Expect increased volatility in US stock market!
The volatility index on Friday, April 17 showed very little movement as the Dow Jones suffered a 360 point decline before rallying 100 points in the last hour trading. This index of volatility had virtually no movement is shown on the enclosed chart. The suggest total complacency by stock market investors. And why not, because stocks of been going up since 2009 with only one major correction in 2011. Something bad is going to happen folks. History is not wrong very often and markets to repeat. All the factors are there. As we see the market this week the New York Stock Exchange index made new highs on Wednesday and Thursday only to have a Island reversal pattern occur on Friday is a big gap began Fridays trading. Whether this is going to be the final top in this bull market will not be known until we take out the lows of the week of March 11. This is the key to the current market much like the low of March 9, 2009 was the low of the bear market of 2007 2009. We are seeing divergence now in the NASDAQ in the S&P 500 unable to make new highs. This is also true of the Dow Jones industrial average. Dow Jones utilities and Dow Jones transportation’s are already in bear markets because they have taken out the March 11 lows and of stayed below these lows for several weeks. The next few trading days i.e. 5 to 8 days should determine the final high. It was impossible to be bearish after the March 11 lows were put in at such a strong cycle date and a perfect Fibonacci 61.8% retracement’s on all the major indices with the exception of the NASDAQ that was much stronger. This is not the case any longer as the NASDAQ is acting weaker.
Treasury bonds at a wild day on Friday by moving lower by $1500 and then rallying $2000 for $3500 swing in one day. This is extreme volatility for this market that usually moves a point or less in one day. Treasury notes were somewhat subdued but are still acting rather strongly as they are touching the 786 retracement once again. Should there be a selloff in stocks the bond and treasury note markets could rally in a flight to quality agenda. Longer-term interest rates will be going higher. I’ve always believed that the Federal Reserve’s quantitative easing experiment is going to end badly and I still feel that way. This was such a good idea why haven’t they used it since 1913 when the Fed started its current reign .
Gold and silver are little disappointing from the bullish side. As you can see from the gold chart that we have completed a symmetrical triangle pattern in gold. These patterns are usually resolved in the direction of the longer trend which in this case is down in gold. The same is true and silver but silver is actually much weaker than gold. On this last rally attempt silver could barely make a 38.2% retracement when gold was making a 50% retracement. Longer-term these markets still have great potential in my opinion. The should be strong supporting gold at $1170 per per ounce and silver should have strong support at $15.80 per ounce.
Crude oil and heating oil as well as gasoline futures have reached major resistance in my opinion as can be seen on the enclosed chart for crude oil. We’ve rally 25% off of the bottom and have completed several AB=CD patterns as can be seen on the oil chart. Whether it is the last time for new lows is still too early to tell as there should be strong support at the $49 per barrel level which is the 61% retracement of this last move.
Foreign currency is still dominated by the US dollar which is experiencing some resistance at the 100 level. This is 25% off the bottom that we made two years ago when the dollar index was trading at 75. The euro versus US dollar which represents 53% of the US dollar index is still trying to rally. As you can see from the enclosed chart there is strong resistance at the 109 level and also at the 114 level. The 114 level would be a perfect ABCD pattern and the first major pattern of this type since the market broke down so badly last fall.