Since last update in March 2011, quite a lot has happened. The global news empire is in trouble, Euro zone problems escalated, US Debt ceiling issues are still on the table and generally the earnings have surprised on the upside. With all of these grey swans and uncertainty, the markets have responded quite well to the price levels charted earlier in March 2011 issue. Regardless of how the news on TV may appear to be, market sentiment is not at extremes, as can be seen via AAII sentiment readings. The sentiment index is not at bullish / bearish extremes (between 25% and 45%). Therefore no caution on extremity of sentiments.


Now, let’s delve into the charts…

 

DOW


It is still in the long-term bullish channel; therefore we were looking only to buy. Initially, we were looking for buying interest around 12500 resistance. In our March 2011 newsletter we said “Next resistance is at 12500, after which any pullback should be bought with confirmation of bullish candles. Aggressive traders may look for counter trend short opportunities around that level.”

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A number of Black Swan events have been ignored / killed by the markets (for the time being). Apart from Nikkei, there was no signficant follow through of selling in other markets, and dips have been bought hand over fists. Also, there have been news of significant buying of Japanese equities by western investments. Perhaps, this was among the the main reason for strong buying of Yen on 16 March 2011, rather than pure speculation or repatriation (Yen surge was later fought by G7 intervention).

Several trades were triggered based on previous analysis of January newsletter, details can be found below.

 

DOW


We had both Long and Short levels charted out, but none of them were set up. Daily chart shows that the price broke below 50SMA on 10 March 2011, but since then it has reversed and is now above both 50SMA and 20SMA. It is still within long-term bullish channel. Weekly chart showed a lot cleaner price action, after bouncing off 200SMA on weekly chart (as noticed in January newsletter), it created a doji type of candle (commonly called pin bar) and then continued the uptrend. Looking back at it, although I had weekly 20SMA as buying level, but I did not update my levels based on the movement of 20SMA. Next resistance is at 12500, after which any pullback should be bought with confirmation of bullish candles. Aggressive traders may look for counter trend short opportunities around that level.

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HO HO HO! Santa Claus rally did happen (again!!!). Perhaps, this seasonal phenomenon is really worth playing. Following the previous analysis in November, technically the markets were carving out bullish structure across the board with the fundamental backdrop of QE2 – therefore a few conditional (bullish/reversal candles at key levels) calls were made, which went down successfully. However, at this juncture probability increases for sizeable pullbacks and corrections in risk assets.

DesiHedge January 2011 MAJOR MARKETS (DOW, S&P, GOLD, OIL) Technical Commentary

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Risk is rising higher and higher, owing to mid term elections and Quantitative Easing (QE) resulting in breakouts across the board. Even the late coming financials have broken the pattern and now pulling back to retrace some gains. The overall outlook is bullish – however, in the short-term, the market is aggressively overbought and a setback albeit milder one is on cards.

Desihedge November 2010

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What a rally, the RISK is ON – I got two words: SHORT SQUEEZE! As mentioned in previous June analysis that a close above 10288 on Dow will open room for further rally. There is still a 2% to 5% more room for risk to go up, before stopping for a breath and then to reverse. AUD has recently shown very strong correlation to equity markets and it did not stop at its 200DMA to take a breath, just goes to show how strong the squeeze has been on DJI, AUD, SPX, you name the risk and it has been rallying……

Alright, enough of narrative, lets get to the charts.

DOW:

Supply line from Oct 07 to May 08 has now become a declining demand line followed by another demand line from Mar 09 to Jul 10, where both intersected. This new demand line, if we use the technique of forming parallel channel, shows us a short-term supply line from Nov 09 to the topping in Apr 10.  Simple terms, technically the chart is bullish, the only hurdles left are 200MA and channel’s top line resistance, which could also be nice areas to short from overbought.

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What a ride we had past few weeks. Retail investors are absolutely clueless, thanks for the financial media.  CNBC and Bloomberg have been using the following formula for past few weeks:

Markets up = Maybe selloff was overdone, people finding buying opportunity. US recovery is here, it is just a matter of time, rest will follow.

Markets down = EU soviergn risks pose a contagion threat and China is tightening, while australian mining tax will curb any expansions and flow of further capital.

In summary, they have been clueless as well. So do your own analysis, even if you are wrong, at least you spent more time considering your investments than you do for your annual holidays.

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