CURRENCY INTERVENTION PUSHES YEN SHARPLY LOWER -- EURO CHALLENGES 2010 HIGHS -- GOLD SURGES AS DOLLAR AND YEN TUMBLE -- PERCENT OF SPX STOCKS ABOVE 50-DAY SMA PLUNGES BELOW 50% -- %ABOVE 200-DAY SMA REMAINS ABOVE 70%
CURRENCY INTERVENTION PUSHES YEN SHARPLY LOWER... Link for todays video. For the first time since propping up the Euro in 2000, the G-7 intervened in the currency markets to push the Yen lower. So far it is working. The Yen surged because many Japanese companies are expected to repatriate money in order to finance the reconstruction effort, which will be massive. This means Japanese companies will need to sell their foreign currency and buy Yen, which is bullish for the Yen. A rising Yen, however, is not helpful to the Japanese economy, especially for the exporters. Chart 1 shows the Yen ETF (FXY) breaking triangle resistance and exceeding its 2010 high this week. With the intervention coming into play, the ETF quickly fell back to the resistance breakout around 121. Broken resistance turns into support now and the ETF may stabilize in this area.
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Chart 1
EURO CHALLENGES 2010 HIGHS... The Euro Currency Trust (FXE) continued its relentless advance with a surge above 140 on Friday. Chart 2 shows the ETF moving above this level for the first time since early November. The 140-142 area marked resistance in October-November last year and could mark resistance again this year. However, there is simply no sign of weakness on the price chart. With a new 2011 high today, I am marking first support at last weeks low. Failure at resistance and a move below this level would reverse the uptrend. Chart 3 shows the US Dollar Fund (UUP) breaking below its November low to forge a new 52-week low today.
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Chart 2
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Chart 3
GOLD SURGES AS DOLLAR AND YEN TUMBLE... Weakness in the Dollar and the Yen buoyed gold as an alternative to currencies on Friday. John Murphy wrote about the US Dollar Index ($USD) hitting a 3-year low yesterday and how this was boosting commodity-related stocks. Chart 3 shows the Gold SPDR (GLD) surging to resistance from the 2010 highs and then consolidating the last few weeks. Even though GLD has yet to break resistance, the overall trend is clearly up here and a resistance breakout is more likely than not. With todays bounce, we can set first support at 135. A move below this level would be short-term bearish for bullion. Key support remains in the 127.5-130 area. A move below this level would signal a major trend reversal in gold.
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Chart 4
%ABOVE 50-DAY SMA PLUNGES BELOW 50%... The percentage of S&P 500 stocks trading above their 50-day SMA dropped below 45% for the first time since late August. This is a bearish development, but it is considered a medium-term bearish development with a long-term bullish environment. First, lets look at the medium-term indicators. Chart 5 shows the S&P 500 %Above 50-day SMA ($SPXA50R) indicator crossing the bullish-bearish thresholds five times in the last 12 months. A break below the bearish threshold (45%) coincided with the correction from late April to late June. There were two short-lived signals in mid July and mid August. A break above the bullish threshold (55%) coincided with the beginning of the September-February advance. This weeks move below 45% is considered medium-term bearish for the market (S&P 500). I consider it medium-term because the 50-day SMA relates to a medium-term timeframe. The depth and duration of this signal are largely indeterminable. It simply remains in force until countered with a move above 55%. As the July-August period shows, this signal is not immune to whipsaws. However, when used with other indicators and analysis techniques, it can help keep one on the right side of a medium-term move. Chart 6 shows the Nasdaq 100 %Above 50-day SMA ($NDXA50R) with similar characteristics.
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Chart 5
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Chart 6
%ABOVE 200-DAY SMA REMAINS ABOVE 70%... The S&P 500 %Above 200-day SMA ($SPXA200R) provides one reason to believe this is just a correction within a bigger uptrend. A 200-day SMA is four times longer than a 50-day SMA. This relates well to the long-term trend. While less than 40% of S&P 500 stocks are above their 50-day SMAs, chart 7 shows over 80% above their 200-day SMAs. Despite being very choppy at times, this indicator is nowhere close to being bearish at current levels. 50% is the middle line. The bulls have an edge when above 50% and the bears have the edge when below. A move below 50% is needed to produce a real threat to the bull market. As seen from mid May to mid September (four months), there can be some ferocious battles between the bulls and the bears. This indicator crossed the 50% line at least 12 times then. Even with a bullish threshold at 55% and a bearish threshold at 45%, there were numerous crosses that would have resulted in whipsaws.
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Chart 7
Chartists can also apply some basic price chart analysis techniques to further qualify indicator signals. In particular, support and resistance levels can be identified. Relatively shallow reaction lows established minor support in the second half of 2009 (1) and a deep reaction low established major support in early 2010 (2). The break below this major support level in May confirmed the correction that was underway. After continuing below 50, the indicator moved into a very choppy range as the bulls and bears battled it out (3). It was not until a break from this range that the bulls regained control (4). With the decline over the last few weeks, the indicator broke a minor support level (5). For now, I am setting major support at 70. Chart 8 shows the Nasdaq 100 %Above 200-day SMA ($NDXA200R) with similar characteristics.
