A Quick Look at the Weekly Charts

Feb 16, 2008: 12:34 PM CST

Let’s look at how the weekly charts of the S&P 500, US Dollar Index, Commodity Index, and 30 Year Bond Index have set-up:

First, the US S&P 500:

The S&P 500 Index is currently trapped between the key moving averages, but is beneath the 20 and 50 period average. I have added arrows to highlight key support and resistance via the moving averages.

Price is in a confirmed downtrend, and is forming a possible consolidation (indecision) pattern. It would not surprise us if price re-tested the 200 period moving average.

The US Dollar Index:

The US Dollar Index continues to threaten to make new price lows, as the key moving averages are in the most bearish orientation possible, and have been so since early 2006. The 20 period average is serving as key resistance, and has done so numerous times.

A momentum divergence has developed, which has resulted in a price consolidation. Is a reversal at hand? The odds don’t seem to favor it.

Next, the $CRB Commodity Index (which often trends inverse the US Dollar):

As expected, the Commodity Index responded to the US Federal Reserve’s decision to slash interest rates by rising precipitously, almost to the day from where the Fed started cutting.

Lower interest rates help fuel demand for certain commodities, and the fact that investors are turning to gold and other commodities for protection (hedge) against a possible global showdown has added fuel to the fire of the commodity boom.

Typically, the Federal Reserve raises interest rates to protect against inflation, but higher commodity prices often translate directly into higher inflation (oil prices, etc), so what is the Fed to do? That’s a whole other lesson.

Finally, US 30 Year Bond Prices:

As the US Stock Market has been falling, US Bond Prices have been rising from a dual-pronged approach: Lower Yields (cut by the Fed) mean higher bond prices and also economic uncertainty has driven up investors’ appetite for bonds (as a less-risky asset).

Recall that these four markets (and many others) are often directly related, and price trends in one market affect price trends in other related markets. Inter-market analysis is a fascinating concept, and I recommend you study more if you aren’t sure how markets trend together or apart as a result of their underlying structure.

Have a great weekend and de-stress a bit from the wild ride we had this week in the market. I’m sure more volatility is ahead!

3 Comments

3 Responses to “A Quick Look at the Weekly Charts”

  1. Stock Market » A Quick Look at the Weekly Charts Says:

    […] Corey Rosenbloom wrote an interesting post today on A Quick Look at the Weekly ChartsHere’s a quick excerptAs the US Stock Market has been falling, US Bond Prices have been rising from a dual-pronged approach: Lower Yields (cut by the Fed) mean higher bond prices and also economic uncertainty has driven up investors’ appetite for bonds (as a … […]

  2. jj Says:

    corey, I am trying to learn more about divergences. Is the setting for the MacD on the daily charts the same as the one you use for your 5 minute charts. I have difficulty in seeing divergences when I use the the default settings of the oscillators. I think it is because the defaults seem to smooth it out and I am unable to see the swing points in the oscillators. Is there a rule of thumb or some advice you have for choosing settings for divergences. Thanks

  3. Corey Rosenbloom Says:

    JJ,

    I do use the same MACD settings for all charts. I do not use the default, however. With StockCharts.com, just type in 3, 10, 16 into the three boxes to get the oscillator settings I use. It becomes the difference in a 3 and 10 SMA then smoothed by a 16 period look-back.

    Divergences can also be observed using a ROC indicator, or other momentum type oscillator. I prefer the “3/10 Oscillator” myself.

    Hope this helps.