An overview of the four major asset classes for the week ahead:
Bonds - US treasuries eye the downside, approaching near-term support
Stocks - though last week was rough, the indexes remain range bound
Commodities - grains and precious metals catch their breath, while crude begins to roll
Currencies - where is the USD headed
Bonds
US treasuries charts continue to point towards the downside. Even with the uncertainty and fear in the market (USD chopping sideways, stocks chopping sideways, VIX hovering around 40), it seems that bonds and interest rates know where they are headed.
Below is the weekly chart of the US 10 year yield. This past week ended with a strong close near resistance established in mid-June. A weekly close above .90 would open up a rise to the 1.40-1.50 area.
The daily chart of the 10yr. T-Note shows a recompletion of a tight, 9-week rectangle. Price could find support around the June lows at 137^000.
The US 30yr. Yield also approached an area of key resistance this past week. A weekly close above 1.70, and it's off to the races to 2.20.
I like the idea of being short the 30yr. T-bond below 171'00.
Since we're talking about bonds...I want to point out the resilience of high yield corporate bonds. The riskier bonds are hanging tough! Both the US Treasury and investment grade bonds are slopping downwards, while junk bonds continue to march sideways. I think the price action in HYG points to a tenacity in risk appetite, and bodes well for equities and risk assets as a whole. I'll dig deeper into this in coming weeks.
Stocks
Equities on the index level are range bound. Yes, there are leaders, laggards and chronic underperformers out there, but on the whole stocks continue to grind sideways. The fact that the S&P 500 and the Nasdaq recently posted all time highs is amazing when we consider the sell-off earlier in the year.
Below is the weekly chart of the S&P 500 Index for context. The index is back below Feb. 2020 highs, yet still above the 2900.00-3000.00 level that acted as resistance in 2018 and 2019.
If there is a "double top" forming in the S&P 500 futures on the daily chart, then the measured move down would be right around former resistance levels at 2900.00 shown on the weekly chart. Below is the daily continuation chart based on the most actively traded contract.
If the topping pattern is completed in the Nasdaq 100, the target would be slightly more than a mild retest of the February highs. How the Nasdaq handles a possible retest of its Feb. 2020 highs, would be very interesting and telling of what's to come in the stock market.
Momentum...former resistance turns support?
Below is a weekly chart of an IPO ETF. It has had an amazing run since March, but like other market leaders it needs to digest gains. I want to point out that price found resistance at a Fibonacci extension level, and that last week's candle is extremely bearish.
And last but not least...the Dow Futures. The point I want to make here is that the weakest amongst the Large Cap US Indexes could be leading the way down. Dow futures have already completed, though not convincingly, the possible topping pattern seen in the US Indexes. The way I learned it, we want to be long the strongest and short the weakest. I think the Dow is the best bet, among the indexes, for a swing trade to the downside.
Commodities
I still believe that commodities are just getting warmed-up. Gold started everything off in June 2019 with the completion of a 6+ year base, and other commodities are beginning to follow.
Precious Metals
Below is a chart of Gold in other major currencies. I just wanted to point out that Gold is well above its '11-'12 highs in other parts of the world, and that it's consolidating at home and abroad.
Could Silver head back down to 19.00-20.00? I feel like I spend way too much time drawing lines on charts to make that argument. I honestly think these arrows are way over the top, but I just had to include them for entertainment. But seriously, the 50% Fib retracement level is around 20.50.
Grains
I'm only including charts of Corn and Chicago Wheat this week. I feel like they sum up what's going on in the overall grain market. Explosive moves in the Bean Complex, like Corn, are running into overhead supply, necessitating some digestion of recent gains and hopefully a tradeable continuation pattern. Wheat, in its many US varietals, has begun retesting former areas of resistance, hopefully turned support.
Below is the weekly chart of Corn. Price is still stuck below an important area of overhead supply, as it could not manage to close above 420^0. In the week ahead my attention will be on the support level of 395^0, depicted by the AVWAP in red. Will it now act as support after years of being resistance?
I mentioned last week that I wanted to buy Corn on a pullback to 4.00. That day came last Wednesday, and I wanted nothing to do with Corn! I often find that the case with pullbacks. Maybe I've been hard wired to buy strength and sell weakness, and Wednesday's price action in Corn was extraordinarily weak.
Chicago Wheat closed just above the 38.2% Fibonacci retracement level, as it retested former resistance. It would be constructive if the 595^0 level can hold, becoming a new area of support.
Crude Oil
I like the short side of crude oil. The daily chart presents a nice rounding top pattern. Initial downside targets are 31.50 and 28.25.
It's funny, I don't use a lot of technical indicators, but the ones I do use were created by J. Welles Wilder Jr.
RSI for momentum - above reading is bearish, teasing oversold conditions <30
ATR for volatility - after contracting, volatility is beginning to increase
ADX for trend - a reading >20 = a trending market, I like to catch a breakout from a trading range before the ADX hits 20
I don't rely on these indicators for trade signals. Instead I use these tools to help identify the environment.
I will start adding resources later this month!
Currencies
I still believe the trend in the USD is down. However, if price closes above 94.60 on the daily chart, a much deeper retest could take place. A break above 94.60 accompanied by an RSI reading above 70 would put a pause on a Dollar weakness thesis.
When I zoom out I can't muster the conviction to short the Euro. This just looks more like a bottom than a top to me. If price breaks and closes below 1.14000, then I will consider the short side of the Euro.
It could go either way.
If I had to flip my view on the USD and buy with reckless abandon. It would be against the AUD for two reasons:
The AUD has been in a sustained downtrend against the USD since a topping pattern in the form of a coil was completed in 2013. The trend has yet to be broken.
2. The daily chart provides a much cleaner opportunity than its alternatives. A break below .70030 would be a sell signal for me.
I do not trade exotics, but I like this chart.
No real changes on the Crypto front. I'll update next week with more charts.
Thanks for reading! If you have any questions or comments, please feel free to contact me at ianculley@culleycharts.com
DISCLAIMER: All information and opinions expressed by Culley Charts are strictly for educational purposes and should not be construed as investment advice. Market participation comes with inherent risk, and the responsibility of managing this risk lies solely with each individual investor.
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