STI: Short term upside mometum

One of the main developments in the inter-market picture over the past week is a surge in the "safe haven" assets, bonds, gold & silver. This might indicate riskaversion coming back into the markets and hot money moving to the sidelines. For the STI, we continue to await a breakout of the wide trading range (2700 to 2542). Generally, the movement of individual stocks should remain rather sluggish until the price breaks out.

S&P 500, Daily, 9 September 2009



Short term momentum in the S&P 500 has picked up rather strongly over the past week of trading after the S&P 500 found a base at 992. The close on 8September09 was 1022, which is still shy of the recent high of 1039.

Our overall view is that 1039 might be the top in the S&P 500. This is from the presence of a divergence in the daily as well as 1 hour charts, in addition to September & October being the seasonally weakest months of the year. While price is rather close to the 1039 high, in technical terms we will need to see either a strong close above 1039, or a close above and re-test of 1039 for this view to be invalidated.


STI, Daily, 9 September 2009



For the STI, it is technically, still in a very wide trading range in the weekly charts between 2700 and 2542. Similar to the S&P 500, short-term momentum for the STI seems bised to the upside as well.

Currently, the STI is testing the 2660 level as resistance. Should the STI push beyond 2660, the next target would be 2700 and possibly 2744.

After rejecting the 2700 level in August09, the average daily range of trading days for the STI has shrunk. We expect a pick up in the daily range when the STI breaks out of the 2700 or 2542 level.

At this point it is important to keep the bigger picture in perspective and bear in mind that the STI is in a wide consolidation. Low volatility tends to beget high volatility and a breakout of this range should generate a good amount of momentum, regardless of it being to the upside or downside.


CRB Index, Daily, 9 September 2009



On 9September09's session, the CRB spiked rather strongly to close at 252 due to a sharp decline in the Dollar. Despite this, the bias for the CRB continues to remain to the downside. This can be seen from the charts in the downward channel that we have drawn. 253 which was key support, will also be acting as key resistance and should act as the first line of defence to upside moves for the CRB.

The next key support where we can expect to see a bounce is the 244 level as depicted on the chart.

In addition, we are seeing the signs of toppish formations in some CRB constituents. Crude oil looks like it is forming a top at its 200 week moving average. Copper has similarly stalled at the 200 week moving average as well. Sugar is also in the midst of putting in a top, while other commodities like corn and wheat are either testing or push to new lows as well.

Generally, the broad commodity complex is indicating that it is pushing lower or has the potential to. We will need to see a very strong surge in commodity prices across the board if we are to see a shift in momentum to the upside for the CRB.


US Dollar Index, Daily, 9 September 2009



The Dollar index has broken the 77.43 swing low on 9September09's session to close at 77.33.

Although it is by right, considered a breakout of a consolidation, we need to give the Dollar abit more time to await confirmation that it has sufficient momentum to continue pushing it lower.

We want to see either continued strong down days with closes near the lows of the day, or a pullback to 77.43 or even 77.68 and a strong rejection at those levels.

A continued depreciation of the Dollar would be the wildcard which could cause the equity market to rally higher. We elaborate more on this in the conclusion.


10-Year Note, Weekly, 9 September 2009



The following portion covers the 10-year note, as well as gold and silver. These are the "safe haven" asset classes where hot money tends to rotate to when they sense peril.

During the equity run up from April09, notice that the 10-year note was declining steadily. This is likely to be indicative of risk-taking behaviour coming back into the market. The opposite (risk-aversion) seems to be in the midst of unfolding now.

While taking a look at the bigger picture weekly charts, we also observed that the US 10-year note has formed a basing pattern off key support in the weekly charts.

The 10-year note is currently pushing higher to test key resistance at 119-22 to 120-0. Should we see the 10-year note push past this level on the weekly charts, it would be a strong indication that money is moving out of risky assets.


Gold, Weekly, 9 September 2009



Gold is considered by some to be the premier flight-to-safety asset. US$988 has been key resistance to gold for nearly 2 years. In the past few days, gold has cracked US$988 and touched off the psychological US$1000 level again.

A close above US$1000 should also be indicative that risk-aversion is coming back to the markets. The historical all time high for gold is US$1032. This should act as a strong ceiling for gold. However, if US$1032 is broken, there is no foreseeable overhead resistance for gold at all.


Silver, Weekly, 9 September 2009



Similarly, US$16.24 for silver has been very strong overhead resistance. Silver pushing past strong overhead resistance indicates an influx of buying coming into the market.




Conclusion
While the S&P 500 is pushing higher on short-term momentum, what we believe to be a top in the S&P 500 continues to remain in place. Topping formations tend to be volatile because they are psychological inflection points.

For CRB, the bias still remains to the downside. Its constituents such as crude oil are consolidating around key resistance levels or have already begun to push to or test swing lows. This should be a confirmation that the bias continues to lie towards the downside.

In addition, the "safe haven" asset classes of bonds, gold & silver are either testing or broken long term resistance levels, indicating that there is money moving into them on a relatively large scale. We interpret this as risk-aversion gradually coming back into the markets.

For the STI, while short-term momentum seems somewhat biased to the upside. It is still in a large sideways movement. What we are really waiting for with regard to the STI is a breakout of this range. Until the STI breaks out of the range, opportunities to profit generally remain rather short-term since individual stocks do not have the broad index backing them.

In general, the inter-market picture is leaning towards the bearish camp. However, the wild card at this point in time that could dramatically shift the entire inter-market picture is the Dollar. A strong push to the downside of the Dollar would likely push commodity prices higher, and possibly gold, silver and treasuries lower as well. In turn, equities would likely continue to trend higher.

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