Why the market bounce is for real!

After a violent and destructive thrust through the overhead resistance/ceiling of what "normal" used to mean on the VIX, The CBOE Volatility Index® (VIX®), we may now see momentum waning and a corrective course taking place. Look at the stochastic pulling a negative divergence on the recent high, the ROC(Rate Of Change) Indicator is falling and the ADX(trending indicator) looks like it has peaked - all for the meantime.

Lets look at the 50 as a short-term support and a possible intermediate trend downward back to the 35-40 area. The bigger question then remains if the VIX has now entered a new "era" where we will gauge market sentiment in between 30's and 80's, which would also mean more volatility. If this new era of the VIX does hold, then it will be a traders market with mini bulls, something that would resemble a channeling market. Or is this the ever so slow bleeding of the VIX back down to the 10 area? I guess you'd have to stick around for that one because its a long way off from here, but possible.

Let's now concentrate on the VIX short-term support zone(50's) and near-term zone of (35-40). This could act as correlation zones with the DJIA overhead resistances. I would equate the test of the 50 support area on the VIX with the DJIA 9500 overhead resistance. The 40 support area of VIX would correlate with the DJIA overhead resistance of 10500 - thats where the VIX broke the overhead resistance in late Sept/early Oct and the market crashed - yes, that was a crash.

Inflation and Deflation(Commodites vs Semis).

My assumption still stands: Semi's will outperform over near term and long term. Below is a chart comparing the Dow Jones-AIG Commodity Index (DJI) vs. PHLX SEMICONDUCTOR SECTOR INDEX (SOXX).

Notice the difference over the last 5 years: inflation was beneficial to commodities, while it hindered any sort of bull market for semiconductors. We have seen commodites prices ease(deflate) these last couple of months, and that means we are deflationary and Semis will counter - the next cyclical turn will have semis leading as deflation sticks around and commodities consolidate in its secular trend. This does not mean commodities will completely lag, but rather Semis should outperform in the cyclical trend, while underperforming on the secular trend.

You can view the full analysis blog called "The other Commodity" here.

http://polluxtechnicals.blogspot.com/2008/05/other-commodity.html

A short term triangle has formed on MU with good volume. Trade the bounces while keeping a long term position on hand.

The AIG triangle and Gap Fill

Target 10.00.

Stop-Loss 2.50

Risk with stop loss = - 40%

Profit Possibilities = +100%

What's the story? UNG vs. Natural Gas

Technically Examining: UNG vs. Natural Gas

If we look at both charts we can first see that the commodity itself is volatile in nature. The UNG or Natural Gas itself shows an extreme amount of volatility vs. things like GLD, USO, SLV, etc.

The best way for individuals to connect their investments directly to the price of natural gas, or other commodities, is to buy the ETF - a byproduct of the price itself that has been created by leading investment banks. The UNG was recently IPO'd last year and this is where technical analysis becomes fragile due to the nonexistence, or minimal existence of a "history" from which a technical analyst would draw from. At the current moment, the technicals on UNG have been decimated and will be volatile near term, and in corrective mode for medium to long term (6m-1y). One thing for sure about UNG is that the volume has entered a new phase of open interest which means more and more are flocking to this investment tool.

If we now center our attention on Natural Gas prices themselves, we can see more of a "historic" presence that exists. The recent move of natural gas from 5.5ish in the middle of 07 to 13.5ish just a couple of weeks ago is a 120%+ return, which is not bad for a commodity in such a short time. This correction still puts Natural Gas prices with a respectable 40%+ return from its low of 07.

Fundamental Difference.

One thing to examine is why natural gas itself is not trading at all time highs vs. other commodites, oil in particular. Oil is widely more used than natural gas, and only recently in the last decade has natural gas been looked at as a highly viable alternative. This means that the infrastructure for Nat Gas is not as extensive as oils infrastructure and this has to do with oil's deep integration into our lives vs natural gas. You might think about using natural gas in your home, if its available, but not many would think about a natural gas car, motorcyle, or lawnmower, etc.. This is why the price itself is more volatile than oil, and other commodites. Oil is available in many more facets of our daily lives, but Natural Gas is still neither here nor there, but that is improving and should continue to stablize prices themselves - natural gas needs more infrastructure buildout so that when we make energy decisions, its available.

One conintinet that has a better natural gas infrastructure is Latin America, and most notably Brazils healthy appetite for natural gas as an alternative to oil. Due to the abundance of natural gas in the valleys and hills of Brazil, Argentina, Bolivia, etc., Latin America has diversified its energy habits to include natural gas and the infrastructure buildout is more advanced. There are many natural gas piplelines that exist and many that are in construction, with Bolivia being the most notable new entry into the natural gas pipeline game in Latin America.

From the technical standpoint on UNG, one would want to evaluate their timeframe. The IPO gives it less history from which to draw from. You should look at Natural Gas resistance and support levels to coordinate buy and sell signals on the UNG. Natural Gas has had trouble with the 13-15 area - it has encountered turbulence entering a new price level. It could be becuase natural gas is a consumer adoption choice vs oil which is a consumer oriented need - we use more oil in our daily lives than natural gas. If we continue to see increased adoption and further penetration into oils consumer market share, then prices should break above that ever elusive 13-15 area. Until then, expect more volatility.

UNG

1m-3m: prices could see 50 but that is also resistance.

3m-6m: prices could see the a breaking of the 50 mark and enter new trading range.

1y+: prices could see natural gas moving towards highs.

EWJ - Going Long Japan.

ISHARE MSCI JAPAN IN(NYSEArca: EWJ) - BUY

TimeFrame - Long Term(1-3yrs)

Low Risk and Low Beta

1st Target: < 6months - $13.50
2nd Target: 6 -15 months - $15

3rd Target: 1-3yrs - $19

The EWJ is showing a recent consolidation pattern that may be nearing an end. There are 2 charts: a daily and a weekly. The weekly trendline is being tested in the first chart. The 2nd chart shows a shorter time frame which suggests more volatility ahead but with MACD's testing the low again, the RED AROON extended on the corrective side of things, and the recent stochastic jump, we are seeing positive technical developments that suggests that EWJ is continuing to carve out a bottom. We do need to see volume confirm this, so watch for this in the coming weeks.

Breakdown target would be 10.50.

UNG - Throwback finds support.

UNG: Accumulate.

The first chart is a revised version of the ETF: UNG. The second chart is the first analysis that was formulated, and shows the beginning of the technical term "throwback". It looks as though it penetrated below the first support I had drawn and hit the 2nd support line - also its 200 EMA. UNG will likely bounce/consolidate for the rest of summer/year.

Look for the commodity complex for some of the best day trading setups going as the volatility has now increased on this correction. Play the patterns, which there tend to be many triangles in the commodity world, but technical analysis has to be malleable in some form, so when you're looking for one thing, it's always another. This correction is better for the overall long term pricing of commodities and will create the base from which prices will go higher. UNG is now in accumulation.

Why the NASDAQ stands on firmer ground!

Long-Term Trend Analysis

NASDAQ vs. DJIA

Timeframe (1-3 years) NASDAQ outperforms.

The Nasdaq has held onto the march lows so far while the DJIA has broken through its support. What are the charts saying? It says the NASDAQ is still the top of the competition in the global world, while the DJIA may just be losing its competitve edge all together. After the NASDAQ's high flying bust from 5,048.62 in the year 2000, the Nasdaq, now 8 years later, is only sitting at 2257, which is a good 50% away from its peak. As our banking system, our consumer, our auto giants, and many other moving economic parts settle into the new paradigm of globalization, the DJIA will have a tougher time because it has lost its competitive edge as the "father" of world markets, and now is heading towards the "grandfather" of world markets, while the technology heavy NASDAQ is still the blueprint for modernizing economies and is passing the test here.

As we look at what the chart and this recent breakdown of the DJIA vs the NASDAQ holding onto its support, the NASDAQ could now be the one to lead. It's proven that it does not want to go below the March lows, so far, while the DJIA has already penetrated through these levels. Thats why the Nasdaq will outperform relative to the DJIA going forward. This also holds well to the SOXX - PHLX SEMICONDUCTOR SECTOR INDEX theory I posted about earlier in the year.

http://polluxtechnicals.blogspot.com/2008/05/other-commodity.html