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II Insight 


Nov 2010

Global leaders in Technical Analysis since 1947

    

Welcome to the November edition of II Insight.

 

 

Markets extended higher during October, raising even more technical “red flags”. The Investors Intelligence Industry Bell Curve gives a quick handy overview of the current condition of the broad market and this month's report starts with that illustration, comparing it to a period when the market was stretched in the opposite direction.

 

We also review the Quantitative Easing timeline and its influence on the S&P 500's direction. Tied to QE policy is of course the US Dollar, so we also take a look at how that chart is shaping up over the medium-term.

 

The indicators briefly touched on this report are available online, in far greater detail, to our subscribers. Individual investors and market professionals have been benefiting from our indicators for the past 50 years and subscriptions are available for as little as $1 a day!

 

For further information please contact Sarah our subscriptions manager at sbarnes@investorsintelligence.com

 

 

Tarquin Coe, Market Technician

www.investorsintelligence.com

 

US Industry breadth - the Industry Bell Curve

 

 

The Investors Intelligence Industry bell-curve plots the distribution of industries based on their bullish % charts. The bullish % chart depicts the percentage of stocks in a given sector with P&F bull trends and is a quick visual method to gauge whether a sector is overbought or oversold.

 

Coming off the July low (when the S&P 500 was some 13% lower than current levels) the bell curve was skewed to the left, with two groups in the super-oversold group.

 

 

The current bell curve, as of the end of the first week of November, is skewed heavily in the opposite direction to the July standings, revealing that conditions are now overheating. Certainly equities can go higher but the best part of the gains are likely behind us. Often, when the industries are collectively overbought, a sharp correction follows with in a few weeks to alleviate conditions.

 

 

A subscription to the US Hotlines service provides online access to the industry bell curve in addition to hundreds of other valuable graphs and indicators, the majority of which are updated daily.

 

    
    
    
The World Money Show comes to London

The World Money Show, which many investors will know from its annual well-attended Florida event is in London this weekend. There will be seminars and talks from many leader market commentators including Roger Bootle, Gillian Tett and Bill Bonner.  In addition to this the brokers, software suppliers and financial media providers will be setting out their stalls - it's a useful event for exploring new developments in investing.  

Investors Intelligence will be fielding two speakers -  On Saturday 13th Nov at 9.30am Mark Glowrey will be discussing income investments along with a panel of other speakers. Later in the afternoon Fullermoney's Eoin Treacy will be presenting "Trends that will dominate the markets in the next 10 years and how to profit from them".

This event is free to attend, but you should register in advance here. We hope to see some of you at the show - it's held at the Queen Elizabeth II conference center on the north side of Parliment Square. Nearest tube is Westminster.

    
    
QE Timeline

 

The rally of the past two months kicked off two days after hints of QE2 were made in late August, so it will be interesting to see if the old adage of “buy the rumor, sell the fact” plays out with respect to QE2. The clock is ticking for this and for that to work equities would need to reverse over the next few days.  

 

In reviewing the timeline for QE1, the S&P 500 collapsed over 8% on the Monday following the QE1 announcement of Wednesday November 25th 2008. After that, the index traded sideways for two months, prior to reasserting lower into the March 2009 nadir. QE2 was implemented during a very different and a lot less volatile climate, and the Monday following the official statement last week saw just a mild retreat.

  

Regarding the current technicals of the S&P 500, it is now testing resistance from the April high. In theory it should struggle here as momentum is overbought and more importantly there are divergences amongst key Investors Intelligence breadth and volume indicators. Our strategy remains cautious with respect to equities and commodities, at least until a better buying opportunity presents develops.

 

 

This timeline was reviewed in last Friday's Coe Report.

    
    
Currencies – the Green back

 

The US Dollar has been a hot topic following the Fed's money printing QE2 program. The US Dollar Index (DXY) has fallen down to potential support from a trend line drawn between the 2008 and 2009 lows. This line also marks the lower boundary of a symmetrical triangle that is building across the 500-day exponential moving average.

 

Triangles reflect indecision and it's too early to determine whether this is a consolidation of the longer-term downtrend or a triangle bottom. The latter is however rarer. Either way, a bounce from here is likely, back up to the upper boundary of the pattern, around 88. That would cause weakness in commodities in the weeks ahead as that they are of course price in USD's.

 

The Dollar index can be bought via the PowerShares US Dollar Index Bullish (UUP) ETF, just one of many ETFs that are regularly discussed and traded in the ETF Review, a subscription costs just $20 a month!
    
    
Don't miss out on the Commodities Bull Market

As I write, gold is pushing to a new price high. With Bernake once again pumping out liquidity into the system, "hard" assets are likely to be a major beneficiary. Are you missing out? Certainly, the growth of ETFs and trackers makes investing in these assets considerably easier than it was in the past. It is also fair to say that the growth of such vehicles may fuel a further boom!

Many investors are familiar with II's equity services in the US and the UK, but you may not be aware that we produce a Daily Commodities Service - based on technicals.  The package provides:

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US Sentiment holds the key
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