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Weekly Wizards

Possible Rising Dollar

Wed, Sep 23 2009, 05:53 GMT
by Mike Paulenoff, Jack Steiman, Harry Boxer

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Mike Paulenoff, On Possible Rising Dollar, Falling Oil (MPTrader.com)

The daily chart of nearby crude oil prices is remarkable for a number of reasons, the most salient of which are: 1) the number of "points" along the dominant Feb-Sep up trendline reflects a VERY powerful support line, now at $69.00. This also means that IF the trendline is violated, we must consider it a very significant violation of medium-term support; 2) that as long as $69.00 contains any forthcoming weakness, the overall trend in crude oil remains UP; and 3) that all of the action off of the June high ($73.23) represents a rising wedge, which usually resolves itself in an initial thrust to the upside that projects towards a target zone of $78.00-$82.00 (in a" normal" market environment), followed by a nasty downside reversal that should plunge prices beneath the dominant up trendline. All of my work argues that the Jun-Sep "coiling process" is nearing an end ahead of a resolution to the medium-term pattern.

Spot gold prices and the Dollar Index (DXY) have resumed their dominant trends in overnight trading, reversing yesterday's corrections.  Gold prices are up $15-$17 and the DXY is testing last week's low at 76.00.  If the DXY manages to hold 76.00 and then turns up, while gold prices fail to hurdle and sustain above last week's $1025.30 high, then the DXY could well be in the early stages of a recovery rally, with the gold and the SPDR Gold Shares (GLD) facing some serious headwinds.

The possibility of falling oil and a rising dollar obviously has implications for the equity markets, which already have momentum. Last evening we discussed for our subscribers the likelihood that yesterday's low at 1051.50 had the right look of the end of a correction off of last Thursday's high at 1071.50. To get confirmation of the low, the S&P 500 e-mini contract needed to climb and sustain above 1064.50, which we see is the case this morning. As we speak, the e-SPZ appears poised to continue higher to test last week's high at 1071.50. If that happens and the e-SPZ continues still-higher and climbs above 1075.25, then my work will argue for upside acceleration directly to the 110 target zone. A failure to reach or sustain 1076.25, however, will be problematic from a near-term technical perspective and will be an indication that perhaps all of the action between 1071/76 on the high side juxtaposed against 1055/51 on the low represents another high-level consolidation period. For the time being, the bulls have control of near-term direction. Let's see what they do with it.

Jack Steiman, On Respecting the Uptrend (SwingTradeOnline.com)

Two consecutive doji's out there. A definitive sign, or at least as much as this particular market can guarantee, that we'd move down on Monday, possibly a good gap down lower and that we'd likely stay that way for days. Well, we got the gap down as overseas markets were falling with our market joining in on the party. We started to get the run down, but that's where it died. And fast. It didn't take long before the market started chipping away at that gap down across the board. Step by step with the Nasday ultimately going green and hanging on to some small gains by days end. The S&P 500 and Dow were lower but well above their gap down levels. The S&P 500 Depository Receipts (SPY) opened at 105.89 but closed at 106.45. That is hollow, folks. On balance buyers once the gap down took place. That's just not bearish and leaves the door open for higher prices still. The Dow Diamonds (DIA) opened at 97.56 but closed at 97.75. Hard to be bearish with prints like that. Interestingly, this also means we held above the bottom of the SPX gap at 1060.
 We are not through the top of that gap at 1080, but at least the bulls can say they somehow held the bottom of that gap when it looked early on there would be no chance of such an outcome.

There was damage today that occurred mostly in the housing sector and the commodity sector as warnings from Lennar (LEN) and Potash (POT) hurt those two areas. Even those two stocks had doji's by the end of the day, meaning most of the selling was down out of the gate. After that, the buyers caught up and took positions. Stocks like American International Group (AIG) keep soaring for reasons I can not explain. As long as the froth lives, the market will try to work its way higher.

Technology stocks held up the best and this is key. It's imperative that the market find an appetite for higher beta. Without it, you have to be suspect at whatever buying is taking place.

The dollar tried hard Monday, but closed with a black candle. It gapped up nicely (UUP) and raced higher as the market moved lower. It is now pretty clear that the market is moving in lock step with whatever the dollar is doing. A good dollar is a weak market and vice versa. Whatever economic news comes out, and however the dollar takes this news, is how the market will move for the day.
As the dollar weakened throughout the day, the market began its recovery off the gap down lows.
 It opened at 22.91 and raced up to 23.17. that's a huge move for this very low beta issue. It closed at 22.84, well below its open. Go take a look at that black candle folks. It doesn't bode well for too much further upside action in the dollar. Anything is possible in this crazy game but that type of candle, especially since this has been in a longer term down trend, normally begs for lower prices.

We know there's some support at 1060, the bottom of that SPX gap and we know that 1080 SPX is massive resistance. That's the top of that monster gap. Below 1060 we see the 20 day exponential moving average at 1037. This is now very strong support. Below that we have the massive gap at 1018. Only a loss 1018 breaks the up cycle in place although a move below 1037 would be suspect. It is rising now, so it'll be a bit higher each day. I will be watching this 20 day ema very closely.
Please respect the up trend in place, no matter how little sense it may seem to you. Don't fight the tape. 

Harry Boxer, On 4 Charts to Watch (TheTechTrader.com)

Today I'm going to talk about several stocks we've been following closely.

American Interantional Group Inc. (AIG) has had a 5-wave advance, then a more prolonged consolidation that narrowed to an ascending coil. On Monday it had a monster move that took it from 39 and change to almost 50, closing at 48.40, up 8.49 on 114.5 million shares. That's a decided breakout on heavy volume. The channel in place projects to the 100 range, but I'm not going for that. First let's see what happens with the test above the 55.90 area that was reached about a month ago in late August. If we get a move through that then there may be a move up toward the 60 range or better. Certainly the stock is in play again.

China Medical Technologies, Inc. (CMED) had a significant breakout Monday. Friday it moved up to test a 40-day moving average, and Monday it popped 1.89 on 2.2 million, pretty heavy volume, with surging technicals, a clean breakout. The next resistance line is up around the 19.75 area, another 2 points from July's highs, or maybe even the next target around the 20 range. It could take place around the 21.00 area, so potentially a short-term surge that takes it up toward resistance at the 19.50 to 20.50 range. 

Ceragon Networks Ltd. (CRNT) is in a beautiful rising channel, the top of which calls for a move up to the 10 range, maybe 10.50-11.00. Monday's action was positive in that after the gap last week and the move up and pullback Thursday and Friday, it resumed its advance, setting new multi-month and 52 weeks highs. Next targets beyond that are 11.50 and then a move beyond that would take it up towards the 14.00 range.

Hansen Meidcal (HNSN) finally broke its 2-year downtrend on Monday, as well as its 5-month downtrend, a steeper angle. Volume of 5 million shares was the heaviest volume in the compnay's history, and signals a move may be coming that takes it up to the 6 range or even 7 ¼, the May high.

Published on  Wed, Sep 23 2009, 08:43 GMT

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