Tuesday, September 21, 2010

Potential Price and Time Resistance

The markets are nearing another technical decision. You know how technically the markets have been trading, so this bears watching. There is timing today for a potential reversal. The first level of meaningful resistance for the S&P 500 (ES Z0-D) was 1,140. It was barely taken out yesterday, but is now resistance again. 1,146 and 1,162 are the next areas that really stand out.

Remember how the market bottomed for the near term the day IBD went to “Market in Correction” in their Big Picture section? The setup is now there to get everybody all excited about a “breakout” above 1,131. Just in time to reverse things down hard and trap a lot of new Bulls… I see the conical reversal pattern showing up yet again.



Meaningful resistance on the Dow ($INDU) is in the 10,860 – 11,000 range. Like SPX, there are lots of key dates next week and in early October to be aware of.



The same goes for the NASDAQ 100 ($NDX). You can see the potential reversal pattern and that price is getting into resistance at key dates.



Because Apple ($AAPL) is now over 20% of the weighting of the NASDAQ, you need to watch it to see what the market is doing. Another way of saying it is if Obama wants to game the markets higher into the election, all he needs to do is buy the crap out of Apple. Key resistance on Apple is $292, with the key dates coming in over the next few days.



Here is the chart of the Banking Index ($BKX). You can see that all it has done is bounced within a downtrend. It is now at meaningful resistance. If it rolls over from here, then the 127.2% extension of the move is always the technical target at about 41. I'm not saying short $BKX and cover at 41. I'm just saying that I am wary of this rally and if you buy wrong, then the downside is potentially pretty nasty.



Crude Oil (CL V0-D) is still in a downtrend, with potential out of this pattern in the 66.80 range. I have been watching this pattern for the last few months and it can’t be good for the economy if Crude puts in lower lows. $70 has been heavily defended.



The Russell 2000 (TF Z0-D) Small Cap index is also at resistance with key dates being 9/27 – 9/28.



While stocks have been ramping higher the last few weeks, US Treasuries have been in a pretty orderly pullback. All maturities I watch (5-year, 7-year, 10-year and 30-year)have held above their 50-day averages. You can see how the 30-year (ZB Z0-D) is going to make a key decision soon as it is stuck between support and resistance.



Gold (YG Z0-D) has been moving nicely and is now approaching a significant decision. The target all along has been $1,300 – remember how Goldman came out with a $1,300 target a few days after I produced this chart... They didn’t see my chart. They simply are running the same calculations for technical support and resistance levels.

You can see where support comes in here for Gold in the $1,262 -1,258 range. Key dates are today and early next week. The 120-minute chart shows you more detailed levels of support for Gold. A move below $1,272 probably opens Gold up for a more meaningful correction.





Silver (SI Z0-D) hit its first few targets in the $20.20 – 20.80 range. You can see the next levels of resistance. I assume that Silver will move in unison with Gold, so if Gold breaks $1,272, then I will be looking for weakness out of Silver. I expect that weakness into September 27 will be buyable or strength into the 27th will be sellable.



To sum things up, the markets are within a week or so of making a critical decision as they rally into strong resistance. Each of the rallies in the recent trading range have failed in set ups like this. If this one is different, then I will know it is meaningful and be ready. This goes for Stocks and Metals. Bonds have a significant support decision to make as well. The October 4-6 range comes up a lot in the indexes.

There is massive Quantitative Easing going on, with the Fed buying about $30 billion a month of Treasuries and the ECB buying at least a Billion a week in Irish and Greek debt. This money flows right into risk. The move yesterday morning coincided with the Fed buy $5 billion in Treasuries. There will also be purchases of about $3 billion tomorrow and Friday.

During the vertical moonshot from March 2009 – March 2010, the Fed was buying about $130 billion a month in US Agency debt. They are now buying about $30 billion a month. So figure that the markets will have a vertical grind higher with about 1/4 the magnitude of last year’s rally, until the $280 billion is exhausted.

The Fed meets today and will either add to or hold steady on QE 2.0

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