Written By: DragonFly Capital
Last month in this space my Monthly Macro Review/Preview had the monthly outlook suggesting that Gold and Copper would continue to consolidate with a bias lower while Crude Oil continued to advance, as it watched Natural Gas look for a bottom in its move lower. The US Dollar continued to consolidate in a tightening range while US Treasuries looked to continue lower. The Shanghai Composite and Emerging Markets looked to continue to move lower as well, while the German DAX looked for strength to break consolidation higher. Volatility looked to remain low keeping the bias for equities higher. The Equity Index ETF’s SPY, IWM and QQQ were all looking better to the upside, with the SPY and IWM slightly overbought. How does an additional month impact the longer term picture? Let’s look at some charts.
Gold, $ GC_F
Gold rebounded off of the Hagopian Trigger line from the rising Pitchfork in August. The rise touched the 50 month Simple Moving average (SMA) and pulled back slightly. The 61.8% retracement of the move higher from 2008 has been confirmed as a bottom. This is also about 38.% of the longer move higher from 2001. The Lower Median Line seems to be attracting it higher with the Relative Strength Index (RSI) moving higher as well. This is not even at the mid line yet though so calling a new long term bullish trend is premature, and the Moving Average Convergence Divergence indicator (MACD) is continuing lower. It will take a break down below the prior support at 1180-1240 to continue the down trend. This would also break through the Hagopian Trigger line giving a new short signal. Support below that is found at 1080 and 980. The next major resistance is at 1500 and 1550, where the neutral trend broke down from. Continued Bounce in the Downtrend.
Copper, $ HG_F
Copper moved slightly higher in August along the rising Lower Median Line of the bullish Andrew’s Pitchfork (green). The RSI kinked back higher with the MACD continuing lower but leveling on the histogram. The bounce is confirming the importance of the support area at 3.00. There is support below that at 2.87 and 2.50. Below that would move the price back within the bearish Pitchfork. Resistance higher comes at 3.35 and 3.85 and a move over that is very bullish. Neutral.
West Texas Intermediate Crude, $ CL_F
Crude Oil gave a buy signal in July moving above the Hagopian Trigger line and confirmed it in August rising further. The RSI also ticked higher and the MACD crossed up and is rising. Signs point higher. It may have some trouble as it approaches the middle of the Median Line and Lower Median Lines from the bullish Andrew’s Pitchfork and resistance at 116. There is no major resistance above that until 147.27. A move over 116 also triggers a Measured Move higher to 158 from the break of the ascending triangle. Support lower is found at 98 and 92 followed by 84 and 80. It would take a move below 80 to turn bearish on Oil. Upward Bias Continues.
Natural Gas, $ NG_F
Natural Gas continued to find support at the 20+ year rising tend line, printing a hammer in August. If Confirmed it would make for a 3rd consecutive higher low after a third consecutive higher high, building an uptrend. The RSI held at the mid line during this pullback, also a positive sign. But the MACD looks to be leveling and is reversing on the histogram, still supporting a downside move. A reversal higher sees potential resistance at 3.85 and the previous high of 4.44 before the top of the 2010-2011 channel at 4.87. Over that is very bullish. Support lower comes at 3.33 and 2.80 followed by 2.10. Under 2.10 reaffirms the longer term downtrend from the 2008 peak. Consolidation in the Intermediate Uptrend.
Currency & Debt
US Dollar Index, $ DX_F
The US Dollar Index continues to move sideways in a tightening range around the 81.28 level. The RSI is holding near the mid line as well, with a slight bullish bias while the MACD is rising, also supporting the upside. There is resistance at 83.40 and 86.50 followed by 88 and 91.60. Over that would be very bullish and trigger calls for 100 and more. Support lower comes at 81.28 and 78.60 followed by 75 and 73. But none of this matters until it can break out of the range 80 to 85. Continued Consolidation.
US Treasuries, $ TLT
US Treasuries, as measured by the ETF $ TLT, continued their pullback in August but are showing signs of a bottom. The Hammer candle is now the third candle with a long lower shadow in a row with this one piercing the 61.8% retracement of the move higher from 2011. The RSI continues to sink though, and is at 10 year lows, as does the MACD. Resistance is higher at 107 on a reversal with 112 above that. Over 112 will likely get bond bulls jumping in. Support lower is at 102 and then 98 before stronger support at 96.50. and 90. Looking for Signs of a Reversal in the Downtrend.
Shanghai Stock Exchange Composite, $ SSEC
The Shanghai Composite continues along the falling channel showing no signs of wanting to change direction either way. Like a slow decay. The RSI continues to run under the mid line with the MACD flat as a pancake. The 200 month SMA has been giving support and a break below that shows support at 1970 and then 1750 before the previous bottom at 1661. Resistance higher is found at 2200 and 2425 with a move over that turning many bullish. Continued Downtrend.
German DAX Composite, $ DAX
The German DAX continued its high consolidation in August holding at the triple top. A move over 8600 can continue on to the Potential Reversal Zone (PRZ) of the Deep Crab Harmonic at 11,000. There is a smaller Deep Crab within the right triangle of the bigger one that has a PRZ at 9200 as well. The RSI has been working lower slowly during the consolidation with the MACD leveling. These suggest more consolidation or a possible pullback first. Support lower comes at 7600 and then 7100. Consolidation in the Uptrend.
iShares MSCI Emerging Markets Index, $ EEM
Emerging Markets, as measure by the ETF $ EEM, continued the meander sideways that has been going on for 4 years. Boring. The RSI is now running lower but holding over 40 with a MACD that is flat near zero. Also boring. There is support at 38 and 35.25 with a move under that likely leading to some excitement to the downside. Resistance is at 44 and 50.70 with a move over that very bullish. For now though….. Continued Consolidation.
US Equity Markets
VIX, $ VIX
The Volatility Index remained low for August but is starting to show some interesting characteristics. The range is expanding and many will conclude it will lead to a move higher, if only because it has been so low and does not have much room left below. This could be, but the SMA are continuing to point lower. Over 16.45 it now has resistance at 19 and about 24. The period from 1995 to 1999 reminds us that it can rise along with the S&P 500 so it is not necessarily an indication of a market sell off. Support below 16.45 comes at 13.50 and 12 before 10. Continued Low Volatility.
SPY, $ SPY
The SPY printed a bearish Dark Cloud Cover candlestick for August, if confirmed in September. The close brought the price back to the mid line between the Upper Median and Median Lines of the bullish Andrew’s Pitchfork. Certainly some consolidation would be welcome to long term bulls. The RSI is holding strong in the high 60′s with a MACD that is rising. These support a continued bull case higher. There is support lower at 157.52 and 153.20 followed by 144 (A Fibonacci number). There is no resistance over 170.97 but a Measured Move to 190. Consolidation in the Uptrend.
IWM, $ IWM
The IWM continued to creep higher in August before pulling back in its own Dark Cloud Cover. The price has been moving up along the Lower Median Line of the rising Pitchfork. The RSI is strong in the mid sixties after a slight pullback from being technically overbought, with a MACD that continues to rise. These support the bull case higher. On a pullback there is support at 94.50 and 86.50 the neckline of the Inverse Head and Shoulders. Resistance higher is found only at 105.63 the high of the month, and there is a price objective of at least 138 from that Inverse Head and Shoulders. Continued Uptrend.
QQQ, $ QQQ
The QQQ continues the creep higher along the Median Line of the bullish Pitchfork. The Bollinger bands are running right along with it and the RSI is strong if not verging on being technically overbought. The MACD is running very flat and has been for about 3 years. There is resistance higher at 82 and then 102.50. Support lower comes at 71 and 61.60. Continued Uptrend.
The monthly outlook suggests the upside for Gold will continue while Copper consolidates. The uptrend in Crude Oil looks to continue while Natural Gas tries to reverse higher off of support. The US Dollar Index is still consolidating while US Treasuries may try to reverse the downtrend. The Shanghai Composite looks to continue to move lower as Emerging Markets continue to bore moving sideways and the German DAX looks higher, but may continue to consolidate first. Volatility is expanding but remains at low levels supporting upside in the equity markets. The Equity Index ETF’s SPY, IWM and QQQ are all set up to continue higher in the coming months from their price action. As noted on the individual charts there is room for some short term downside without breaking the upward bias, with the SPY looking the weakest. Use this information to understand the long term trends in Equities and their influencers as you prepare for the coming months.
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