Global leaders in Technical Analysis since 1947
Welcome to the July edition of II Insight.
Markets continued to frustrate investors during June with equities swooning lower mid-month only to retrace losses towards the end of the month. Volatility is likely to continue as we move into the slowest months of the year, July and August.
However, currency and commodity traders enjoy volatility. This month we take a look at Crude Oil and then the just as jumpy Euro. Then later in the report we derive a clue to equity market direction from one of our long-running indicators.
Tarquin Coe, Market Technician
Farewell to Mike Burke
The Investors Intelligence team, both in London and New York, are going to miss the company of long-time editor Michael L. Burke. Although he will continue to study the stock market and visit the New Rochelle office he has decided to no longer participate in the Investors Intelligence editorial operations. We wish him only the best and a long & happy retirement.
Mr. Burke joined the Investors Intelligence staff in 1963 under the direction of AW Cohen. He become full editor in 1982 and continued in that capacity until recent months. Mike was giant in the area of technical analysis but he was content to remain behind the scenes as he taught and influenced others who followed in the industry. While many newsletter editors periodically self promoted themselves after a few correct calls before then crashing and burning, Mr. Burke stuck to a conservative consistent strategy of following what the charts and indicators said and avoiding emotions that cause deviations from that path. I first met Mike in 1979 when I began studies under AW Cohen. For more than 30 years we worked together and there was not a single day I didn't learn from him. He will be missed but there is no question that Investors Intelligence will continue to provide the same fine work that it has in the past.
Front month NYMEX Crude Oil (CL1) has spent the past couple of weeks attempting to base beneath its 200-day exponential moving average. A similar pull-back to the average occurred in August/September last year. That period was followed by a reassertion of the primary uptrend and a repeat of that recovery may be on the cards this time around given the improvement towards the end of June. Momentum certainly favors that possibility as the 14-day RSI is exhibiting a strong bullish divergence.
Despite all the drama in Greece the Euro is actually a lot higher against the USD than it was last summer and that in itself is a sign of possible strength going forward.
About a year ago the Euro Currency Trust (FXE) ETF collapsed to a low of $118.79 but the fund is now trading just above $140. The past two months has seen a volatile, largely news drive, consolidation between $148.81 and $139.44. The range is taking the form of a bullish triangle though it could easily morph into a top formation on a break down through the May low.
One things for certain, whatever direction the currency takes it will be a strong directional move, as the coiling action of the past few weeks reflects building emotions. Stay in the direction of currency trends with guidance from our FX Hotline.
A simple but effective indicator under the “market ratios” tab on our website is the “Valueline/S&P500 weekly difference”.
This ratio is updated weekly after a Thursday close. Basically it is the point difference between the Value Line Composite Index and the S&P500 Index. When the ratio is trending higher it identifies small stock leadership and that is a sign of a “risk-on” market. Alternatively when it trends lower it reflects a defensive rotation with investors trading cautiously.
Like all of our proprietary indicators (with the exception of Advisors Sentiment) we favor P&F charts as the signals are mechanical and as a result not susceptible to human emotional influencing judgment.
The current P&F chart for the ratio reversed up in late June and in doing so reasserts the uptrend that started from the July 2010 bottom. That recovery is a positive and unless there is a break beneath the June low then it implies investors should be taking once risk again, buying into the dips.
Point and Figure charts have been central to analysis at Investors Intelligence since the 1950's. John Gray, who writes the US hotlines has thirty plus years of our P&F indicators. He discusses developments on this chart as well as hundreds of other indicators daily in the US Hotlines
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