Ripe for a Short

Today the SPX rallied and finished up 1.15% to 1122.29 above the 200 Day Simple Moving Average. The rally was in large part driven by 'robust' Industrial Production and domestic demand data released by China over the weekend. The Energy and Materials sectors led the SPX higher today. WTI Oil was up over 1% on the session to $77.20. Copper and Natural Gas also benefitted from the rally.

GSCI Commodity Index


Last night Basel III capital requirements released and were essentially a practical joke on banks. Banks will be required to maintain a Tier 1 Capital ratio of 4.5% (common equity after deductions) and a buffer of 2.0% by 2013. Keep in mind, Lehman had a Tier 1 Capital ratio of 11% when the investment bank imploded. So much for stringent regulation. Needless to say, financials rallied hard on the session.

SPX 1 Year Daily


VIX


Where do equities go from here? 1131 is the next key level of resistance on the SPX. Tomorrow U.S. retail sales release at 08:30 and disappointing numbers could be the impetus to drive equities lower. In addition, we are approaching overbought technical levels on the RSI (62 on the 1 year daily). In addition, the VIX traded down around 21 today. The volatility index is ripe for a pop up to 23 to 24 over the next few sessions. Thus, now may be the time to get get short the SPX.


Sports: Jets vs. Ravens tonight. Gang Green will be victorious.

Patrick M. Ambrus
Twitter: AnalyzeCapital

Sources: Bloomberg.com, FT Alphaville, TheLordofTrading.com, baseliii-accord.com

The Three Musketeers: USD/JPY, VIX, & SPX

USD/JPY 6 month Daily Chart



-I expect to see a retest of 83.75 levels, possibly as low as 83.25
-The BOJ cannot solely rely on tough talk to weaken the Yen, they must show & prove intervention to the market
-Momentum and Volatility remain flat; no reason to get long or short until a catalyst appears
-The 20 day SMA will serve as short-term resistance; 85.75-86.25
-RSI resistance at 55 levels remains firm
-Don't discount strong economic data; Unemployment sits at 5.3% and a Current Account Surplus is 3.3% of GDP.

Trade: I will get long once I see a retest of 83.75 lows. The BOJ will intervene through Quantitative Easing policies in order to allow the exchange rate to bounce to the upside. Once long, I'm looking for 800-1000 pips to the upside.

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VIX 6 month Daily



-200 Day SMA has held as a floor since the 'Flash Crash'
-The 20 day SMA is about to cross the 50 day
-RSI is poised to break through 60 and test 70 overbought levels last seen in May
-Momentum has plenty of room up to 2.5
-As long as money continues to flow out of Equities into Bonds, volatility will persist

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SPX 6 month Daily



-A head and shoulders reversal pattern is well underway
-RSI failed at 50 and will go low until it tests oversold territory at 30
-Momentum topped out and has plenty of room to the downside
-The 20 day SMA will converge with the 50 day SMA in the next couple of trading sessions
-The above chart supplements the VIX story
-This week Consumer Sentiment, China PMI, Euro Zone PMI, U.S. ISM, and NFP take the market sentiment spotlight

Trade: Short SPX till 1000. Look for short-covering/a relief rally before entry. ES Mini Futures are a great place to start. Also, the ProShares UltraShort S&P500 ETF SDS is another way to double down on your bets.

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Related ETFs: ProShares UltraShort S&P500 (SDS), CurrencyShares Japanese Yen Trust (FXY), iShares MSCI Japan Index (EWJ), Consumer Discret Select Sector SPDR (XLY)


Patrick M. Ambrus
Analyze Capital LLC
Twitter: AnalyzeCapital

DJIA Update- Charting for Success

Dow Jones Industrial Average Technical Analysis

Daily Chart-6 months



Notes:
-Momentum still has plenty of room to fall as it just passed break-even territory
-Resistance appears to be forming at the 50-day SMA or 10,300 level
-We could see potential support slightly above 9900-9950
-If this level breaks, Dow could fall to 9300-9500 range, though next clear level of support on the daily chart is 9800
-Expect to see a retest of 50 on the RSI to confirm a downtrend if the re-test fails
-The most recent sell-off lacked aptly confirming volume
-Possibly a head and shoulders reversal pattern


Weekly Chart- 2 Years



Notes:

-Support may come at levels of 9,600-9,700
-200 day SMA acts as near-term resistance, this equates to a price level of 11,000
-The last rally to 11,000+ was confirmed by robust volume
-Momentum still has room to move to the downside, though it looks to be flattening out
-The 50 day SMA is poised to cross the 200-day SMA, ‘The Golden Cross’, which indicates a strong bullish signal
-35-37 will need to be broken on the RSI for this down-trend to continue

Conclusion:

The Daily and Weekly charts both tell equally convincing stories. The Daily chart indicates very bearish sentiment while the Weekly indicates a potential rally is on the way. Thus, in-lieu of the toss-up, I will look to volume over the next few trading days to indicate which way the tape might be headed. At this time, the Dow is up 151.90 points to 10,137.70. A short-covering rally may be underway, or the bulls may be winning the battle today. Regardless, many bears exist in the market, it is only a matter of time before market participants show their true costumes.


Patrick M. Ambrus
Analyze Capital LLC
Twitter: AnalyzeCapital