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Friday, September 16, 2011

US $...Emerging Markets...Financials

Further to my earlier post today, and for more confirming clues as to what direction the equity markets may take during the next week and several weeks, it may be worthwhile keeping a close watch on the US $, Emerging Markets, and the Financial Sector (which are at critical levels of support or resistance), in addition to the Major Indices, Gold, Oil, Commodities in general, and, of course, the Euro.

The US $ has retraced since breaking out above its resistance level of 76.50 after hitting minor resistance at 78.00. At 76.50, there is support confluence of +1 deviation levels of an uptrending and a downtrending regression channel, together with the 200 sma on the Daily chart below. This has been a major support level at various periods since September 2009. If this support holds (in contrast to a drop in equities), I'd look at a re-test of 78.00 and an attempt at 80.00 (which is a major resistance level) in due course. If it fails to hold, then I'd look for an attempt to  hold the 75.00 level (confluence of the 50 sma and the "mean" of the uptrending regression channel), then the 74.00 level (major support) if that, too, fails.

The Emerging Markets Index ETF, EEM, bounced this week after finding major support once again at its Weekly 200 sma at approximately 40.00, as shown on the chart below. This level has held as support during various periods since 2007. Should this support level hold (in aid of a continued bounce in equities), the next levels of resistance are 42.50, 46.00, and 50.00. Should this support fail, the next levels of support are 35.00, then 26.50.

In my post on September 8, I made mention of the financial turmoil that has surrounded the markets since 2000 and 2007 as can be seen in the Monthly charts below of XLF, GS, C, JPM, BAC & GE.

These equities (and ETF) have all made a lower low this year than in 2010, except for GE...it may be worthwhile to keep a close watch on GE to watch for potential continued leadership.

As can be seen on the Weekly charts below of these financials, price has attempted to stabilize since their lows in August and have bounced this week to varying degrees of overhead resistance. The near-term lows are not only critical to hold as support over the next weeks to come if the equity markets are going to break (and hold) above their August/September range with any degree of certainty and confidence, but they must also start to show signs of strengthening and advance on solid volumes.

In support of the above comments regarding emerging markets, the Daily charts below show that price is approaching near-term major resistance for the Brazilian Stock Index (note the Cup & Handle formation since August) and the India Bombay Stock Index (note the Inverse Head & Shoulders pattern since August).

As an inverse confirmation of Brazil's next move, I'll be watching to see whether Brazil's currency either breaks below its immediate major support level or above near-term minor resistance before rising to the neckline of a Head & Shoulders pattern at 0.6100, as shown on the Daily chart below.