STA MarketUpdate 5-24-100

8/9/2019 STA MarketUpdate 5-24-100

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Bear MarketEquities are in a buy-mode but that means nothing until weget the buy-trigger. Today that trigger would come with aclose by 14-day RSI above 36.80. Despite short-term signals,we believe we are now in a bear market. This is based on 14-day RSI andallows us to get this bull/bear signal prior to most technicians who define a bull orbear market depending on the direction of the 150- or 200-day moving average.The 132-week cycle called for a top the week of April 23rd and the 91-month cyclecalled for a turn in May. The Euro triggered a buy-signal last week. Details inside

Libor-OIS SpreadThe dollar Libor-OIS spread increased to 26.7 basis points. The spread betweenthe three-month Libor rate and the overnight indexed swap rate is a barometer ofthe reluctance of banks to lend. The term London interbank offer rate (Libor) isthe rate at which banks indicate they are willing to lend to other banks for aspecified term of the loan. The term overnight indexed swap (OIS) rate is the rateon a derivative contract on the overnight rate. (In the United States, the overnightrate is the effective federal funds rate). Can a rising spread be bullish?

SentimentThe most recent Investors Intelligence survey has the bulls at 43.8% and thebears at 24.7%. Hope dies hard.

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May 24th, 2010

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*New Content* FTSE/Xinhua 25 *New Content*Euro


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US EquitiesCyclesNot much explanation is needed for this chart. Since the March 2000 high the (+) 132-week hasdone a good job of tagging important highs and lows.

Figure 1: S&P 500, 132 week cycle

After calling the August 1987 high and the October 2002 low, the 91-month cycle seems to beindicating a high for May2010.

Figure 2: S&P 500, 91-month cycle,


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The S&Ps 14-day RSI dipped to 29.80 last Thursday, just barely below the 30 level we identifiedas necessary to call this abear market as opposed to the direction of the 150 or 200-daymoving averages. See last weeksMarket Update for more info. Fibonacci confluence zones(support) exist at 9,900/9,400 Dow and 1,050/980 S&P 500. Our best case scenario targets aminimum move to the 38.2% retracement of the March09 advance. That level is 9,400 Dow,1,010 S&P 500.

The Euro-Yen cross has moved to a buy-mode but no buy-trigger yet.A Full moon is scheduled for this Friday. Full moons are often associated with market bottoms.

S&P 500Equities are on the verge of getting a buy trigger from RSI as their bandwidth indicators are nowin a buy-mode. Ifwe get the trigger, we dont expect a long-lived advance as the 20-week cycle isnot expected to bottom until the week of July 5th. A couple weeks wiggle room should be leftaround that target week but not so big that we would expect last Thursday to have been thebottom of the cycle.

Intermediate-term, the 40 and 80-week cycles are due to bottom in the weeks endingSeptember 10th and 17th. This would be a typical seasonal bottom for markets prior to anautumn advance.

Figure 3: S&P 500, Carlson Confirmation Model


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Volatility Index, VIXThe Bandwidth indicator for the VIX is in a sell- model (bullish for equities). A sell-triggerwould be generated by a close by 14-day RSI below 62.95 The VIX printed an engulfing bearishcandlestick on Friday which leads us to believe the sell-signal will probably be generated today.

Figure 4: Volatility Index, Carlson Confirmation Model

Last week we mentioned that we were waiting for the NSYE Bullish Percent indicator to fallbelow 60 for a sell-signal. We got that last week.

Figure 5: NYSE Bullish Percent


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Foreign EquitiesNikkeiThe Nikkei breached its 200-day moving average, broke its long-term advancing trendline, andtriggered a sell signal last Monday. Minor Fib support exists at Fridays close but better supportis at 9,600. Our best case scenario is that the Nikkei is only retracing the Mar09 advance. Ifthats the case, you can see the possible retracement levels from the chart below.

Figure 6: Nikkei 225

*New Content* FTSE/Xinhua 25, FXI *New Content*FXI is in an unconfirmed sell-mode but RSI broke above its declining trendlineon Friday. A close over Fridays high, 38.40, would break the declining trendlineon price. Last November saw the 50% retracement of the year-long 07-08 bearmarket. Given that the closing low last Thursday was below the low last February,we are inclined to give the bear the benefit of the doubt regardless of what happens in the near-

term. There is a Fibonacci confluence zone at 31.50 which could provide some short-termsupport.

Figure 7: FTSE/Xinhua25, FXI


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U.S. Treasuries30-Year TreasuryA 107-day cycle top was due last Friday but all indicators point to higher highs. If the 40-weekcycle low was on April 2nd, then the high of the cycle isnt due untilAugust 20th which would fitnicely with normal seasonality. The 30-year bond has marginally broken out of the Fibonacciconfluence zone surrounding 124 as well as the 38.2% retracement of the Dec08 decline. 128 isthe 50% retracement level. The area from 126-128 is a big congestion zone dating back to Feb-

Mar09. It could be tough-sledding through this area.

Figure 8: 30-year US Treasury

CommoditiesContinuous Commodity Index, CCIThe CCI is in a solid sell-mode and headed south. It tried to break through the Fib zone at 455but got sucked back up into it by the close Friday. There is intervening support but the strongest

Fib support is not until 435. An advancing trendline, originating in Dec08, will be passingthrough 435 sometime in the next month or so. 435 is also the 38.2% retracement of the Nov08advance. The next 107-day cycle top is due June 12th. Longer-term we still believe 395 is highlylikely and give 50-50 odds of seeing 325.

Figure 9: CCI, Continuous Commodity Index


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Crude OilCrude is in a confirmed sell-mode but is trying to bounce from an oversold level. Long-termtarget $43. $66 is not only a Fib zone but also the 38.2% retracement of the Dec08 advance.Wed be looking for opportunities to short oil (after a bounce), not buy it.

Figure 10: Crude Oil

GoldIt seems our target of 1,247 was right (high 1,246.50) but the date was wrong. Hopefully no onewaited to sell. Having said that, we cant get our Fibonacci trendline model to line up for thatprice on that date which leads us to think there are higher highs out there somewhere. Gold isnow in a confirmed downtrend (triggered a sell-signal last Tuesday) so any bounces in theimmediate future should not be of concern to shorts. The 21-week cycle is not due to bottomuntil July 1st so we expect a few gold-bugs to get stepped on in June. Ifgold is retracing the

February advance then 1,170 is a possible bottom. But if, as we expect, gold is retracing theNov08 advance, then 1,040 is the 38.2% retracement (best case scenario). Be short or be away.

Figure 11: Gold


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CurrenciesUS DollarThe Dollar is taking a break from its relentless advance over the past two months. Stochasticsare starting to rollover but we dont expect a prolonged decline. This fits perfect with the buy-signal we received in the Euro last week. Fibonacci confluence zones at 88.50 and Fridays closebut we think the Dollar will get closer to 90 prior to a sustained pullback.

Figure 12: US Dollar

*New Content* Euro *New Content*EuroThe Euro moved into its buy-mode last Tuesday and triggered a buy-signal on Thursday. A38.2% retracement of the Nov09 decline targets 133. Stochastics and MACD are turning up.We dont see any real support until 116-117.

Figure 13: Euro


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Japanese YenThe Yen opened Friday at the 112.50 Fib zone and closed down. Other Fib zones are at 121, and129. It has broken through its cloud chart and the look back line (brown line) has brokenthrough (barely), too. Price has also broken above the declining trendline. All systems are gofor the Yen, except CCM is still in a sell-mode. We may have to admit to being wrong. If CCMwere to be wrong on any asset class, it would be the Yen. The Yen is always a challenge to ourmodel. The bandwidth indicator was whipsawed back in April and the confusion may stem from

that time period. A triangle, which formed between 1999 and 2008, points to 127.

Figure 14: Japanese Yen

STA MarketUpdate 5-24-100

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