The majority of the unknown news is behind us now and tomorrow’s monthly unemployment report still looms. I would expect that report to come in around expectations, but if the report misses or shows losses we could see additional selling pressure set in among equity assets.
The early morning price action was all over the place, particularly in the EUR/USD currency pair. Ultimately the U.S. Dollar surged and we are seeing it add to gains as it currently trades near the day highs. As I write this the Dollar appears to have carved out a major low potentially today as shown in the daily chart below.
U.S. Dollar Index Futures Daily Chart
DX – Dollar Index Technical Analysis
The Dollar Index futures have managed to push above the 20 period moving average, however there is an ominous head and shoulders pattern that has shown up on the chart as well. We need to see the Dollar Index push above the recent highs to negate that pattern. Right now I am not going near the Dollar for a trade until we see a breakout above recent highs.
As stated above, equity indices are under pressure today but the Russell 2000 (RUT) Index is trading down yet again. I pointed it out last night in my post to members that the selling pressure in the RUT and the Dow Jones Transports was telling us something and as it turned out they were both forecasting the price action today. The RUT is showing relative strength against the S&P 500 Index (SPX) today as the SPX plays catch-up. The daily chart of the Russell 2000 Index (RUT) is shown below.
Russell 2000 Index (RUT) Daily Chart
RUT – Russell 2000 Index Technical Analysis
As I write this the Russell 2000 Index is trading right at a very key price level. The 765 price level should offer some buying support and it wouldn’t shock me to see the RUT pause at this level or even bounce as early as later today or tomorrow. However, if that level breaks and I believe it likely will, the forthcoming selling pressure will be intense. Be sure to keep that price level on your radar as a daily close below 765 could trigger a possible test of the recent lows down near 730.
In the usual suspects (IYT, EEM, XLF) we are seeing strong selling pressure across the board. The Dow Jones Transports remain under selling pressure and I am growing more concerned that the selling pressure is forecasting a further slowdown in the near future for the domestic economy.
Earnings have been relatively lousy this quarter and quite a few companies have reduced guidance or just blatantly missed estimates and the 4th quarter numbers are just staggering in terms of analyst expectations. I’m not convinced that companies will be able to meet up to what the analysts believe to be possible.
The rally in the U.S. Dollar Index futures is putting selling pressure in commodities across the board. Precious metals and oil futures are selling off with silver leading the way nearly 2% lower. Both gold and oil futures are trading about 1% to the downside. I am watching both gold and oil for possible trade entries, for now I am going to wait patiently. Oil futures look poised to test their 50 period moving average on the daily chart shown below.
Oil Futures Daily Chart
CL – Crude Oil Technical Analysis
Oil futures have been under pressure this week and remain that way. However, the 50 period moving average is underneath price action and we have a major support area between $82 – $85 / barrel. As long as the $82 area holds, oil could carve out another higher low.
Today the 10 and 30 year treasury futures have totally reversed most of the selling pressure from earlier in the week. Price is above the 20 period moving average at the moment after back-testing the 50 period moving average on the 30 year treasury futures daily chart which is shown below:
30 Year Treasury Futures Daily Chart
ZB – 30yr Treasury Technical Analysis
Overall, the major support underneath the 30 year futures comes in around the 147 price level. As long as prices hold above that key level, we should see TLT either consolidate or possibly add to recent gains. A move above the recent highs could lead to a very strong move to the upside. The same can be said should we see a daily close below the 147 level. It is important to note the head and shoulders pattern that is present on this chart. The Dollar Index futures have a similar price pattern and I am going to be monitoring the outcome of these patterns as time passes.
Ultimately we still have to see what the July monthly jobless numbers look like tomorrow morning, but most of the news is now known. The final hour of trade today will be quite interesting. I think the bears may be in control into the bell, but it would be surprising if the bulls don’t put up more of a fight. Let’s see what happens shall we. In the meantime, members need to be prepared for a trade alert shortly.
J.W. Jones
