Seattle Technical Advisors provides technical analysis of the equity, fixed-income, commodity, and currency markets for RIAs,

Hedge Funds, Money Managers, and Financial Advisors.

Rinse, wash, repeat

Seattle Technical Advisors.com May 29, 2012

Ed Carlson

ed@seattletechnicaladvisors.com

Seattle Technical Advisors website, PO Box 2415, North Bend, WA 98045, is published as an informational service for subscribers, and it includes opinions as to buying, selling, and holding various securities. However, the publishers of Seattle Technical Advisors are not investment advisers and do not provide investment advice or recommendations directed to any particular subscriber or in view of the particular circumstances of any particular person. ANY REDISTRIBUTION of Seattle Technical Advisors Market Update without the written consent of the publishers of Seattle Technical Advisors is PROHIBITED. Legitimate news media may quote representative passages, in context and with full attribution, for the purpose of reporting on our opinions. Copying and/or electronic transmission of the Seattle Technical Advisors website or content is a violation of international copyright law. Information provided by Seattle Technical Advisors is expressed in good faith but is not guaranteed.
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Internal Indicators
VIX Last Fridays short-term signal worked well in calling a bottom in equities. Confirmed buymode (sell equities); Target 26 McClellan Oscillator We also mentioned a buy signal for this indicator last week. The bounce in the oscillator since then has been less-thanconvincing that a tradable bottom has been seen; i.e. Complex structure below zero. Euro-Yen cross, unlike equities, the highly correlated cross peaked on Tuesday and saw new lows last week. BWI is not confirming. Sentiment: Another $3.5 billion was pulled out of domestic mutual funds per ICI bringing the total to 13 consecutive weeks of outflows, and 52 weeks of outflows in the past 56 weeks. 2012 redemptions amounting to $46 billion, compared to just $6.5 billion for the same period in 2011. AAII Sentiment: Bullish sentiment rebounded as bearish sentiment pulled back from unusually high levels in the latest AAII Sentiment Survey. Bullish sentiment, expectations that stock prices will rise over the next six months, rose 6.9 percentage points to 30.5%. Well be watching for divergences in our sentiment indicators (with any new lows in the averages) this week as a bottom signal.

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Market Leaders
Energy Oil and Gas (XOI) and Exploration (OSX) both participated in last weeks equity advance but neither was confirmed by BWI. Financials: Ditto for Bankers (BKX) and Brokers (XBD). Technology Same here Small Caps: bearish head-and-shoulders pattern in the Russell 2000 (RUT) targets a minimum move to 720; Confirmed sell-mode. BWI failed to confirm last weeks advance. Ratio Charts: Pretty much what you would expect last week with defensives taking a breather after weeks of outperformance. The ratio between small caps (Russell 2000) and the broad market (SPX) makes for an interesting picture with the descending triangle pattern. Descending triangles typically (but not always) resolve themselves to the downside. That is what we would expect with any further downside in the broad market.

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Lindsay time intervals, Cycles & Confluence Zones

We wouldnt plan on riding out (staying short) the tradable advance we expect to get started next week. With our view that the post October 2011 rally is an advance from a Sideways Movement, its quite possible that this low is the 12year low weve been writing about for the last year; the market has certainly dropped enough to qualify for that title and a June low is right in the pocket of our MarchSeptember forecast. We can count two different basic declines from last years highs in May and July which both work for a final low on June 4. We are bothered that we have a very clear middle section which points to a low on 11/12/12. A not-so-obvious middle section does point to June 4, however; full moon on Monday, 6/4/12. We were expecting the final low later in the year and that may still be the case but with the bounce expected to be tradable and our uncertainty about the longer term we believe the prudent thing to do is follow the signals we get from the Confirmation model and stay on our toes. If the October lows are breached, no final low until this autumn. Fibonacci support zones; 1,310, 1,285, 1,220 Fibonacci resistance zones; 1,310, 1,340 Fade Dates: None identified this week, 6/4/12 Last weeks fade date on 5/23/12 turned out to be a low which was printed intraday. Fridays expected fade, at first glance, looks to be a low (in the Dow) but a higher high was seen intraday in both the SPX and RUT. 13-week cycle low is due this week

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US Equities
Bear Market After some relief last week, we expect one final week of decline this week rinse, wash, repeat... Now for the grinder! If June 4 is the low for the year, then that will make for a record-setting short bear market (unless we see a crash). BWI is in a confirmed sell mode and is declining (not confirming) last weeks advance. 14-day RSI was unable to even get above its own 20-dma last week and 3-day RSI peaked at 60 (sub-80). Weak! A 13-day cycle top was due last Thursday. A Fib support zone and 200-dma are near 1,285. Well make that our target for our June 4 bottom. Coppock Curves: the weekly and monthly are declining. Daily turned up last week. We look for a positive divergence at a bottom. Long term, Lindsays Three Peaks and a Domed House formation tells us to expect a move back to the October 2011 lows but that assumes no new high this year. Mode: sell Signal: sell Position: short

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FTSE/Xinhua25
With 14-day RSI trading below 30, we would normally believe FXI to be in a bear market. FXI seems to work differently than other asset classes in this regard. These extreme prints by RSI (above 70 or below 30) tend to forecast a change in trend. We believe FXI is telling us to expect a tradable rally. FXI looked more like the Euro-Yen cross than US equities last week as both spent the better part of the week declining. It must be in a hurry to get to our price target of 30.50. FXI closed in the Fib support zone at 32.50 on Friday. A breach here targets the next zone at 30.50. A 21-day cycle is due June 4 and a 21-week cycle hits the week-ended June 1. Fib resistance zones: 38, 41, Fib support zones: 32.50, 30.00-30.50 Coppock Curves: The daily, weekly, and monthly are all in decline: very bearish.

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Nikkei225
Bear market NKX spent the week bouncing along the bottom, the Fib support zone surrounding 8,550. BWI has started to decline and we see positive divergences in both 3- and 14-day RSI. 233-dma and Fib resistance zone both at 9,100. Well make that our price target once the rally gets started in June. Fib support zones: 8,550, 8,450-8,500 Fib resistance zones: 8,600, 9,100, 9,450 Coppock Curves: The daily is trying to turn upward but the weekly and monthly are both in decline.

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US Treasuries, TNX
Bear market Last week we wrote We look for a bounce now and a re-test of this level at monthend. We saw the bounce last week and now for the test but wait! Is that a triangle we see forming? Being a continuation pattern, the triangle implies further downside. We believe this triangle will be like the one we saw in the Nikkei last December and it will function as a reversal pattern (this time) but be careful. TNX has attained our target of 17. We believe this level will hold for the foreseeable future at least until the summer rally in equities is finished. A 21-week cycle inflection point is due the week-ended 6/1/12 and a 13-day cycle is due 5/31/12. Those both work well with our expected bottom in equities about then. But before getting long rates/short bonds, lets look for a break of the 13-dma. Fib support zones; 17, 14 Coppock Curves: The daily has turned up but both the weekly and monthly are in decline.

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US Dollar
Bull Market DXY gave us the breakout we were expecting last week but BWI has turned down indicating that the month-long advance is long-in-the-tooth (nearing its end). Still in a confirmed buy-mode, however, so well be looking for an opportunity to get long again but we dont expect it for a few weeks. 21-week cycle due the week-ended 6/1/12 21-day cycle due 6/1/12 Coppock Curves: Daily, weekly, and monthly all pointed up; Very Bullish. Fib resistance zones: 84.50, 85.50 Longer term price target of 90.
USD: Over the last 25 years, the DecJune period has been the strongest six months of the year. Election years are usually USD bullish

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Euro
Bear Market The Euro attained our downside price target last week and went on to print lower lows. BWI has turned down with last weeks decline so we know were close to a bottom here. 21-day cycle due today and 13-day cycle due 6/4/12 21-week cycle low due next week (6/8/12) With no resistance until 1.315 this could be a big rally. Remember, the biggest rallies are in bear markets! Dont get pulled into the meat grinder. Fib support zones; 1.265, 1.245 Fib resistance zones; 1.315, 1.350 Coppock Curves: All three curves, daily, weekly, and monthly are declining; Uber bearish.

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Japanese Yen
The Yen got sucked back into the Fib resistance zone at 125.50 after the previous Thursdays break-out. Although it ended the week lower than where it began, it was - for all intents and purposes - a sideways week. With one more week of downside expected for equities, the inversely correlated Yen could have a little more life left in it particularly with that red triangle we see implying a continuation of the advance. With a Fib resistance zone at 127.50 and only a week left in our game plan, we wouldnt get long if not already. Long positions could be held with tight stops. A close below the 21-dma will be our first clue that the sushi has gotten old. A break-out from the wedge is our next clue. 34-day cycle is due 6/18/12 and looks important. Mark it on your calendar. Fib resistance zones; 125.50, 127.50 Fib support zone at 124.00, 122.50, 120.50 Coppock Curves; Daily is declining and has not confirmed the new high in price; negative divergence. Weekly is advancing but the monthly continues to decline.

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Crude Oil
Bear market Crude printed a new low on Wednesday followed by inside-days on Thursday/Friday. We can see positive divergences in both 3- and 14-day RSI. A falling BWI is another reason to expect a rally in the near future. As part of the risk-trade it makes sense to expect a rally in crude together with equities and TNX. But before any rally, we believe crude either has more downside this week or needs to spend some time building a bottom. Last Friday appears to have been a fade-date. 34-day cycle hits on 5/30/12 21-week cycle is due the week-ended 7/6/12 Long-term trendline at 80 Fib support zones; 90, 88, 85.50, 84, 82 Fib resistance zones: 93, 96, 99, 108, 114 Coppock Curves: Daily has turned up but weekly and monthly are declining.

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Gold
Lindsay intervals imply a top to this advance May 31-June 2 (See 4/19/12 Special Report). Also, a 21-week cycle targets a turn during the week-ended June 1. It hasnt been much of an advance so far, but the decline has been arrested. BWI finally started to drop with last weeks bounce upward (failure to confirm). Rally target of 1,625 1,660 Confirmed sell- mode (sell bounces) Fade-date this Thursday. We look for the advance to sustain itself until then. 21-day cycle due 6/1/12 21-week cycle low due this week 55-day cycle due 7/9/12 Coppock Curves: The daily is up but with both weekly and monthly in descent, any advance in price should be short-lived. Fib support zones: 1,535, 1,460 Fib resistance zones: 1,815

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