FMX | Connect – www.fmxconnect.com - (Reported 5/24/2010)
From RBC Capital Markets.
• In our Friday morning note “Macro Update” we outlined a technical case for a trading low developing for stocks with a focus on the positive divergences developing with Copper and the Euro. In today’s note, we highlight a number of charts that support a trading rally but revisit the intermediate-term and longer-term technical background.
• 4-year cycle reset remains on track for H2 2010. See page 2 for 100-year perspective.
• Intermediate-Term/Weekly. Equity markets completed a 5-wave pattern, up from the 2009 lows. Oftentimes the corrective phase following a 5-wave advance is longer in duration than the pullbacks during the initial advance (May 2009, January 2009) and is a saw-tooth 3-wave A-B-C pattern. This Elliot Wave structure lines up well with our expectation that the current intermediate-term correction sets the stage for a 4-year cycle low in late Q3/early Q4, by which time our Quadrant Balance data should bottom. (p.3)
• Short-Term/Daily – Oversold short-term lows are likely developing as markets show very early signs of reversing from key trading support, setting the stage for a 5-10+ day trading rally. Resistance starts at 1100-1102, then 1140 at the 15-dma, then between 1150 at the 75-dma and the 1170 at the 50-dma. (p.3)
Other market barometers at important technical support/reversal levels:
• Internal market barometers such as the VIX, TRIN and percentage of stocks above their 50-dma at levels consistent with reversals. (p.4-6)
• NASDAQ bouncing from support at 2200 at its 200-dma. (p.7)
• Russell 2000 tests and reverses from its 200-dma at 628. Relative uptrend intact. (p.8)
• Dow tests and bounces from next support range between 10,000 and 9835 (Feb. lows). (p.9)
• BRIC (EEB) ETF testing low end of an 11-month range near $36. Volume expanding. (p.10)
• U.S. 10-year bond yields are testing the low end of an 11-month trading range. (p.11)
• Gold, the defensive safe haven, peaked early last week and is now testing next support. (p.12)
• Copper bottomed short-term last Monday and held firm despite stock weakness. (p.13)
• Crude Oil oversold and bouncing from support at $65 at August-September 2008 lows. (p. 14)
• The Euro bottomed on Wednesday and rallied while stocks remained weak last week. (p.15)
• Other indexes reversing on Friday from key support at or near 200-dma’s and/or their February lows: Banks BKX (p.16), Consumer XLY (p.17), Technology XLK (p.18), Semi SOX (p.19), Industrials XLI (p.20) and Metals XME (p.21).
BOTTOM LINE
• An oversold 1- to 2-week trading rally appears poised to develop, but technical confirmation of more sustained intermediate-term (multi-month) low is unlikely to develop until well into Q3, possibly Q4. By then, we expect our weekly momentum indicators to fully bottom and turn up from oversold levels, which should also coincide with a “reset” of the 4-year cycle low. Until then, we expect equity markets to remain very choppy/volatile.
IDEAS
• CME, ICE, JPM, ARO, DKS, BRCM, EMC, RMBS, NSM, ALTR, DE, FCX, RS
Source: RBC Capital Markets
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