AUDJPY and S&P500 a fresh look

It has been noted in previous posts that the AUD/JPY pair has been highly correlated to the S&P 500. However, recently, the pair has drifted sideways while the S&P 500 has been making new highs.  Looking at today's action, the AUDJPY has started to keel over.
Wanted to note that the Slow stochastic on the daily looks like it is heading south indicating that momentum has shifted to the downside.  You can argue there is a bearish divergence from the Dec 20th low to now.  As the Slow Stoch has declined dramatically the last 3 days. 

Here is a closer look at today on a 15min chart.

On the 15 min chart you can see that as the markets in Asia have opened the AUDJPY pair fell off sharply.  The MACD shows a failure to break the 0 level.  Overnight if this pair heads much lower the US markets could be in a bit of trouble.  

The white line that is in both graphs is a relatively significant level.  If this breaks decisively, 81.50 could be a likely resistance point and stronger resistance should be felt at 80.00 level.

UPDATE:

2.5 hours after that drop, it looks like a retest of that 82.84 level is imminent.  The target for a break out would be 82.65.   MACD looks bearish and however the pair is getting over sold.

UPDATE 2: 9:54pm

The level mentioned above broke therefore the target is expected to be 82.66 which is a Fib projection of the impulse down.

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The S&P500 has continued its low volatility climb to the upside. However it is approaching the wave 1 = wave 5 target.

I mentioned before that the target was around 1283-1285, and should occur around Jan 1st.  I think the Jan 5th time frame is more likely, and that also fits to with the fact that holidays are still here. I have suspected that the first normal trading week in January will be interesting, with the options expiration week of the 22nd being extremely volatile.  Remember during this week, with everyone's expectations that the market will go up forever, big players will want to eliminate the need to pay options that are in the money.

A note on the technicals,  the MACD again looks like it is getting tired and could cross over, however, the Slow Stoch is locked in above the 80 line.  It could be expected that when that K line drops below the 80, the selling pressure will mount.  Be cautions up in the area we are in now.  There is a lot of uncertainty in the markets.

John Degoey was on BNN and mentioned these Canadian ETFs that are pretty interesting: ZJO, XMA, CBR.

Gold Update - SBB.TO Sabina Gold & Silver setup

The technicals on this stock are strong, Slow Stoch is in around 46, and MACD still over the 0 level.

I am setting up a buy stop at 5.24.  If this level is broken, the stock will be trading above the 20 MA and will be close to re establishing an uptrend.

Gold had a strong move on the 28th starting in Asia on the 27th.  Gold is strange these days, it seems like it wants to pull back but always is getting a bid when the price gets to the 1350-1380 range.

Bottom Falls Out of Gold as Markets Open

What happen at 6 PM as the commodities markets opened?  Did the Chinese Rate Hike contribute to this dramatic collapse? $11 or 0.8% drop in less than one hour.

Look at the recovery?  It will be interesting to see if this rally be break to a new high, if not gold / silver might be in some trouble.  I am a bull long term on metals and hope that later February or March 2011 will be a good time to trade metals.  I think a solid correction to 1250 - 1300 is in the works for gold.  Then it will continue upwards.

Below are a couple major currency pairs I like to follow.

AUDJPY

Momentum is down and it looks like a pull back is in the works for AUDJPY.   If the correlation between S&P500 and the AUDJPY holds this means that the S&P500 will also pull back.

This next 2-4 weeks will be very interesting to see play out.


EURUSD

The 200 MA is providing support however, this support could be short lived.  If markets in the US start turning, Euro zone could be in for a sizable decline.  Ireland, Greece, Spain, and Portugal are still weight on the markets. If this 200 MA support breaks it would be expected to see a 1.26 eurusd in a few weeks.

China hikes interest rates 0.25% in hopes to smother inflation

Wanted to bring some economical fundamentals in to the picture as well.
China raises interest rates by 25 basis points

The long awaited interest rate hike has just occurred today.  Since China has their Yuan pegged to the US dollar, a rate hike will be viewed by the markets similar to a US rate hike.  The Chinese have attempted to curb inflation via other methods such as raising the reserve ratio for banks three times.

Inflation is not going fade this easily, and western economies need to take note of what works and what doesn't work as I expect when inflation makes it here, it will be fast and furious.  The biggest danger is the static nature to the majorities salary contracts.

Anyways this move by the Chinese central bank will make for an interesting Monday morning.  However, job well done by wall street leading up to Christmas.  Lets make people feel good enough to spend a record amount of holiday shopping. It is annoying that apparently spending money has now become a "patriotic"  action.



 S&P 500 and Technical Analysis methods

I wanted to just mention a couple of notes on what methods / beliefs in Technical Analysis.  Mainly I want to ensure people realize that I haven't made my mind up on what technical indicators / theories work or not.  I do not advocate for one or another, I just want to present viewers with an assortment of different ways to look at stock, commodities and forign exchange markets.  From Elliott wave to MACD, all of these are interesting and should be played with to see how it can be used within your own methods, if it doesn't fit don't use it.

I enjoy reading up and learning different techniques.  For example the following is the usage of Andrew's pitchfork to predict level and time.




Looking at the S&P 500

I would like to note that the 1260 and the 1300 level are still critical and equating wave 1 to wave 5 coincidentally, wave 5 should end on December 31st, 2010.  The Cyan line for Wave 1 was drawn from the low to the high.  Wave 5 would end at 1290 which is in the range we just noted.  The 1300 is psychological and could be the natural top to this impulse wave.

The andrews pitchfork is divided by time as well.  As you can see the two targets are around the 1304 mark by January 1 (markets closed) or the 1260 area around the January 16-17.

I will repeat that the options expiration for January 22nd, looks like it could be a wild ride.  Holidays over, market over extended, oh ya every crisis from Europe to unemployment to Koren tensions are still  here.

S&P 500 approaching previously stated levels

Two levels I mentioned in a previous post: the 1261 - 1265 range and 1296 to 1300 range.

These are the next significant levels, so watch for selling in the new year.  Remember no way the markets can disappoint Santa, higher the market goes up more people shop, translating into a "recovery".  That is the plan of action.  So I do expect that drifting higher for a bit longer, but  January / early February could be an interesting time.

I think the January options expiration (Jan 22) week will be an interesting one.  It will be interesting to see how the holiday numbers come out this year, I have a feeling that they are decent but honestly hope they are not very good as that means people have finally realized that they need to retrain their spending to pay off their debt.

Strange thing is the continued divergence with Gold / silver and the markets.  As the markets drift higher, gold and silver have flat lined.  I have a feeling they will converge quickly, either gold / silver jumped 2-3% or S&P 500 falls 2-3% or a mixture of gold/silver up and S&P 500 down.

As you can see since December 9th, silver has not gone anywhere.  Last 3 days have been exceptionally quite.

Not sure which direction but this beast might come alive soon.

SLV 3pm December 20th

A couple of POMOs happened today with 10+ billion in bonds being purchased.  As you can see they affected the silver chart dramatically.

Can you guess where they happened?

Important to note the volume around 2 pm.  In my opinion, that volume spike has placed a decent resistant point 28.65 on SLV.  In the morning. made a trade 7.03 to 7.16. And I am going to get a position by the end of the day.

Cyan = entry
Purple = exit
Start = 11am ish

This time period coincided with the POMO


Thought this was a very interesting chart.

From: ZeroHedge.com

S&P 500 Review - December 19th, 2010

Markets have continued to rally.  The Slow Stoch is embedded meaning strong trend.  The MACD histogram is starting to decline however the MACD line is well above the 0 level.

It is still my belief we are in a 5 wave, and therefore a corrective phase is approaching.  From the recent highs the corrective phase most likely will take the S&P500 to 1167 (38.2% retracement), 1140 (50% retracement and 200 day MA) or 1120 (61.8% retracement).

 30 min chart - Slow Stoch is overbought, expectation of small pull back Monday or Tuesday.


I have some put options on a 2x bear etf for the S&P500 for a January expiration.  In the mean time, I have been able to successfully play SBB and EDR on the TSX.  These metal mining companies have been hit hard last week as gold and silver tumbled.  However, looking at the current gold / silver price action it appears that they may have a good week.


Current gold price from Kitco
Current silver price from Kitco