SPY Trends And Influencers: Monthly Edition August Into September 2012

Last month in this space my Monthly Macro Review/Preview the monthly outlook suggested the upside for the US dollar and US Treasurys would continue while crude oil and gold looked to consolidate with gold biased lower and crude oil higher. Copper looked like gold, consolidating with a bias lower while natural gas was biased higher but at resistance. The Shanghai Composite looked to continue to move lower while Emerging Markets consolidated and the German DAX looked to continue to move higher.

Volatility looked to remain stable and low. This backdrop supported a weaker Equity Market going forward, but the relationship between Equities, and Treasurys and the US Dollar Index, has been moving in a correlated fashion, not as expected. This could continue of course until it does not. The point was to be aware that the current correlation was not normally expected. The charts of the Equity Index ETF’s themselves showed that the SPY and QQQ were set to move higher with the QQQ the strongest. The IWM appeared to be ready to consolidate gains. How does an additional month impact the longer term picture? Let’s take a look.

SPY (SPY)

The SPY is back at the top made in 2007 and retested earlier this year. This time coming from a higher low and with a Measured Move higher targeting 162.22. The Fibonacci retracement combined with the Fan Lines allow for a consolidation to continue for rest of the year before resolution one way or another.

The RSI however is bullish and rising with a MACD that is positive, both supporting more upside movement. A pullback could find support at 134.20 and 126.48, with a move under that level causing a shift to a downside bias and retest of the 110 area. Consolidation with an Upside Bias.

The monthly outlook heading into September suggests the upside for gold, crude oil and US Treasurys will continue while the US Dollar Index looks better lower. Both the Dollar Index and crude could consolidate further, and copper and natural gas look to be in ranges as well with natural gas bias lower.

The Shanghai Composite and Emerging Markets look to continue to move lower as well, with Emerging Markets possibly consolidating, while the German DAX looks to continue to the upside. Volatility can go either way but looks to remain low with a drift higher.

Despite that uncertainty, that comes from the dollar and Treasurys diverging, the Equity Index ETF’s SPY, IWM and QQQ are set up to continue higher in the coming months, but with consolidation a strong possibility in the near-term for all but the QQQ. Use this information to understand the long term trends in Equities and their influencers as you prepare for the coming months.

Disclaimer: The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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