Review & Previews - 29 Oct 2011

I have received many requests for more frequent market posts. I would love to be able to do this because I do find it fun but my time is limited. Essentially, I post to this blog when I have the time or I have a market view that has changed or needs to be shared imminently. For the most part, the views on this blog remain valid unless changed in a subsequent post. And I like the fact that historical views are here for all to see, including myself. My aim is to capture the big picture, so I apologize to all the day traders that would like to enter and exit multiple times within one day. Having said that, I myself am entering and exiting many times each week but I will maintain a bias that agrees with my big picture views. For example, if the big picture is bullish commodities, I will enter both long trades and short trades on a given day or week but I will be quicker to take short position profits than long position profits knowing the big picture bullish view could reassert itself at any given moment.

Here is the current big picture referencing previous posts where necessary:

Commodities:
My previous post on the CRB index was Sep 25th found here. The market is still bullish and the chart from this previous post is still valid. Please have a look. The CRB bottomed out at approximately 300 as expected. Currently 323, first zone for major distribution should be 332 to 340. On my radar is the trendline connecting the July 2008 top at 474 to the April 2011 top at 370. We are nowhere near this trendline now (currently 353 ish) but it is worth watching as it a trendline obvious to the crowd. And since all assets are highly correlated now, keep this trendline in mind when other assets reach key levels (such as when equities reach price targets, or AUDUSD and other commodity currencies reach targets, etc.).

Oil
As per the USO etf, currently 36, the next zone for distribution exists 38 to 39 which corresponds to the mid May lows. This would equate to approximately 335 for the CRB index.

Nasdaq100 (NDX)
The index should continue higher toward new highs for the year. Currently 2400, first target / supply zone is 2500. AAPL is on my radar as it is being pressured lower by the bearish island top that took place during mid October. The island top will be negated if AAPL can move higher through the 408 to 415 gap which will result in the NDX reaching the first target of 2500.

SP500
Currently 128.60 for the SPY, first supply zone is 132 +/- or just above 1300 for the emini futures. The market should top out below the May 2011 high at 137 but this has a good chance of being a temporary top particularly since the NDX index will be making new multiyear highs by that time. My previous post on this binary market can be found here.

VIX
Looks like the inverse VIX, XIV, wants to target 10. Currently 7.33, we may see XIV reach 10 ish with the SP500 trading just above 1300. I should point out, this relationship between the cash SP500 and VIX index (implied volatility) is not linear. In other words, we could easily see the VIX index decline lower (XIV move higher) while the SP500 consolidates sideways.

USD
USD weakness has taken place recently with GBPUSD bottom taking place as per this recent post and this other post highlighting bearish positioning in EURUSD and AUDUSD to help propel prices higher (weaker USD). Going forward, EURUSD is back above 1.4000, the pivot, and prices should trade in the 1.4000 to 1.4500 range. I should add, the trendline from the May 2011 top to the Aug 29th top is near. Currently this trendline lies at 1.4340 while the Friday close was 1.4150. Watch for consolidating prices to eventually test this downward sloping trendline.

Implied Volatilities
I need to report, implied volatilities across all FX pairs collapsed on Thursday - Friday this past week reaching very oversold readings. This normally corresponds to a top or consolidation in thte underlying given the very strong spot vs. implied vol correlations. As such, I am watching AUDUSD very carefully going forward. More than likely, AUDUSD will range between 1.0400 and 1.0800.