Diary of a Financier

SPX & Metals Update: Bull Reversal

In Capital Markets, Trading Desk on Wed 27 Jun 2012 at 15:24

My much awaited, anxiously anticipated bounce off right shoulder support of the S&P 500’s (SPX) inverted Head & Shoulders has transpired brilliantly. Most inter-asset correlations concur, but I wanted to focus on precious metals Copper and Silver here today.

First, the 30-minute intraday S&P 500 ETF (SPY) frames the inverted H&S bottom I’ve been squawking about so much since the beginning of this month. Recall, this chart pattern is analogous to 2010 & 2011:

SPY 30-min- inverse H&S bottom.

Given this week’s material lift off of 1300, I expect that support to hold now. Of course, the Eurozone summit at week-end will determine the trajectory of a risk-on/risk-off rally henceforth, but I sense that the bar has been set low for constructive policy that might emanate from this meeting.

Dr. Copper has historically been an economic proxy. Copper (HG/) has bottomed at my $3.20-25 trendline support target. I’m buying the Copper ETF (JJC), because physical looks to reverse higher, up to ~$3.60 trendline resistance of a big symmetrical triangle. As always, I see some risks to this new position. For example, HG might pierce the support upon which it rests. This support happens to be the neckline of a long-term Head & Shoulders I’ve been tracking since April. However, longer-term technical indicators (weekly fractal in particular) aid my confidence in a bullish setup, so trendline resistance is my more immediate target:

HG daily/weekly/monthly- bouncing off trendline support target; I doubt H&S materializes, but with weekly indicators bullish, HG should rally to symmetrical triangle’s trendline resistance >;$3.60.

Silver (SI/) is the precious metal that provides a good gauge of risk-appetite. Truth be told, SI has formed a bearish descending triangle, upon which $26.50 support it now rests. Its technical indicators (specifically stochastics) have all bottomed on all fractals, which votes for its support holding and risk rallying, despite the bearish classical pattern:

SI daily- at final support in bear descending triangle, note shorter-term bear channel.

~~~~

I’ve been buying the Russell 3000 All-Market ETF (VTI), bringing my position to a meaningful, 15% long allocation. I also started accumulating some shares of Agilent Technologies (A) and ConocoPhillips (COP). I’ve highlighted COP’s fundamentals and technicals before. The technical setup here has finally prompted me to buy. I’m still holding ~12% cash, having deployed 13% this week in equity buying. I’ll continue accumulating index exposure, especially on pullbacks.

Beyond that, I’m refraining from more high-beta exposure just yet. The indecision in Silver’s chart give me enough reason to temper my bullishness with Beta neutrality. Anecdotally, my reservation is that I still think investors are caught in the “Panic” stage on the Cycle of Psychology. “Capitulation” has not yet occurred. Of that I’m certain:

In a few months, I’m sure someone will look-back upon these past weeks and ascribe the Capitulation tag to the June 1st or 21st trading days. Those days printed big losses… but no garden-variety Capitulation. NYSE Volume (VOLN) has been non-existent, and today’s 683mm share total is a cumulative outlier compared to averages.¹ That’s how bottoms are formed. That’s Despondency, the absolute bottom of the Cycle of Psychology.

My sense is that we’ve forgone Capitulation. Not all paradigms repeat thenselves, time-after-time, in neat sequence. That’s the flaw of objective models. I’m applying some human oversight, some subjectivity when I assert my confidence that a bottom has been formed.

–Romeo

¹VOLN averages: 50-day 994.25mm shares; 200-day 1246.1mm shares.

Advertisements
  1. […] taking the news as it comes.  The fundamentals seem to be changing still, migrating toward my thesis of a cyclical bull […]

  2. […] wanted to add some observations about the Gold (GC/) market to followup on my recent comments about metals and my ongoing series about GLD.  In stark contrast to the rally in American […]

  3. […] in Utilities (XLU) & Consumer Staples (XLP).  I took my Russell 3000 All Market ETF (VTI) exposure down from 15% to 10%, building a 10% stake in Large Cap Growth (IWF) to more than displace […]

Comment

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