Major Pivot Points Reached In Key Assets After Bearish FOMC Statement

The market rallied early ahead of the Fed announcement as there was some speculation that the Fed might even extend asset purchases instead of announcing a qe III at a later date however Bernanke followed through with his previous statements by confirming the end of qe II and then proceeded to make bearish comments regarding the economy. The Fed’s forecasts were cut but are still by my estimation, excessively rosy as they are projecting 2.7% Q2 GDP. Regardless, I closed QLD this morning for a $1.05 gain, and opened a long in TZA at $38.04. I will get in to this later but first there are other charts I would like to cover.

I discussed of a possible continuation of this rally after today’s FOMC statement however that scenario appears to be off of the table as the SPY failed to confirm a break of the 20 MA and in doing so also failed to confirm above $129 resistance. Originally I had been expecting something of a rally due to the higher than normal amount of bearish sentiment coming from the mainstream media, which considering where we were on the charts and the upcoming FOMC announcement, can sometimes mean that the market does exactly the opposite of what everyone expects it to.

Not for nothing though, we did sustain a 4 day run on the SPY which may have been enough to get some of the shorts to cover and I did manage to record gains from QLD over the last 2 sessions. At this point however, I don’t think it’s safe to be long until at least $125.50 on the SPY given the large reversal we had during today’s trading.

TLT is close to the $98 pivot and managed to finish fractionally higher on the day but the market appeared to be a little undecided as obviously the Fed’s involvement, or non-involvement in the treasury market is paramount to whether or not traders are willing to hold US bonds. According the ZH, Russia has dumped a significant amount of UST’s and now that the Fed will not be adding any more to their balance sheet, and additionally not raising interest rates to attract buyers, the general sentiment is that treasuries are going to fall substantially in the coming months without the Fed’s POMO. Also, as mentioned above, it is right below resistance which means that the chart lines up with the fundamentals. In other words, you want to be a seller of US Treasuries…? Wrong. TLT is most certainly a buy and it has nothing to do with news, economic data or the Fed.

The resistance at $98 is minor. Yes, it is a strong pivot point since it goes back to the 2008 financial crisis, but the resistance is minor because it has consolidated below it, just like it did last year. Any time the chart consolidates before resistance, that level becomes minor. Conversely, if the chart trades right into the pivot point without any resistance beforehand, then the level becomes major and it will not break on the first test.

Zooming in to the daily, there is a textbook bull flag complete with high volume on the initial move, and declining volume on the consolidation. The target for this flag would get us to a test of $98 however if we use last year’s example as a model, it may take more than one hit of that level to break higher.

The dollar failed to confirm below three major supports in today’s action. There is a major pivot at $21.30 which divides two triangle in which the dollar has traded in over the last month and a half. It closed well above that level and in addition, managed to choke above both the 50 and 20 MA’s. That kind of momentum out of the dollar after a Fed meeting is something we have not seen in a long time and the UUP should trade higher to $21.60 in the near term.

The Euro trades opposite to the dollar and consequently had the exact same price activity today with the exception being that it was to the inverse. FXE failed to confirm a break of $143.50 and closed below the 20 and 50 MA’s after being above all three levels earlier in the session. Downside target should be a pierce of $141.

I’ll go out on a limb and call this day as a multi month top in gold. Gold ended marginally higher but the weak Euro added pressure to commodities and gold was forced to give back gains later in the session. More importantly, there is a triple top at $152 on the GLD which is a topping pattern gold that has made multiple times in the last three years. I see the ascending triangle but gold has also made that pattern close to its previous multi-month tops and I don’t favor the Euro’s chances of rallying in the near term and I’ll stick with my original call of $139.50 on the GLD.

You can see what I mean by gold’s tendency to make double and triple tops by looking at the weekly chart above. GLD is quite overextended from the 3 year trendline and volume has dipped very significantly since the peak which indicates that large buyers are not in GLD yet.

SLV got above the 20 MA but the highs were rejected and it failed to get above $36 which has been a pivot point since its fall last Spring. I don’t like this chart, mainly because volume is very weak and the 50 MA has been extremely flat since the beginning of May.

Since I’ve suggested a top in gold, it makes sense to say the same for silver. I think that the failure to sustain any type of rally this week, and the failure to close above the 20 MA means that the inside bar bear flag will likely play out within the next week or so. The buy target for SLV is a pierce of $30 though that may change depending on the manner in which it reaches that area.

The USO caught a bid but fell the same way that most of the equity and commodity markets did today after the FOMC statement. This is another bear flag and expect it to reach the February lows around $35.20. From that area, it can be played from the long side but as of right now oil appears to be weak along with the rest of the market.

I’m sure you are beginning to see a pattern on the daily chart. For today’s trading, every equity or commodity play has made a shooting star reversal and failed to get above a resistance level or MA. However, inverse plays like the dollar, TLT and, TZA all made bullish hammer reversals while rejecting breaks of support, and/or closing above resistance or a key MA. I liked the reversals that took place today and saw a very attractive bull flag on the 10 minute chart for TZA towards the end of the day. Today it made a huge bottoming tail and closed well above $38 resistance. I am already $.56 in the money on TZA and if it gaps above the 20 MA tomorrow, then it is going to $40 and depending on what happens after that, it may go to $43.

The second half of this year is going to be the trader’s half and short term in-and-out trading is the best way to play the market for 2-3 day to one week or more swings. There will be too many swing trades to count and I believe that the buy and hold strategy will be beaten by the market as without POMO active, there will not be the constant and absurd positive bias. Since the market topped, I’ve made solid gains on all of my recent swing trades and right now, the rinse and repeat method is the best way to beat inflation and the market. I’ll be sure to continue to post alerts and track the market’s performance for those who have been following my commentary.

Advertisements

About Aaron Basile
Market Technician, Equity/Commodity Trader, Austrian Economist, Contrarian Investor

One Response to Major Pivot Points Reached In Key Assets After Bearish FOMC Statement

  1. Pingback: Major Pivot Points Reached In Key Assets After Bearish FOMC Statement » Greece on WEB

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: