Technician Greg Harmon of Dragonfly Capital takes a technical look at the trends that could influence the stock market this month.
Last month in this space my monthly macro review/preview had the monthly outlook suggesting the upside for gold (GLD) would continue while copper (JJC) consolidated. The uptrend in crude oil (USO) looked to continue while natural gas (UNG) tried to reverse higher off of support. The US Dollar Index (UUP) was still consolidating while US Treasuries (TLT) might try to reverse the downtrend.
The Shanghai Composite looked to continue to move lower as emerging markets (EEM) continued to bore moving sideways and the German DAX (DAX) looked higher, but might continue to consolidate first. Volatility (VIX) was expanding but remained at low levels supporting upside in the equity markets.
The equity index ETFs SPY, IWM, and QQQ were all set up to continue higher in the coming months from their price action. As noted on the individual charts there was room for some short term downside without breaking the upward bias, with the SPY looking the weakest. How does an additional month impact the longer-term picture?
SPY
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The SPY held the mid line between the upper median line and the median line of the bullish Andrews' pitchfork in September. The inside real body on the candle will have some looking for a reversal, but it really just means indecision. The relative strength index (RSI) is holding and moving sideways along the technically overbought level while the moving average convergence divergence indicator (MACD) is rising. These support the case for more upward price action. At the 113% extension of the move lower, some consolidation is not unexpected. There is no resistance above the recent top but a push through would look toward the 127% extension near 182. Support lower is found at 157.50 and 145.
Continued Upward Price Action
Heading into the last quarter of the year, the equity markets look strong, maybe a little overbought if you need to find something wrong with them. The monthly outlook suggests that gold will continue to consolidate within the downtrend while copper also consolidated with a upward bias. Crude oil looks to continue the broad consolidation but with a downward bias while natural gas looks slightly better higher in the short run within the downtrend.
US Treasuries may continue to consolidate in the downtrend while the US Dollar Index looks better to the downside. The Shanghai Composite may continue to bounce in the downtrend while emerging markets consolidate with an upward bias as the German DAX just goes higher. Volatility looks to remain low giving a tailwind to equity markets higher. Their charts show they all have an upward bias with the IWM and QQQ strongest and the SPY lagging in the coming months. Use this information to understand the long-term trends in equities and their influencers as you prepare for the coming months.
By Greg Harmon of Dragonfly Capital
