Technical Tuesday - February 6, 2018

publication date: Feb 6, 2018

Cerundolo Investment Research    

Technical Tuesday Update  

Volume 2, Issue 5
February 6, 2018

Download PDF Version here


Items of Interest:

In this report, we highlight some global indices that have either achieved their long-term Money Flow Unit target levels or the upper end of their regression trend channels and have reversed hard. Many of the MFU targets were generated off the 2009 low so an overshoot in targets can occur, but it was the Nasdaq Composite that led this bull leg higher and one of the last to just recently achieve its target and putting a cap in this bull leg.

Back in 2000, the S&P ended its bull run at a monthly MFU-3 target of 1553 which was right into the high, but in the same month, the Nasdaq overshot its target by 7% and then reversed. This is to show that the Money Flow Unit work can at times be very precise and that overshots do occur. After 20+ years of using this type of analysis through a couple of market cycles, I have learned to respect these zones for high probability inflection points and when to press a position or when to take the pedal off the gas. As an example, the Bovespa is another market that recently hit its long-term MFU-4 target of 86160 and we are cautious there.

As my mentor and the person that I learned this form of analysis from over 20 years ago told me, when you achieve the long-term target zones with the Money Flow Unit analysis, it measures the exhaustive point of capital flow that propelled that particular asset higher. "With the tank being empty" look at the downside MFU zones for the exhaustion of supply and where demand starts to creep in. That is what we are starting to do now and will keep you abreast of what we find.

We are cautious across equity markets as most indices have either achieved upside target zones or have reversed hard from trend channel resistance.  The extended nature of these markets makes it highly likely that we have seen a short-term high and we would look to sell a bounce.  We will be monitoring for the formation of bearish money flow units developing off the recent highs and will advise on downside targets.  At some point, a very good buying opportunity will line up.  We are definitely not near that yet.  Stay tuned.

 

US Markets

  • The Nasdaq Composite which led this bull market leg off the 2016 low, has put in a near-term high after achieving the MFU-4 target. We sent out a cautious alert note on February 1.
  • The SPX, MDY Russell 2000, Dow Transports and Utilities have all reversed hard from the upper end of their respective trend channels.
  • The XLK appears to have put in a “blow off top” as price went quickly above and back below its MFU-5 target of $65. We would look to sell a rally.

European Markets

Asian Markets

  • The Nikkei has reversed hard from the MRU-4 target of 24500 and close to testing initial support. We sent out a cautious alert note on February 4.
  • After achieving its long-term target, the Kospi 100 has started to break its monthly uptrend. We would be a seller.
  • The Aussi All Ordinaries has reversed hard from its MFU-3 target. Avoid this area for now.

Emerging Markets

  • EEM has started to weaken below its MFU-3 target and the one-year uptrend. Avoid this area for now.
  • The Bovespa has also achieved its long-term MFU-4 target. We are cautious here.

    Commodity Markets

      • Gold continues to hold above support but below the September 2016 highs. With upside momentum building, we expect a leg higher from here.

      Currency Market

      • Will be covered later

       

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