A Technical Cross Roads

I find it interesting how technical patterns often come to a point of resolution as major fundamental news is released.  This is true for assets across the board.  Tomorrow’s FOMC announcement once again comes as we are at a cross roads in several different assets.  Tomorrow’s announcement will kick off the next leg in several markets, it will be important to watch the initial reaction to the rate announcement, but I believe we will see the major trend develop through the end of the week.

I highly doubt we are going to see rates raised tomorrow.  The congress is struggling with so much right now, Bernanke can’t risk popping the asset bubble he’s created just yet.  He won’t do it until he absolutely has to, and when he does, I’d be willing to bet he does it all at once.  We’re not going to see a slow and steady increase of interest rates that bleeds this market out.  That being said let’s take a look at a few assets at the tipping point going into 2:15 tomorrow.

The broader market rolled over this afternoon and pierced the 5 day moving average, but recovered to close strong.  Still we saw our 4th doji day in a row, signaling severe indecision in the market.  Odds are that we continue trading within the ascending range, but the FOMC announcement tomorrow afternoon could knock us out of that pattern.  Keep your equity positions small here and join the winning team when a high volume break of the range occurs.

The downward momentum in gold $GLD has been waning over the past two weeks.  The 5 day moving average is my bogey, if $GLD can hop over that line we should see a strong intermediate base in gold and a move back towards the highs.  A break of the triangle to the downside and a move through the 50 day moving average should signal an end to the run in gold, for now.  In the weekly time frame,  I still wouldn’t be surprised to see a retest of the breakout level at 1027 where I believe we could see a massive pile into the gold trade.  I’m long $GLD from 95.45 on a system trade and will stop out below 108.70 which is last Friday’s low.

A similar situation in crude $USO as gold.  We saw two tests of the declining 5 day moving average today which were both rejected.  If we move up above that level tomorrow I’ll look to get long for a swing trade up to the declining 20 day moving average.

The US Dollar $USDX has obviously broken its downtrend.  I believe we are headed up to test the June and August lows, also coincident with the declining 200 day moving average.  The dollar is smelling a raise in interest rates and it’s hard to argue with the action, but I still don’t feel Bernanke has the balls to do it.  Stochastics are overbought here.  Interesting that the equities have not been hit with the dollar moving up, we could be seeing the beginning of a break in that correlation.

The market is handling all of the bank equity issuance in stride, but the liquidity punch bowl may be running a bit dry.  Bank of America $BAC is now trading  about 1.50 below where the retail idiots piled into it on the day of the secondary announcement.  Action here will be very important to the outcome of this market, if buyers of that secondary start to feel major pain, we could see quick and dirty selling in the financials.  As well, Citibank $C has been mauled the past few days as they issue equity to cover the TARP.  I have been on record for quite some time saying that Citibank should be treated like the plague, stay as far away from it as possible and don’t associate with anything having to do with it.  Wells Fargo $WFC is having issues as well as it raises cash to pay back TARP through an equity offering.  The banks are still the key to this market, if they can’t get their act together the financial sector will hold this market back.  Meredith Whitney is out with very negative comments on the banks, I believe she has the pulse of the sector, she’s the axe, ignore her at your own peril.  For it was her that caused the short covering rally in July when she put out intermediate term buy ratings on a whole slew of broker dealers and banks.

I’m off to hockey, yes another 11:30 game.  I gave it Wade Redden hard at the Ranger game last night, but alas, he still allowed Kovalchuck to walk around him in the first period, leading to a penalty and the first Atlanta goal.  This guy is probably the biggest waste of 6.5 million dollars in the history of the game.

Have fun tomorrow, it should be a hell of a show either way.

Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see the Disclaimer page for a full disclaimer.


blog comments powered by Disqus