Adam Hewison: Is The Market Ready For A Rally?

The equity markets put in a very strong performance yesterday, pushing to their best levels since August 5th. We would not be surprised to see this very overbought market possibly rally to the 1230 area and 1250 zone.

The gold market once again bounced over the $1,800 an ounce hurdle and is currently trading at $1,822. This market needs to regroup further if it is going to challenge the $2000 level. The trend is in a positive mode despite the recent $200 pullback.

Crude oil is now very much overbought and approaching the upper levels of the Donchian trading channel. We expect that this channel and the fact that this market is overbought will provide enough resistance to any halt any further upside action.

The dollar index continues to bounce off the support level of 73.50 which we have outlined on numerous occasions. Currently this market is trading at 74.00. The CRB index has rallied quite dramatically after making a low on August 9th. This market is largely reflective of the move in crude oil.

Now, let’s go to the 6 major markets we track every day and see how we can create and maintain your wealth in 2011.

S&P 500
Monthly Trade Triangles for Long Term Trends = Negative
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Positive
Combined Strength of Trend Score = + 70

The S&P 500 index rallied to its best levels since August 5th. However, this market is heavily overbought and we still view the longer term trend, based on our monthly Trade Triangle, as negative for this market. We would not rule out a potential rally to the 1230 level or even the 1259 level, both of which represent Fibonacci retracements. You may remember that the 1250 area was key support in this index. It would not be unusual for the market to go back up and test this level now as resistance.

SILVER
Monthly Trade Triangles for Long Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trend = Positive
Daily Trade Triangles for Short Term Trends = Negative
Combined Strength of Trend Score = + 85

The silver market is definitely the stepchild of the metals market and would appear to be regrouping around the $41.00 level. Both of our intermediate and long term indicators are friendly to the silver market and we would not rule out further strength in the near term. The Williams % R indicator is trading around –50 and it is neither oversold nor overbought at this time.

GOLD
Monthly Trade Triangles for Long Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Negative
Combined Strength of Trend Score = + 85

The gold market appears to be settling down around the $1,800 an ounce level and with our intermediate and longer term indicators still positive, we must remain in the bullish camp for now. It would appear as though the $1,770 level should provide some support on any pullbacks in this market.

The goal market is in the mid range of its major oscillator, the Williams % R, and therefore is not giving us any clues as to its next swing direction. We would imagine a move over $1,850 will be a very positive indicator for gold. Both intermediate and long term traders should maintain long positions with money management stops in place.

CRUDE OIL
Monthly Trade Triangles for Long Term Trends = Negative
Weekly Trade Triangles for Intermediate Term Trends = Negative
Daily Trade Triangles for Short Term Trends = Positive
Combined Strength of Trend Score = – 65

Please note that our comments are based on the October contract. The 89.19 level we mentioned yesterday was enough to stop the current rally today. The crude oil October contract is very close to the top of the Donchian trading channel. On top of that, the market is extremely overbought and we would not be surprised to see a pullback from current levels. At the present time our long term indicator is negative and our short term weekly Trade Triangle is positive, sending a mixed picture for crude oil. However, the longer term monthly Trade Triangle must be given more weight then the two shorter term ones.

DOLLAR INDEX
Monthly Trade Triangles for Long Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Negative
Daily Trade Triangles for Short Term Trends = Negative
Combined Strength of Trend Score = – 60

Once again the dollar index bounced from the support level at 73.50. The market traded over the 74 level after finding support at 73.50. With a Chart Analysis Score of –60 we would want to trade this market using our Donchian Trading Channels and our Williams %R indicator. The index remains below its 200 day moving average while our longer term Trade Triangle remains positive.

REUTERS/JEFFERIES CRB COMMODITY INDEX
Monthly Trade Triangles for Long Term Trends = Negative
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Positive
Combined Strength of Trend Score = + 60

This index has put in a good performance largely through the move up in crude oil and other commodity type markets. At the moment our indicators are mixed, indicating the absence of a strong trend in either direction. The CRB index is overbought and also at the top of the Donchian trading channel.

We would not be surprised to see some profit taking coming in to this market and a pullback from current levels. Our bias is towards inflation in the future, but I’m expecting to see more of a two way market in this index in the next week or so. Intermediate and short term traders should be out of the market and on the sidelines at the present time.

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