EBAY

Textbook intraday breakout in EBAY. Comments on the chart.

7 Interesting Charts for Tuesday

XLK: Very nice consolidation pattern with a nice inside day forming on Friday. look for volatility above or below the inside day.

XIV: Like the XLK, the XIV wants to explode on Monday, an inside day after consolidation right below a clear support level could send this stock in either direction.

TLT: Another consolidation pattern being a flag followed by a tight inside day right below resistance at 124.50. I will be watching this one closely because as explained here, a breakout in the TLT could have serious implications.

DXY0: Has already taken out resistance a couple of days ago. This is a huge warning sign that dollar strength is underway and that things could head south soon.

HYG: High Yield Corporate Credit had broken down and is now holding below support. Friday was the biggest tell-tale sign that this instrument will likely head south with a close below the 200 SMA. Its next target is the low of the swing low at 87.50, should that level be taken out then there lots of room to the downside.

SPY: Broke its downtrend (blue line) but failed to make any serious short covering rally. At this point this consolidation int the SPY can't be considered a bottom, the moving averages are yet to catch up to the move due to the severe breakdown that occurred. This move looks more like a bearish flag at this point with more down side to come with the next major hurdle being the 200 SMA.

SSEC-X: That Shanghai Index has been monitored closely ever since it broke its downward trendline and entered a consolidation/accumulation phase. I am still bullish Chinese equities despite all the negative sentiment concerning Chinese stocks due to its relative strength. Only price pays, everything else is irrelevant and is only a gauge for sentiment.  A breakdown from the yellow trendline could be the final push down prior to the mark up.

Bearish Gold

I am watching this closely, a breach of $ 1525 could trigger a breakdown in gold with a move all the way down to $1100. At the end of the day, only price pays. 

Risk Off (DXY0 & TLT)

Here I have 2 charts, the first being the USD index DXY0 and the second being the TLT US treasuries ETF. Both charts are on the verge of a breakout which could have severe bearish risk off implications. Ignoring these signs would be dangerous. If they breakout and hold, I suggest getting into cash until things calm down. A breakout and failure to hold above resistance with price coming back into the range would be bullish.

Update: (23/5/2012)

P.S.  I am still watching the USD along with the US treasuries closely.  If we get a crisis in Europe we are probably going to get a run on banks. This money will most probably be stored where? Yeah that's right in the in US treasuries and the German Bund (TLT, BUNL).

P.S.S. Despite the mass media talking about the market being at an extreme, the TLT and the DXY0 are at the tip of the iceberg. A breakout above their respective levels could just be the beginning. A pause below resistance however is possible and could happen really soon in order to fuel the breakout.

AUD/USD

Back on 27/1/2012 I wrote the following:

"Ray Dalio is bearish AUD/USD along with other emerging currencies...Why? Below are some thoughts:

1) If Ray thinks the AUD will go down along with other emerging nations, he probably believes China will go through a hard landing.

2) If China go into recession, demand for metals will go down sending the AUD/USD down.

3) China is also the 2nd country after the USA in terms of GDP, should their demand for metals go down then that should affect the currencies of other emerging countries whose exports to China would fall hence sending their currencies down; it’s a game of supply and demand.

4) EUR going into a recession might not affect the US much but China would definitely feel some pain.

5) AUD/USD is a pair that is extremely sensitive to news from China. AUD/USD is also a pair that reflects global equities health, should the pair crash then that shouldn't be too positive for global equities.

6) Technically, the AUD/USD is in a weekly distribution base. A breakdown could cause mayhem.

7) This will especially have adverse effects on steel and basic materials which is already lagging (SPY/XME).

P.S. Bridgewater is also bullish gold which is pretty obvious with all the central banks printing, he sees inflation thus buying gold as a hedge."

Its now time to review what happened though these two weekly  charts of the AUD/USD and the XME.

Now statistically speaking, the AUD is overpriced when compared with the USD. To conduct the quantitative study, I took the USD ETF (UUP) and the AUD ETF (FXA). The correlation between the two is -89%. The average spread of the two currencies over the past 5 years has been      -9.14 with the spread currently being at 8.45 (FXA being overpriced). At the time my article was written the spread was at ~20 at 1.5 standard deviation. A revert back to the mean is to be expected with a cointegration taking place.

It will be very interesting to see how these two instruments play out over the coming months especially given the current bearish outlook on the global economy.

Key Inflection Levels Part 2 (GLD, OIH, UUP, TLT, UUP)

Well lets see what happened after I wrote the last post, did the market act as an inflection point? Well lets just find out.

GLD: Continued to get to weaken as the spread approached .90 which should act as short term resistance.

OIH: Clear breach or resistance reflecting oil's current weakness.

UUP: After that diagnol trendline broke, all hell broke loose as the dollar gained strength and outperformed equities.

TLT: Price should have held that 1.150 but obviously didn't and that resulted in a breakdown. This is a tough one to predict, I have no clue where its headed.

It will be interesting to see how things develop from here.

Shanghai Index Update

This thing just took out the 200 SMA and is now testing 2,450. A breakout here could trigger more buying sending this thing to 2,500 at least. I am becoming more bullish on Chinese equities.