Thursday, November 17, 2011

Charts, charts, charts...

Today I would like to share a few charts that I am watching. They are a visual representation of current market conditions. I strongly believe that while charts show us where we came from, they also tell us where we will go in the near future. I suspect that my long-awaited pullback in SPX to 50 dsma is finally coming to fruition. I am going to build a case here through other trading vehicles that are closely correlated with SPX, which will show confirmation of this risk-off move, but also keep the overall bullish year-end direction in equities intact, with major support levels underneath.   

First lets look at what many traders call "Dr. Copper". It is a metal with Ph.D. in economics. Copper represents world's economic growth, because of its wide applications in construction and manufacturing. This is my go-to commodity chart, with current highest emphasis on fast-growing emerging countries. Last week I pointed out that when 3.46 broke, the next support below would come in around lower trendline (currently @ 3.18).

Copper Futures
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 Australian Dollar just came 10 pips short of my 0.9970 target, which I also pointed out in the same post last week. Aussie can not rally without copper. It is too dependent on commodity exports to China and other growing economies. AUD/USD will now try to stay above 0.9930, and will do its best to scoop the stops in preparation for possible inverted head and shoulders bottom. This currency is the ultimate risk-on among majors. We will see money flow back into it as the equities try to bottom.

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Probably my best conviction on how this pullback culminates, is in the following 4 charts. These are the "generals" of US stock market. These companies are cash rich, big part of fastest growing market segment, blue chips of technology sector, heaviest-weighted on NDX and Dow. Fund managers have their resting orders to buy these stocks at confluence of gap fills and major daily moving averages. This, in my opinion, is how the year-end rally will have to begin.
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