a top formation that would precipitate further weakness. The depth of the top is 2000 points, deducting that from the neckline would sink the index down to 7000, the March 2009 low! Steer clear.
The S&P 500 (SPX), the best technical measure of the health of the US market is spending the summer sandwiched between two averages, the 200 and 500 day simple moving averages. At the time of writing the index was attempting to break above the 200-day SMA.
With trading midway between the April high and July low, we stand neutral. The rally off the early July low has been built on light volume. Like a house of cards it could so easily collapse in flash. Such a tumble could see a sharp trip back down to support from that 500-day average, currently at 1016.
The UK's FTSE 100 (UKX) is similar to the S&P 500 with trading between the 200 and 500-day SMA. A breakout attempt above the 200-day SMA is underway at the time of writing, though the move is just as fragile as that by the S&P 500. We would wait for support from healthier volume before convicting to a direction.
Again, like the US index. A drop back inside the 200-day in the next week or so would likely precipitate a fall back down to support from the 500-day, the July lows.
Hats off to Germany's DAX (DAX). This index is one of the strongest in the developed world with the relative chart against the S&P 500 at its best level since the summer of 1990!
Price action for the DAX is excellent with a new recovery high over the past week and trading is comfortably above the 200 and 500-day SMA's.
The major indexes for each region are covered by our range of hotlines. The US indexes are analyzed in the US Hotlines and the UK's FTSE in the UK Hotline. Asian and European Indexes are covered by the Regional Stock services.
The NYSE 10 day Advancers / Decliners indicator
One of the indicators we analyze on a daily basis in the US Hotlines is the NYSE 10 Day advancers divided by advancers and decliners. The figure is a percentage, smoothed using a 10-day moving average.
Indicator readings can be interpreted in two ways:
1. Extremes (oversold 0-35%, overbought 65-100%) highlight potential market turning points.
2. Divergences (bullish, bearish) also warn of a potential market reversal.
Of the two techniques, it is divergences that are probably more effective. On the chart we have highlighted an example of a bearish divergence by the indicator when the S&P 500 hit a new recovery high in April of this year. That divergence proved invaluable with respect to calling the market's high.
Subscribers to the US Hotlines get access to our full range of indicators, 500 plus, all laid out in a user friendly style with handy help files.
Soft commodities take off
The media has been full of reports on the rocketing price of grain, fuelled by the failure of the Russian harvest. The question is, is this a one-off spike or part of a longer cyclical upturn for the soft commodity asset class? The bulls point towards the ever-growing demand from the increasingly prosperous consumers in the emerging markets - particularly increasing meat consumption that accompanies the "westernisation" of local diets. The bears point out that softs lack the supply constraints seen in industrials and energy.
One thing is for sure - commodities are likely to provide plenty of trading opportunities over the coming years!
Many investors and traders are familiar with our US equity services, but you may not be aware that Investors Intelligence also publishes a Daily Commodities Service, produced in our London office by seasoned technical analyst Cornelia Dichio, MSTA.
We cover the major traded contracts, both in the US and Europe. Subscribers receive a Daily Hotline, and access to the commodities section of our website providing:
- Online charting and analysis tools of major contracts
- Automated signal scanners - P&F breakouts, KDR, relative highs etc
- Commodities breadth - plot bullish percentage for CRB and other sector groups
- Model portfolio, alerts and more
To learn more about this service, click here. Subscriptions start at just $23 a month.
Can you help us?
We are currently conducting a survey of the readers of the Investors Intelligence US Hotline and Market Timing services to determine how best our service can be improved to meet the requirements of our subscribers.
If you are, or have been a subscriber, we would be grateful if you could take a few minutes to fill in a short online survey at http://www.surveymonkey.com/s/9Y5QLNR. Just click on the link to take part.
Please note, all responses to the survey are stored anonimously. Thanks in advance, and best wished for the summer from all the team at Investors Intelligence in London and New York.
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