Cross Market Compression Levels to Watch July 24

Jul 24, 2011: 11:10 AM CST

Given the large economic/news events playing out at the moment, it’s little surprise that the Cross-Market (Inter-market) landscape has taken on a pause or consolidation phase at the moment.

With the US Debt Ceiling and European Debt Situation coming to a resolution soon, the inter-market structure has currently balanced at value or “pause” areas that have formed clear range boundaries to watch should there be resolution and a breakout soon.

Let’s focus on those key range support and resistance areas which current comprise market structure.

First, the S&P 500:

I’ve been showing this intermediate compression range previously, and the boundaries are still in place at the moment.

The upper “Expensive” resistance resides at the 1,350/1,360 area which has seen prior price rejection back inside the existing range.

The lower “Cheap” support rests at 1,260 which places “Value” or the Fair Price (midpoint) at 1,300.

The recent swing up formed off this level which was similar to that of mid-April.

Any firm move above 1,370 suggests 1,400 then 1,440 could be achieved on the upside, though should the US Debt Ceiling negotiations fail, or should the US receive a downgrade in its credit rating, then any move under 1,250 would suggest 1,200 or lower would be realized.

Next, on to Bonds as seen via the TLT (20+year) ETF:

A quick glimpse shows us a clear highlighted range has developed between $97.00 and $94.00.

Any firm move higher than $98.00 suggest an upward impulse could carry price back to the $102 to $104 levels seen previously in mid-2010 while any firm move under $93.00 (the 200d SMA and price confluence) suggests $89 could be the future downside target.

Many analysts believe a failure of the US to raise the Debt Ceiling – or if the US Credit is downgraded – will lead to a sharp sell-off in bonds (and an increase in bond yields).

Gold broke bullishly out of its trading range recently:

It’s perhaps no surprise that investors – worried or concerned over the situation in Europe or with regard to the Debt/Downgrade potential in the United States – have turned to the safety of gold.

After consolidating between $1,550 and $1,480 since May, price broke bullishly above the $1,560 pivot which resulted in an expected impulse breakout that reached the overhead $1,600 target.

Further bullish inflows that take price above $1,600 would likely be seen as a continuation breakout buy signal.

Gold really doesn’t become majorly bearish structurally unless it’s under $1,480 – and there are daily (not to mention weekly) support levels bears would have to take out before $1,480 is realized.

Crude Oil is slipping to the upside but still is in the context of a consolidation pattern:

We were seeing a tight price consolidation between the falling 50d EMA at $98.00 and the rising 200d SMA at $94.00 per barrel.

Thursday and Friday saw a marginal or initial upside break of the falling trendline and 50d EMA which took price into the $100 level which is a key psychological barrier between buyers and sellers.

It would be logical to expect further bullish movement above $100 to lead to a price push to the $103.50 area, then anything above $104 would be deemed a very bullish breakout signal.

Anything under $94.00 would thus be seen as a breakdown bearish signal with a minimum (simple) target of $90.  Anything under $90 spells chart-trouble for crude oil.

Otherwise, price remains in a consolidation nominally between $94 and $98, though we can logically extend the upside barrier to $100.

Finally, the Dollar Index continues its triangle consolidation, though it developed a slight bearish nudge on Thursday:

Many of us have been carefully watching the triangle pattern consolidation (seen above resembling an Ascending Triangle) in the US Dollar Index between the 74 and 76 level, though last week gave us an initial or slight bearish ‘nip’ under the rising trendline which took the index back to 74.

Very similar to oil (but in the opposite direction), price broke a rising trendline which casts a bearish shadow over the index.  Further downside action under 74 would simply expect 73.50 then 73 to be realized, and anything under 73 would be a larger sell signal.

Otherwise, any bullish movement above 77 would similarly be a large-scale (or at least intermediate trend) reversal signal.

Until we get either of those signals, the index remains compressed or range-bound between 74.

We hope to see some resolution – or respective breakouts – either this week or next, so as you study your charts and prepare your plays, make unbiased references of these compression levels and be ready to act as necessary on any major development in the week ahead.

I cover all these markets in greater detail in this week’s Intermarket Report for members.

The main idea for this week is to watch the news with regard to Europe and the US Debt Ceiling and put those in context of any price/index breakouts from the current consolidation zones as seen in the cross-market landscape as it stands this weekend.

Take time to develop your own IF/THEN scenarios for positive or negative resolution of these big news events that are likely to play themselves out this week – potentially in a major way.

Corey Rosenbloom, CMT
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3 Responses to “Cross Market Compression Levels to Watch July 24”

  1. intraday tips Says:

    The main idea of ??this week is to watch the news on Europe and the U.S. debt ceiling and place in the context of any price escapes / index of current areas of consolidation seen in the international market scenario, this weekend.

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