Monday, May 3, 2010

Is A Near Term Top In Place?

Volume was huge on Friday’s selling and stank today. Leadership is narrowing and less volume is needed to drive indexes higher with fewer and fewer names that making ever larger percentages of the weighted indexes (Apple is now over 17% of the NASDAQ 100 Index). When Apple finally cracks, it is game over for the Bull Market. The same goes for BIDU.

Recently, the markets have been a story of the Euro Fear Trade. Money is leaving Europe and plowing into the US Market, The US Dollar and Gold. The Euro (FXE) looks like it is going to test the lows of the bottom of the 2008 – 2009 panic.


A Potential Major Top May Be In Place For The Euro
Here is a long term chart of the Euro ($XEU). It looks like the Euro has made a 123 Lower Top. That is not a bullish pattern. The potential top is over 6 years in the making. Yikes! Be on your toes. How many people have told you about the death of the US Dollar? When was the last time that everybody was right at the same time?

Also on this chart is the price of the ETF for Gold (GLD). You can see that Gold broke out when the Euro broke out against the US Dollar in early 2002. It would not surprise me if Gold were putting in a 123 Higher Top here, along with the topping of the Euro. Again, how many people have been telling you to buy Gold recently?


There is no way that the Dollar cracks if the IMF is going to be the World’s bailout machine. The US is the biggest backer of the IMF, so the US Dollar has to stay strong to finance all of these immanent sovereign bailouts. The end game will probably be to roll a lot of junk sovereign debt into the IMF and then hyper-inflate the Dollar.

If Greece were allowed to default, then a lot of Europe’s largest banks would become insolvent – and we know what happened the last time the banks ran out of capital. So now we get the absurdity of Greece contributing to the EU/IMF bailout package that bails out Greece.

Any acceleration of sovereign debt default news is positive for Gold. Gold has been a safe haven during this Euro implosion. It is now at significant resistance. I sold out of Gold (GLD) and Gold Stocks (GDX) Friday and Monday.

The Secular Bull in Gold is probably alive and well, but I would not be surprised if this recent rally in Gold is the last we see out of the yellow metal for a while. I’d love to be able to buy Gold again at under $1,000 per ounce. However, I will keep trading Gold if it keeps going higher.


Here is the chart of the US Dollar ($USD). It sure looks to me like a bottom is trying to form (a 123 Higher Bottom). A trade above 90 confirms the new Bull for the Dollar. I would expect a multi-year Bull Market if 90 is exceeded.


Foreign Markets Have Been Hit
Shanghai bottomed first, so it stands to reason that it should top first as well. Shanghai ($SSEC) is now trading below all moving averages and has broken down out of a 1-year triangle. The pattern targets a minimum pullback to at least 2,100. That said, I have seen a lot of head-fakes recently and this would be the perfect setup to ramp prices back above 3,150 and spark the mother of all short squeezes in China – especially considering that Shanghai has already retraced 38% of its 2008-2009 rally. The natural place to look to short is a weak rally that fails into the 3,000 range.


You can’t tell the future, but you can put yourself in a position to make decisions at key price zones. The Dow Jones World Market Index ($DJW) hit one of those levels on a key date 4/15. DJW has now put in a lower high and is in a short term downtrend.


The same goes for the FTSE.


We are in the first few days of a new month and that has proven to be a good time for stocks, as mutual funds invest the 401k payroll contributions they receive. The NYSE ($NYA) has not been able to clear its 4/15 high. It now appears to have topped for the near term, with the obvious short on the rally into 7,600 last Thursday. 7430 is key support for The NYSE.


Major support on the S&P 500 is 1,150.

The boys who have engineered this rally over the last two months know all the key support levels and how important it is to keep prices marching higher in stocks.

The Metals ETF (XME) has run into resistance at $60. It now sits at key support of $55. The next big move wins. Long term support is at $50-52.


BHP Billiton (BHP) has plunged the last few weeks, and is now touching its 200-day EMA (The General’s Pullback). Maybe we get a sharp reversal up in Metals in the near term. If we do, does it last? If we don’t, then how low does BHP fall? FCX and US Steel (X) look the same.


Financials (XLF) have either topped or a pulling back in a very orderly fashion.


The same goes for Energy (XLE) and Retail (RTH)


So if buyers are exhausted and the markets want to pull back, we are at a logical price level and at a logical time for that to occur. However, if more buyers show up, there are still setups and I will be prepared to join in on the fun.

One more thing, I mentioned in my last post that US Treasuries had reversed back above a failed breakdown and that the Fed would hold down Interest Rates for as long as they needed to forward their policies. Well, long term Treasuries broke out above resistance on Friday and are now trading above all key moving averages. TLT is yielding over 4.25% - not bad in this environment, but it is a trading vehicle.

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