Technical Picture - $USDX Strength Weighs on Precious Metals and Commodities

Markets gapped up on strength overseas, but sellers quickly took control and the opening gap was faded. Not satisfied to simply fill the gap, the bears persisted, and helped along by a stronger $USD, sent prices all the way down to yesterday's gap support for tech and almost a full PD gap fill for the S&P. Small caps were hit even harder still. The only bright spot was the DOW, which managed to end the day on the plus side. Prices started to stabilize and bounce midday, and got a further boost from the FOMC minutes. However, late day price action became much more volatile and after hours, the bears are hard at work.

On the SPX chart above we note that open interest CPC is still too bullish and needs to correct. Today's stick not likely a hammer, more likely a hanging man, but that needs to be confirmed.

Note that the VIX, which has gone virtually ignored for months, is forming a bottoming pattern which looks like a mini inverse H&S.

Yesterday, the dollar held support and today it bounced, holding most of its gains into the close.

Dollar strength meant pressure on commodities and precious metals. Crude carved out a bearish evening star reversal pattern over the last three sessions.

Distribution in gold and silver. Look for more downside if the $USD strengthens. On the SLV chart we see multiple waves of RSI divergence to higher prices. This time I think we will see a deeper correction.

I still have a core swing short position in SLW which I was very tempted to cover at $36.00, but I believe it's going lower, so I'm holding on.

Coal technicals are still strong, but we have a bearish island reversal waiting to happen. Watch the futures in pre-market.

Semis are holding up well, but a correction would be healthy here given the steepness of the trendline.
MOO has already corrected, so I'm expecting a retest of the base. World food shortages are still problematic, and I expect Ags to be one of the leading sectors in 2011.

Commodity Rotation Cycle - In a commodity bull market, precious metals are the first to rally, followed by other metals, agriculture is third and oil is usually the last rally in the cycle. That said, it stands to reason, that precious metals will be the first to correct. Just a thought from a non-expert.

Technical Picture - Best Week Since Sept. Surge

Jobs data reported significantly better than expected, but the upside was somewhat limited in the wake of the surge and the rebound in the dollar.

As we can see from the weekly chart of the S&P above, we have cleared the 200 week MA and retraced 61.8% of the 2007-2009 crash ie. ambush zone. We are likely due for some consolidation/corrective action prior to moving to the next resistance level.

Despite extended technicals, there are no short-term reversal signals for the S&P yet.

The USD carved out a lower low on Thursday in the wake of QE2, but Friday's shakeout bar (bullish engulfing pattern) and the positive divergence of RSI to lower prices, foreshadows a reversal. Inversely, the EURO confirms this analysis with a bearish evening star reversal pattern and negative divergence of the RSI to higher prices.

If the $USD bounces here, look for energy, commodities to correct. Also, look for sector rotation with financials set to lead on the upside after finally breaking out of the doldrums.

Technical Setups

LVS extended beyond 100% of the previous impulse leg (A to B) after a minor correction to C. It carved out a bearish shooting star reversal pattern on Friday at point D.

We note that there is no consolidation beyond the earnings gap up day and expect a decisive move back to the 50% retracement level of the last impulse leg up (C to D).

LVS got ahead of itself as we can see from the 15 timeframe below. Price surged out of the channel in morning trade, retested and surged higher still. The last thrust higher saw negative divergence of the RSI signaling the end of the move. The high volume for the day was more on the sell side than the buy side.

SOHU is flagging and looks poised to break higher very soon. Friday's price/volume action was NR7.

BIIB is also flagging and could benefit from some sector rotation.

Technical Picture - Prices Stall Ahead of Jobs Data Friday

Spinning tops with long upper wicks suggest a loss of momentum. Expect a pause or shallow retracement ahead of Friday's jobs data. I noticed a lot of bearish engulfing patterns on stockcharts.com predefined scanner page.

$USD moving back towards trendline.

Spotted MON on the TI momentum scan in early trade. Wait for price to consolidate the early move. Eventually, it carves out a cup & handle. Enter long on base BO. Price moves nicely to 50% FE. Take a partial as price is extending too far from up-sloping 5 period EMA. The shooting star leads to an evening star reversal pattern when the next stick closes more than 50% into the 1st stick in the 3 bar pattern. So, we close the balance of the position and short. Price swoons into the close.

Best Setup of the Week (Perhaps) - WYNN

WYNN had a strong 3-4 day upside move on the daily. Yesterday was a gap up that formed a shooting star on big volume. A red candle today could confirm the shooting star and potentially form an evening star on a weak close. What happened? A gap down open that had the potential to leave a 1-day island reversal. Here is the daily chart.


How to trade the gap down? Draw Fib line across the opening range (OR) and read price action in the congestion zone (38-62% Fib levels). Bars 3 and 4 (15min) were narrow range with bar 4 closing weak and just below the congestion zone. The entry was a breakout of bar 4. The 62% extension of the OR is a good profit target (normally). Since the 62% target was achieved so quickly, perhaps I should have targeted 3 WR 15min bars for my first exit. WYNN setup a second entry 'beyond the extension' for a continuation move. In fact, it closed near the low of the day.


Had I set my Fib lines from the PDH to the ORL (classical method), here is where a 62% extension target would have triggered.