MARKETS END WEEK ON A STRONG NOTE -- S&P 500 STAYS IN TWO-WEEK TRADING RANGE -- TRIANGULAR SHAPE OF THAT RANGE SUGGESTS UPSIDE RESOLUTION -- HIGHER EUROPEAN SHARES ARE ALSO HELPING -- FALLING DOLLAR BOOSTS GOLD AND COMMODITIES
S&P 500 STAYS IN SHORT-TERM CONSOLIDATION PATTERN ... The bars in Chart 1 pretty much tell the story of the week's trading. After all is said and done, very little changed from a trending standpoint. That has kept the S&P 500 in a two-week holding pattern (see circle). It still needs a decisive close above its 200-day moving average, however, to signal any significant improvement. It also needs to break out of that recent trading range. The hourly bars in Chart 2 show a "triangular" shaped pattern over the last 12 trading days. The "triangle" is identified by two converging trendines. The good news is that triangles are usually continuation patterns. That increases the odds for an upside resolution. The first thing the SPX needs to do to help accomplish that is break decisively through the upper trendline. A drop below the lower line would be negative.
(click to view a live version of this chart)
Chart 1
(click to view a live version of this chart)
Chart 2
EUROPE REBOUNDS... The main reason for today's stock rally is the rebound in Europe. The good news there is that many of those stock ETFs are back above their 50-day averages. Chart 3 shows the Europe 350 iShares (IEV) regaining that line after dipping below it on Tuesday. Since Friday is always the most important trading day of the week, we have to take Friday's higher close as a sign that the short-term trend may be improving.
(click to view a live version of this chart)
Chart 3
FALLING DOLLAR BOOSTS GOLD AND OIL ... A sharp drop in the dollar has kept a strong bid under gold and oil prices. Chart 4 shows the Gold Trust (GLD) gaining ground today. Gold stocks are also having a very strong day. Chart 5 shows the price of crude oil trading at a three-month high after climbing back above its 200-day moving average. That should help energy shares. It should also help the stock market over the short-run because of the recent close correlation to the stock market. Chart 6 shows the two market overlaids on each other since the start of the year. Their close correlation can be seen clearly. The 50-day Correlation Coefficient below Chart 6 is a high .88. Assuming that high correlation holds, higher oil prices could be signalling higher stock values.
(click to view a live version of this chart)
Chart 4
(click to view a live version of this chart)
Chart 5
