Friday, October 23, 2009

Limit SELL 1082 GTC

There is potential for a sizeable selloff next week if we can get acceptance beneath this key level 1070 on the Market Profile Chart.

The E-Mini closed below the Weekly Pivot 1082 and the 4 hour chart has made a second WRB with lower high than the previous one.

The VIX Count is at #11 and the S&P500 ( SPX ) Daily is showing a Bearish Engulfing Pattern. The DOW Transportation Index closed below the 50 Day Moving Average.

There are other important and compelling reasons /clues showing that this market will drop next week.

This Week’s Forex Price Action Indicates Dollar is ready to Rally

The strong recovery in the U.S. Dollar late in the week and the inability to break it sharply lower could be a sign that a short-covering rally is imminent. Rumors the Fed may begin to raise interest rates earlier than expected, a poor U.K. economy and fear of intervention all helped boost the Dollar on Friday.

The uptrend continued on the daily USD JPY chart as rumors swirled that traders are betting the Fed will raise interest rates sooner than expected. Traders who sold Dollars and bought Yen when U.S. interest rates became the lowest in the world are not being forced to buy back their positions. This is helping to boost the USD JPY. There will come a point when the Yen once again becomes the world’s carry trade. The Dollar should rally substantially and equities should break hard when this occurs.

The S&P futures are heading south as investors sell on the news of more positive Q3 earnings coupled with very strong Existing Home Sales data.

However, investors have yet to see a significant improvement in unemployment, and we should keep in mind that both PPI and Building Permits printed below expectations earlier this week. Hence, although Q3 earnings have been impressive, it seems the Fed may have limited ability to drain liquidity over the near-term. Meanwhile, the S&P futures are having a lot of trouble with the psychological 1100 level, and it appears the bulls are a bit worn out.

Investors were caught off-guard by the much weaker than expected Prelim GDP data from Britain. The Pound is getting hammered as a result, a negative development for U.S. equities due to their negative correlation with the Dollar. However, the Euro is holding strong after EU PMI data printed positively mixed. Furthermore, the USD/JPY’s rally is heading past 92 while leaving its psychological 90 level behind. We saw U.S. equities move in a negative correlation with the Cable earlier this month, so investors should be paying closer attention to activity in the Euro and gold for the time being.

That being said, the S&P futures are getting uncomfortably close to the 1st and 2nd tier uptrend lines. These uptrend lines run through October lows and should be viewed as important technical cushions. A reversal beneath these uptrend lines could result in accelerated near-term losses towards 1010 and the psychological 1000 level.

However, bulls shouldn’t get too worried yet since technicals are still supporting uptrends not only in the S&P futures, but also in the EUR/USD, AUD/USD and gold. After all, a selloff on positive earnings is usually a symptom of overbought conditions. As for the topside, 1100 remains the key technical barrier separating the S&P futures from substantial gains.

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