Emerging markets were the main stress point late this month and it looks as though it is going to abate for awhile. Adding a comment to last week’s post on the iShares Emerging Markets Index (EEM), the weekly EEM TD Buy Setup @9 close was good enough to provide a technical reading that the EMs have a fighting chance for recovery.
Another sticking point for the EMs is the possible unwind of the carry trade, chiefly the US Dollar/Japanese Yen cross. The source of the unwind stems from the Federal Reserve Board’s current policy of tapering their bond buying program, which affects interest rate differentials. Sudden interest rate imbalances will force EM investors to unwind their carry trades, and since the carry trade has a pipeline to equity markets, stocks are driven down. Therefore, starting tomorrow, Janet Yellen will provide her first testimony before Congress and it’s important for her to talk down any consequential effects of tapering or risk disorderly markets. Since EEM has been covered, the technical picture of the USD/Yen cross is covered below.
S&P 500 (SPX) SHORT TERM OUTLOOK: BULLISH
Flip to neutral with a SPX close below 1773.10.
The 2 hour SPX has recorded a ‘perfected’ TD Sell Setup with the high of bar 8 higher than both of the highs of bar 6 and bar 7. The main item to look for is the follow through from yesterday’s impulsive up day. A minor give-back would be expected in the first few hours of trading but as long as it holds above the 1780 level, there is no red flag danger unless it trades below it. Closing below 1773.10, the end of the day 4 hour SPX price flip is the line in the sand.
S&P 500 (SPX) SHORT/INTERMEDIATE TERM OUTLOOK: NEUTRAL
Will flip to bearish with a close below 1773.10, same as the Short Term Outlook.
Now the TD Propulsion Threshold has been breached, there is propensity for the SPX to get to the TD Trend Factor and TD Propulsion Exhaustion near 1834. Sticking with timeframe continuity, if the SPX 2 hour chart can maintain a bullish tone as described in the Short Term Outlook, then the bigger test comes when the 4 hour chart records a potential TD Sell Setup @9 this Tuesday.
S&P 500 (SPX) INTERMEDIATE/LONG TERM OUTLOOK: BEARISH
Neutral if SPX weekly closes above 1842.27, most recent high close (updated January 27th.)
S&P 500 (SPX) LONG TERM OUTLOOK: BULLISH
Flip to neutral if SPX (monthly) closes below 1756.54 (updated February 3rd.)
FOREX OUTLOOK: $US Dollar/¥Japanese Yen (USD/JPY)
The triple confluence of daily/weekly/monthly chart TD Sequential/ TD Combo back in December 2013, is still signaling a further rise in the yen (USD/JPY down).
Drilling down to the weekly charts, the USD/JPY chart collaborates with the monthly top back in December 2013, and the cross pair is falling accordingly. Note the TDST Support at 97.39. Breaking under that level will give another indication the retracement may deepen to 87-91.