USD/CAD Forex Pair Overdue for a Bounce

The USD/CAD Forex pair is well overdue for a bounce at the median of a long-term regression channel and the 40% Fibonacci retracement level, as shown on the Monthly chart below.

The Canadian dollar is price-sensitive to the price of WTIC Oil, so I'd keep a close eye on its action following the inaction of the participating countries to lower oil supply at this weekend's Doha meeting...Oil is -2.21 at 39.50 as I write this post on Sunday evening.

P.S. I'd also keep a close watch on the banks and DB.

On Vacation

I'll be on vacation as of this date, so I won't be posting much until late June (although I may slip the odd one in if time and circumstances permit).

In the meantime, I wish you all good luck in the markets!

Financials ETF Looks Weak

In my post of December 29, 2015, I stressed the importance of the Financials ETF (XLF) in, potentially, propelling the SPX to an increase of 5-6% for 2016.

You can see from the Daily ratio chart below of XLF:SPX, that price weakened considerably afterwards and fell to new lows not seen since 2012. Price is attempting to stabilize above that low, but all three indicators are still in downtrend and display new "SELL" signals, and price action is still under the bearish influence of the Death Cross formation of the moving averages.

If price drops and holds below near-term support of 0.0105, we could see a significant drop in the SPX, likely to new lows for the year, as I mentioned on April 3.

SPX:VIX Ratio Reaches a Critical Crossroads

Further to my posts of January 29 and February 17 (& March 3 update), price action on the SPX:VIX ratio has rallied and is now in between major support of 150 and major resistance at 160, as shown on the following monthly chart. The momentum indicator has also risen above the zero level and is hinting of higher prices to come at some point on this longer term timeframe.

Equity bulls will need to keep the price on this ratio above the 150 level, as well as break and hold above 160, and keep momentum above zero, in order to convince traders/investors to continue their buying spree to send the SPX to new all-time highs (currently at 2134.72, as shown on the following monthly chart of the SPX).

Otherwise, a drop and hold below these levels will see volatility return to the equity markets -- likely in a substantial manner -- to send them to, potentially, new lows for the year. It should be noted that the momentum indicator on this chart is not yet above zero and is still in a downtrend, so it is not yet confirming that higher prices are in store for the SPX...so, keep a close eye on the SPX:VIX ratio for signals.

New "Buy" Signals for Equities

* See UPDATE below...

New "BUY" signals have just formed on the RSI, MACD and PMO indicators for:

• SPX:VIX ratio: Price still needs to cross and remain above the 100 level, as outlined in my post of January 29th, and, thus, is still aimless and directionless within the "Uncommitted Zone."

• MSWORLD Index: The RSI is about to cross above the 50 "BUY" level, possibly by tomorrow (Thursday). Major resistance lies above at 1600, as also mentioned in the above post.

So, while we are now seeing fresh "BUY" signals on these charts, we'll need to see a convincing follow-through and a break and hold above these resistance levels to confirm that a new bull market is emerging in equities, especially in view of the economic weakness that was reported in the last Beige Book Report.

* UPDATE March 3rd:

We'll see if the newly penetrated 100 level holds as support now on the SPX:VIX ratio, as well as the 1600 level on the World Market Index, as shown on the following updated Daily charts of both. If so, it looks as though equity markets are in for a new bull run...possibly to new highs sometime this year. Otherwise, another failure of both of these levels will likely begin a new bear run to new lows.

Banks and Oil Don't Mix

As WTIC Crude Oil goes, so goes Deutsche Bank, as shown on the 5-Year Daily comparison chart below.

Right after the opening bell this morning, DB made a new 5-year low of 15.95, as shown on the Daily chart below. There's no confirmation of a reversal in sight, technically, yet for DB, although the RSI may be hinting at a bit of a slowdown in the plunge.

Meanwhile, Oil is trading at 30.06...1983 prices, as shown on the Monthly chart below.

Both DB and Oil have been especially weak since mid-2014 (DB began falling at the beginning of that year, so whether it was forecasting weakness in Oil is a matter for consideration)...two to watch to see if either gains any support in the near future, or continue their falling-knife action.

*P.S. You can read more regarding the woes facing Deutsche Bank here and here.

Nikkei Index Teeters on the 2007/08 Brink

*See UPDATE below...

Japan's Nikkei Index is currently trading just above the 17,000 level as I write this post around 9:00 pm ET Tuesday and is down around 3.3% from yesterday's close. You can see from the Monthly chart below that this is around the same level just before the 2007/08 crash.

A drop and hold below 17,000 could spell another big plunge in this index and confirms what I mentioned in my post of January 29th. If it holds, this "island reversal" candle formation on the Daily chart below should produce some "interesting" results!

*UPDATE February 9th:

The above bearish "island reversal" candle formation has been confirmed. After last night's 918.86 point drop, the Nikkei Index now sits just above 16,000, as shown on the following Monthly chart.

Major support sits at 14,000, followed by 12,000.

At the moment (10:05 am ET), the USD/JPY Forex pair is trading at 115.22, as shown on the following Monthly chart.

Major support lies far below at 110.00, followed by 100.00.

The recent extreme moves in both the Nikkei Index and the USD/JPY Forex pair tells me that volatility is not yet over, and, in fact, may have just begun.

It's Now or Never For Bulls

Was today's (Friday's) world-market rally serious and sustainable, or simply a knee-jerk reaction to Japan's surprise NIRP (negative interest rate policy) announcement last night (including some shorter-term short-covering action) and "end-of-month window dressing" by fund managers?

Perhaps the following update to my last post will provide some further insight into that question, as I review a variety of markets.

Thurs. Jan. 28/16: Possible Bull Trap Today

*SEE UPDATES BELOW...

As at the time of writing this post (9:45 am ET), the Daily Heikin Ashi candles on the E-mini Futures Indices (YM, ES, NQ, TF & NKD) are hinting that today's rally may be a bull trap...I'll post an update after today's close.

*UPDATE (after Thursday's close):

Here's how these E-mini Futures Indices closed today. The Daily Heikin Ashi candle chartgrid below shows a lack of conviction or strength, at this time, on the part of buyers. In months past, we'd normally see a V-shaped bounce on this type of candle chart, with a decent rally following...but such is not the case now.

A look at the Weekly Heikin Ashi Candle chartgrid below shows, that on a weekly basis, no reversal pattern is yet seen.

I'll post another update after tomorrow's close to see how this week's candle closes.

I last wrote about the SPX:VIX ratio in my post of January 13th. The Monthly ratio chart below of SPX:VIX shows that price bounced a bit since then, and is now stuck in, what I've called the "Uncommitted Zone."

Until we see a move (with conviction) above (which stays above) the 100 Bull/Bear Line-in-the-Sand level, we'll continue to see whippy, volatile moves, which lack direction...or even see the next major plunge in the SPX and equities, in general. The Momentum indicator is still below zero on this timeframe...I'll need to see it pop above (and stay above) zero on any rally to confirm buyer conviction.

I'll post another update after tomorrow's close to see how this month's candle closes.

***N.B. This stunning announcement Thursday evening by the Bank of Japan to cut interest rates into negative territory immediately sent world markets and currencies roiling overnight...Japan's Nikkei Index made several harrowing round-trip spikes, totaling approximately 2,180 points! I'll post more on the effects on markets after Friday's close.

*UPDATE (as of Friday @ 10:30 am ET):

World markets rallied overnight and North American equities continue the bounce, as noted below (more later)...

Source: www.indexq.org

*N.B. See my next UPDATE at this link.

The Canadian Economy: Was This A Warning?

In my post of January 8, 2012, there was much talk of a potential recession coming to Canada.

Since then, you can see from the 5-Year comparison chart below of Canada's TSX and EEM (Emerging Markets ETF), that they have traded, essentially, lock-step. Both are in bear markets since their highs in September 2014 -- the TSX is -20.8% and EEM is -33.79%.

The next 3-Year comparison chart shows the big reason why...namely, the gyrating price (both to the upside and downside) of WTIC Crude Oil, which has had a major impact on Canada's TSX. Oil is -71.45% since June 2014.

It would appear that, as goes the price of Oil, the TSX will  continue to behave like an emerging market (unless Canada's Federal government provides some kind of meaningful fiscal stimulus for alternative projects and, also, fast-tracks plans to improve its distribution methods to, more efficiently, get its crude oil via pipelines from Alberta to the west and east for sale to world markets).

In the meantime, these are three markets to watch over the coming weeks and months for clues of either further weakness or evidence of bottoming and strengthening of the TSX, in particular, and, possibly, other world markets, as I mentioned in my post of January 5, 2015.

World Market Index: Is This Capitulation?

I last wrote an update about the World Market Index on January 8th.

Since then, this index has continued to drop below the critical support level of 1600 and price now sits just below the next support level of 1550.

As you can see from the 5-Year Daily chart below, it's a long way down to major support at 1350. All three indicators point to lower prices...but, the swings are large, and we may see some kind of bounce, although it's not clear as to when or at what level that may occur.

If the U.S. markets are going to lead global markets to some kind of bounce, it's worthwhile monitoring the price action of the SPX and the SPX:VIX ratio, as I discussed in my post of January 15th, for possible clues as to timing of such a bounce.

Additionally, you can see from the 5-Year Daily comparison chart below of the SPX and USB (30-year U.S. Bonds) that, at times they traded in opposite directions, but were, more or less, in demand from the beginning of 2014, until January of last year, when they uncoupled, once more, and the swings on USB  became very volatile. Furthermore, we now see, once again, a bearish Death Cross formation on the SPX, which hints of further downside movement, as do the lower lows on the RSI and MACD indicators. So, let's examine the price action more closely on USB.

The following 5-year Daily chart of USB shows that price has now broken above triangle resistance and major price resistance of 155. While we have new "buy" signals on the MACD and PMO indicators, and the RSI is still rising above the 50 level, we don't quite have a bullish Golden Cross formation yet on the 50 and 200 MAs...although, it appears to be imminent. If price can rally and hold above the 60% Fibonacci retracement level around 160, there's a good chance that it will continue...which may, in turn, negatively or positively influence price action on the SPX.

So, have we reached capitulation yet on U.S. equities? As I mentioned in my post of December 8th, one gauge of market sentiment that I look at from time to time is my chartgrid of Foreign ETFs.

The following 1-Year Daily chartgrid shows the ATR on each ETF (the white histogram at the bottom of each ETF)...an extreme high ATR can often signal capitulation and a reversal of a recent general trend. Approximately one-half of them have put in an extreme, or near-extreme, ATR reading, which may indicate a possible slowing of the recent plunge in equities.

The next 1-Year Daily chartgrid shows that all of these ETFs are in downtrend, most of which have made a new low recently during this one-year period.

CONCLUSIONS:

While the above information tells me that the plunge in world equity markets may be slowing, or slow down sometime soon, we may see further selling continue (while investment continues in U.S. Bonds) until very extreme price, volume, and ATR levels are reached.

These charts are worth monitoring over the coming days/weeks for signs of any such capitulation and/or reversal.

Furthermore, one important world economic event to note is the upcoming 4-day WEF Annual Meeting. It concludes on Saturday, January 23rd. Any possible decisions coming from that meeting may influence world markets, either positively or negatively, and may provide a catalyst for a capitulation, as may the results of the next 2-day meeting of the FOMC on Wednesday, January 27th. By then, we're approaching the end of the first month of 2016, which may try to end on a positive note and erase the considerable losses that we see, thus far, on the following Year-to-Date graphs of the U.S. Major Indices and its 9 Major Sectors. However, the data from the latest Beige Book Report did not paint a rosy picture of the U.S. Economy...so any rallies over the weeks and months to come may be weak and short-lived.

Source: ForexFactory. com

SPX: In the Grand Scheme of Things

The Monthly chart below of the SPX shows where price closed today (Friday) in relation to its lows of 2009. The price has been bouncing in between two external Fibonacci retracement levels (127% and 161.8%) since October 2014 -- which represent major resistance and near-term support levels.

A break and hold below near-term support (at 1,823), puts the next support level at, between 1,730 and 1,735 -- a confluence of the 40% Fibonacci retracement level (taken from the October 2011 lows to the 2015 highs) and the 127% external Fibonacci retracement level (taken from October 2014 lows to the 2015 highs).

The next chart shows the percentage gained on the SPX from the lows of 2009 to the highs of 2015, as well as where price sits today in percentage-gained terms. The SPX is still around 156% above its 2009 lows, in the grand scheme of things.

So is it time to panic? Perhaps the time would be if/when price drops and holds below 1,823, inasmuch as major support sits far below, between 1,575 and 1,625 (quadruple Fibonacci confluence). 

However, we will likely see continued volatile swings in both directions until a new trend is established either way, which could take most, if not all, of this year. In the meantime, it's worth keeping an eye on the SPX:VIX ratio, as I discussed here, to gauge volatility strength/momentum.

Beige Book Report of 01/13/16: Not A Rosy Picture For U.S.

The following information is from Nasdaq.com...you can see that this latest Beige Book report does not paint a rosy picture for the U.S. economy.

Unless we see new, stimulative fiscal policy emanating from the U.S. Government this year (which is unlikely because of the upcoming Presidential election on November 8th), I'm not expecting any kind of drastic improvement this year. So, expect more volatility, without a clear trend in the markets, until then.

2016 Economic Calendar

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Beige Book  Released On 1/13/2016 2:00:00 PM For 1/13/2016 2:00:00 PM Highlights The Beige Book is not painting a picture of overwhelming strength for the U.S. economy, especially for a Federal Reserve that has begun to lift interest rates. Growth in consumer spending is described as no better than slight to moderate with holiday shopping held down especially by weakness in apparel sales. Auto sales are described as mixed with activity beginning to drop off from prior strength. And the Beige Book is not picking up indications of price strength. On the contrary, price pressures are described as minimal and wage pressures as flat to moderate. Agriculture is another weak area, with farm incomes stressed by both flooding and by drought and with prices low and falling. The latter also reflects in part weak global demand and the strong dollar, two factors that are also behind what is described as weakening in the manufacturing sector. One area of strength is real estate, both residential and commercial. Moderate gains in house prices and commercial rental rates are cited. But this report offers far more for the doves than the hawks and could justify perhaps doubts whether the Fed will implement four rate hikes this year as planned.

Market Volatility Now In "Fragile Zone"

Further to my post of December 3, 2015, the price of the SPX:VIX ratio has broken below a critical level of 100.00 and has fallen into, what I call, the Fragile Zone.

I named it this because, as you can see from the ratio chart below (where each candle represents 1/4 of a year), price has now encroached into the last major bearish candle of Q3 of 2011, and has also fallen below the 60% Fibonacci retracement level taken from the 2009 lows of this ratio to its highs of 2014.

A hold below 80.00 could see the SPX plunge, particularly if this ratio drops and holds below 60.00. The declining Momentum indicator is hinting that further weakness is ahead for the SPX...as I mentioned here, with respect to the E-mini Futures Indices.