Monday charting

The S&P 500’s breakdown is still the defining technical event to watch. On the short term, we may find some support around the 1080 level (which happens to be aroudn the 100DMA as well), which was support all through November and December and resistance back in September, but a breakdown through that level should continue the decline. If this sell-off continues, the 200DMA should provide the next level of major support. How the S&P reacts aroudn its 50DMA in the near-term should confirm or reject the reversal thesis.

Google (GOOG) broke down from its 13-month long rising wedge earlier this month and the selling has come in droves. It has broken key averages on massive volume, but may be soon to find some support around the 525 level, which was also support back in November. If GOOG bounces at that level, it may set up a potential head and shoulders pattern, with the neckline around 525.

Crude oil has been in a rising wedge since last summer. The 80-85/bbl level has offered significant resistance and crude may be ready to break down from its wedge pattern and reverse its rally from last year. A break below the 70 level that marked the cycle low last month could trigger big selling.

Since its September & October 2009 breakouts, gold has had a pretty nice run, but now is in consolidation mode. The lower high this month may be defining a forming descending triangle, with support around the 105 level (in the GLD ETF). With liquidity drying up and risk assets beginning possibly new selloffs, the next move in gold may be down, with the selloff triggered by a breakdown through the descending triangle support level. This would be bullish for the dollar. If gold breaks out and continues its rally, then the USD should reverse back down, and equities and other risk assets should continue bleeding higher. The defined technicals of gold make it an interesting asset to watch and use for prognosticating other asset classes, as well.

General Electric (GE) seems to be approaching the apex of an ascending triangle it has been forming since last summer, based around the long-term 17 resistance level. The 100DMA has offered significant support/resistance for GE extending all the way back to 2007, and GE’s stock has been bouncing off of it since August of last year. A breakdown through the triangle’s support trendline should also send the stock breaking down through its 100DMA, which could trigger some big selling. With the earnings beat being a sell-the-news event and the fundamentals behind the stock absolutely abysmal (the albatross known as NBC Universal and GE Capital’s ridiculous TCE leverage ratios, enormous exposure to commercial real estate, and substantial investment in Eastern Europe come to mind), any selloff in broader indices should this high-beta, barely-solvent (if not insolvent) issue very hard. On the other hand, if assets continue rallying, a breakout through 17 should send GE back to the 20s.

Sohu (SOHU) is forming an enormous symmetrical triangle consolidating its rally from 2002 to 2008. This is a very similar formation to the large triangle I noticed forming in the Nasdaq back in summer 2008 that eventually led to a crash once the triangle broke down, leading to one of my best and most profitable technicals-based plays. I see a lot of Chinese issues showing similar patterns and with talks or liquidity extraction in China and the obvious bubbles in various Chinese asset classes, a triangle breakdown should send SOHU tanking. Earnings sent SOHU selling off on huge volume last November. This looks like a pretty great short to me.

The long bond has seen dramatically rising yields since January as the yield curve steepens due to rising inflationary concerns and deteriorating sovereign credit risk (USA CDS was one of the worst-performing sovereign names in Q4 2009, widening 13.5bps or about 66%). However, the 30yr yield seems to hit an important long-term resistance level at 475bps and appears ready to go back down. Since September, the 30yr has been defined by a rising channel; once that breaks, long bond yields could sell back off, with the 30yr targeting the 420bps support level, and if that breaks the 390bps support level, both of which are significant S/R zones. With risk aversion creeping back into the market (and the Treasury’s desperate funding crisis it may try to resolve by the Fed draining liquidity and/or engineering a risk asset selloff), US sovereign fixed-income should find some inflows from risk assets. Thoguh we suspect the back-end of the curve to not see a lot of inflows on a relative basis, hedging that steepener trade on the short/intermediate term may be prudent.

Hard to chart the VIX, as it is an indicator rather than necessarily a supply/demand-oriented security, but here are some trendlines for your viewing pleasure. If the 200DMA breakout can hold, a return of vol should be at hand.

Freemont McMoran Copper & Gold (FCX) is one of my favorite high-beta names to play on both the long and short side. It has broken down from its rising wedge that has defined its ascent since last spring and also broken its 50DMA, both on big volume. FCX puked two days ago on the biggest volume since early March 2009. That is indicative of distribution. The 90 level is the line in the sand for upside; if it can somehow rally back to that level and breach it, it’s got some upside potential. But for now this looks like a short/sell on strength to me. It should bounce around a little at the 73 level it’s currently at (as it has been), as it is an important support level, but breaking down again through that level should trigger more selling. And with China tightening, the copper bubble is under pressure.

As a corollary, copper’s chart is posted below. Significant resistance at the 3.50 level suggests a possible breakdown from its rising wedge coming soon.

The Russell 2000 is at an important S/R zone, at the 62-65 area (on the IWM ETF), which was important resistance in 2005, support in 2006, and support again in 2008 on two different cycle lows. On a shorter term, it is approaching the apex of a rising wedge that it has been forming since last summer. If it breaks down through this wedge, a reversal will probably be at hand, given the significant long-term resistance limiting upside potential. This is important because the Russell selling off means outflows and underperformance from beta-skewed strategies. It is common knowledge that the rally since March 2009 in equities has been very skewed toward high-beta names, which makes sense because excess marginal liquidity chases beta on a relative basis, and an underperformance of the Russell relative to less volatile indices should spell huge trouble for all risk asset classes.

Research in Motion (RIMM) is potentially breaking down from an enormous ascending triangle that it has been busy forming since September 2008. The 86 resistance level of this triangle, which technically consolidated the crash, has found heavy supply whenever the stock makes a trip up to it, especially in its last touch of the resistance level last fall, when RIMM gapped down on huge volume on bad earnings. The triangle breakdown also corresponds with a 50DMA breakdown, but volume thus far has been light. If volume comes in on the supply side and the charts show a more definitive breakdown, I’ll be building a substantial short position in this equity. Earnings from last month have been overwhelmingly in the sell-the-news, gap-and-trap category.

The Nazzy has had a very impressive rally since last spring, but Friday’s selloff could be a technical sell/short trigger, as it broke the important trendline that defined its rally. In addition, it broke its 50DMA and volume was heavy on the supply side for three consecutive days. If the USD keeps strengthening, hot money inflows chasing the higher beta nature of tech stocks will dissipate and the QQQQ should selloff sharply. Upside potential at this point looks limited, but a constructive base over the next few weeks could change that.