April 19th, 2010

Market Update
For daily commentary see
SeattleTechnicalAdvisors.com
Pull the Pin

Magazine Cover Pull the Pin, but don’t release yet

Indicator We believe this is probably the last full week of the post -
March’09 equity advance. While the advance may linger into
Fund Flows next week, time cycles start hitting this Friday and anytime after that we could see
the top.
US Equities
S&P 500
Magazine Cover Indicator
Paul Montgomery’s ‘Magazine Cover’ indicator says
Put/Call Ratio
that once an idea has become so widespread that it
Financial Ratio
makes it to the cover of a widely read periodical, the
Arms Index
story is ‘history’. A contrarian indicator.
Foreign Equities

Fund Flows
Nikkei
Emerging
Markets Total money market mutual fund assets decreased
by $51.33 billion to $2.913 trillion for the week
ended Wednesday, April 14, the Investment
US Treasuries Company Institute reported. As this money has not
30-year bond been reinvested into equities, it has instead most
likely been spent on various goods and
services. That would explain the "outperformance"
Commodities of all retail sales year to date. How long can that
CCI last?
Crude Oil
Gold Jobless claims missed consensus for the second week in a row, coming it at
484,000, 44k worse than expected, 24k worse than the week before, and the worst
since February 20.
Currencies
Foreclosure filings – jumped 19% MoM in March (+8% YoY) to 367,056 to a record
high. RealtyTrac also reported that the number of homes taken over by banks
Dollar

soared 35% (to 260,000) from last year’s already-elevated levels.

Yen

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US Equities
Friday saw a big ‘ker-plop’ in equities. It’s as if the Fib zone at 1,205 reached out and pulled
prices back under it. The New Moon due April 15th gave us reason to suspect some sort of
pullback after Thursday and the 107-day cycle was due last Saturday, well within the 5-day
window. Other 107-day cycle tops are possible on April 29th and May 2nd. Counting forward 13
weekdays from a previous inflection point in the Fed Spread we see today was to be the turn in
the market. The next inflection point was on April 6th. Counting forward 13 weekdays from
there gives us April 23rd, this Friday. In the back of our mind we’re wondering if the signal has
inverted and today will be a bottom and this Friday is to be a top. An 11-day cycle hits a week
from today, April 26th. April 29th is the next full moon. At this point, we believe this is the
last full week we want to be long equities.
No doubt, many will be thinking last Friday was the top but we’re not so certain. The S&P is still
in a buy mode. 14-day RSI is oversold and this could be a great buying opportunity for short-
term traders. 3-day RSI has not breached 20. We believe equities have re-loaded for another
attempt at the ‘summit’ but we won’t be waiting to “sell in May” before we “go away”.
Targets are Dow: 11,250/ S&P 1,220/ NASDAQ 2,510 and 2,600.

Figure 1: S&P 500

Put/ Call Ratios

Much was made of the fact that the Equity put/call ratio had reached an historic low last week.
Below is the S&P 500 paired with the 5-day moving average of the Total put/call ratio. We
suspect we’ll see another sell signal prior to the next buy signal.

Figure 2: 5-day moving average, Total Put/Call Ratio, S&P 500

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Financials/SPX Ratio
Negative divergences (green lines) in the ratio between the S&P Financials index and the S&P
500 have foretold market tops in the past. On Friday the ratio broke its uptrend.

Figure 3: S&P Financials/S&P 500 Ratio

TRIN (Arms Index)

Both the TRIN (trading index) and its 10-day moving average gave buy signals on Friday.

Figure 4: Trading Index, S&P 500

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Foreign Equities
Nikkei
Despite being in a sell-mode since March 25th and a sell-trigger on April 6th, the Nikkei’s 3-day
RSI has yet to breach 20. This is a bullish sign. We’re looking for a pullback to 10,800-10,850.
This would be both a 38.2% retracement of the Feb’10 advance and put price into the range of
wave 4 of 3 of the advance (for those who follow Elliott wave). We expect a final target closer to
11,700. A 107-day cycle top is due April 30th. The decline from the April 12th high to last
Friday’s close is equal to the decline from April 5th to April 8th. Conceivably that could act as
support for a move up into a high on April 30th. If that’s the case, then our 11,700 target is
probably off the table.

Figure 5: Nikkei

MSCI Emerging Markets, EEM

On Friday EEM closed at Fib support and filled the gap left in price between March 31st and April
1st. EEM is still in a buy mode but 3-day RSI has breached 20 and stochastics/MACD are
pointed down. We see one more attempt upwards.

Figure 6: MSCI Emerging Markets, EEM

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U.S. Treasuries
30-Year Treasury
On Wednesday, the 30-year bond and TLT both saw their bandwidth indicators switch to buy
modes. 3-day RSI broke above 80 and stochastics and MACD turned up last Tuesday.
Resistance at +122/long-bond and 92, 95, 97/ TLT. Buy Treasuries.

Figure 7: 30-year US Treasury

Commodities
Continuous Commodity Index, CCI
After making a high on Wednesday at 482.70, CCI pulled back from that Fibonacci confluence
zone surrounding 485 we’ve be talking about for months. CCI closed at slight support on Friday
but there is nothing but air between there and 460. Despite the buy mode, we don’t expect CCI
to get through 485 as it is part of the ‘risk-trade’ which we believe (through our equity study) is
about to come apart at the seams. A 107-day cycle top was expected last Saturday (2 days late).

Figure 8: CCI, Continuous Commodity Index

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Crude Oil
On Friday, Crude tested last Tuesday’s low. The area of Tuesday and Friday’s lows shows only
the slightest support. Better support exists at 82. Crude continues in a buy mode and 3-day RSI
has not breached 20 during this correction – bullish. We continue to target $90-92.

Figure 9: Crude Oil

Gold
Gold came down to test the neckline of the bullish head-and-shoulders formation we wrote
about last week. Thursday is a 107-day cycle top so we’re in the kill-zone (+/- 5 day window) as
far as that is concerned. We continue to target $1,185 but recognize that’s a long way away for
just 4 days until a cycle top. Perhaps it will be within 5 days on the other side of Thursday? Late
spring and early summer are a seasonal time of weakness so we feel confident we’re close to the
end.

Figure 10: Gold

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Currencies
US Dollar
The Dollar’s Bandwidth Indicator has confirmed a sell mode. A 38.2% retracement of the
Nov’09 advance is at 79.40 and the 200-day moving average is at 79.50, but we don’t see solid
Fib support (confluence zone) until 78.00. Longer term, we believe the advance since Nov’08
was the first move of a larger advance which should extend well past the 83 target derived from
the cup-and-handle formation. Fib zones (resistance) exist at 83, 84, and a significant zone is
between 85 and 86.

Figure 11: US Dollar

Japanese Yen
The Yen saw its bandwidth indicator move to a buy mode last Wednesday and 3-day RSI broke
above 80 on Friday. Even 14-day RSI is overbought at this point. Stochastics and MACD turned
up on Tuesday. The Yen broke above a declining trendline and its 20-day moving average on
Friday. We’re thinking again about our old target of 122 but it’s got to get through resistance at
115 first.

Figure 12: Japanese Yen