Bear Market Respite and Reflation Trade

Won't Push Gold Past $1,000

by Jordan Roy-Byrne, Trendsman.com | March 25, 2009

S&P 500 w/Put-Call Ratio & McClellan Oscillator

The data is still bearish. The last three times the 10-day average of the put-call ratio was this low it marked the start of three considerable selloffs. Also the McClellan Oscillator reached a fully overbought level. That indicator has recently shown stronger momentum, which is a hint of a reversal in trend. However, it has reached a short-term overbought level. A daily close below 740 confirms that the recent recovery is over and the market is going to retest the low.

Commodity Equities

This is a weekly chart of the CRX, Morgan Stanley’s commodity related equity index. The price action shows a legitimate double bottom with positive divergences in the Rsi as well as the CRX/SPX ratio. Initial resistance is with the horizontal trendline and 38% retracement at about 650. For now, your focus and ours should be on the recovery. Aside from the 650-700 rang, there are a few things we can look to for guidance as to when our posture should change. In bear markets, rallies tend to peak near 60 on the Rsi. Also, we don’t expect the CRX/SPX ratio to hit a new high. Thus, we are targeting 0.70 to 0.75 there. S&P 1000 and CRX 700 (the reasonably optimistic targets, equate to a ratio of 0.70. Also keep in mind that the relative strength of commodity equities against commodities is best when the stock market is rising.

Canadian Dollar

If you look at it very closely (on a daily line chart for example), the Loonie broke down from a fourth wave triangle and was headed to 71. Instead, a quick recovery on the back of higher commodity prices vaulted this currency higher and rendered the chart more of a double bottom. Irregardless, we are looking for a recovery into the 89 to 93 area, which hosts a major confluence of resistance.

Australian Dollar

Our recovery target for the Aussie dollar is 80. The initial target is 73-74. The 38% retracement is 75 and there is a gap from about 74 to 77. In terms of momentum, our targets are an Rsi of 65 and a Macd of less than -1.00.

HUI Gold Stocks

Last week’s surge was probably short covering. In the very short term resistance is 330 and support 290. In the medium term we are still in a consolidation, though I am a touch more optimistic in the short term. I believe we can move to 350-370 in the short run and maybe even 410. I don’t think it’s sustainable however. I’m looking for a summer pullback.

Retail

In terms of shorts in 2009 this was and continues to be my favorite sector. The market has made a double bottom, which portends to further short term gains. A break of that double bottom would target 120. The support lines shown mark the 62% retracement from 1995. This chart only enhances my opinion that this sector is particularly vulnerable on the next leg down. We will look to initiate short positions on a move to 270-280.

Oil- USO

The USO continues to look good. I’m looking for a pullback in the next few days to 29. I don’t see potential resistance until 35 or 38-40. The 38% retracement of the huge decline is 60! This recovery is still in its early stages. Stay long.

Commodities- DBC

I really like this chart. Momentum is strong and volume has picked up nicely in the last few weeks. In fact, accumulation is at a four month high. Look for some weakness early in the week but then the market should resume its budding uptrend. My short-term target is 23.

Copper- JJC

Notice how the recovery in copper is further ahead of that in Oil and Commodities as a whole? Base metals tend to lag precious metals but they lead other commodities. The market here is extended in the very short term. Aside from that we remain bullish in the short and medium term. There is plenty of room to the upside as we move into spring and summer.

Contact Information

Jordan Roy-Byrne | Seattle, WA USA | Email | Website