Short-term Forecast for August 31, 2009

| August 31, 2009

Synopsis:
The S&P 500 index closed slightly lower today, moving down to support at the lower boundary of the uptrend from July. A bearish rising wedge is forming on the daily chart, and this type of formation usually ends with a sharp correction. A move well above resistance at the upper boundary of the rising wedge would be required to strengthen the bear market rally from March.

Technical Analysis:
Technical indicators are neutral to slightly bearish as price action moves down to the middle of the Bollinger bands, money flow moves down to a new low in positive territory, MACD momentum holds above recent lows in positive territory, MACD histograms hold near the 0 level and RSI retreats from recent highs just below the overbought level. A slight negative divergence between price action and all observed indicators results in a slightly bearish condition overall.

Outlook:
A close well above the recent high in the 1,030 area would reconfirm the uptrend from March and forecast a test of resistance at the upper boundary of the rising wedge near 1,045, while a close well below uptrend support at current levels would predict a return to nearby congestion support in the 975 area. A break below uptrend support is slightly more likely at the moment (60% probable).

Treasuries

Synopsis:
The 30-year bond closed slightly higher today, holding near recent highs of the uptrend from early this month.

Technical Analysis:
Technical indicators are slightly bullish as price action holds near recent highs in the upper the Bollinger band, MACD momentum tests recent highs in positive territory, MACD histograms hold near recent lows in positive territory and RSI moves up to recent highs in positive territory.

Outlook:
A close above the recent high near 120.80 would reconfirm the uptrend from early August and forecast additional gains, while a close below uptrend support at 120 would predict a test of congestion support in the 118 area. Both scenarios remain equally likely.

Currencies

Synopsis:
The US dollar index closed slightly lower today, holding just above the lows of the downtrend from March.

Technical Analysis:
Technical indicators are neutral to slightly bearish as price action holds near the middle of the Bollinger bands, MACD momentum holds near recent highs in negative territory, MACD histograms hold at the 0 level and RSI holds near recent lows just below the 50 level. A slight positive divergence between price action and both momentum and oscillators results in a neutral condition overall.

Outlook:
A close above downtrend resistance near 79 would forecast a test of strong congestion resistance in the 80 area, while a close below recent lows at 77.50 would reconfirm the long-term downtrend and predict additional losses. Both scenarios remain equally likely.

Precious Metals

The Gold Currency Index (GCI) is a composite of gold prices in the currencies of 10 of the largest economies in the world as defined by GDP. It is therefore currency independent, reflecting the true, intrinsic value of gold as an international currency itself.

Synopsis:
The GCI closed slightly lower today, holding just below the upper boundary of the developing pennant formation. As always, a pennant indicates indecision, but it is also a fairly reliable predictor of future direction once price action breaks out or down. A move out of this formation is imminent and should occur sometime over the next week or two.

Technical Analysis:
Technical indicators are neutral as price action holds near the middle of the Bollinger bands, MACD momentum holds near the 0 level, MACD histograms hold near the 0 level and RSI moves back down to the 50 level.

Outlook:
A close well above the upper boundary of the pennant formation at 23.65 would confirm the start of a new uptrend, while a move below the lower boundary of the pennant near 23 would reconfirm the downtrend from March. Both scenarios remain equally likely.

Energy

Synopsis:
Oil closed sharply lower today, breaking below support at the lower boundary of the uptrend from July.

Technical Analysis:
Technical indicators are slightly bearish as price action drops down to the bottom of the Bollinger bands, MACD momentum moves lower in positive territory, MACD histograms move down further into negative territory and RSI breaks below the 50 level. A negative divergence between price action and both momentum and oscillators results in a moderately bearish condition overall.

Outlook:
A close above new congestion resistance in the $72.50 area would predict another test of the recent high near $75, while a close below current levels would confirm the new downtrend and predict a test of the bottom of the trading range in the $60 area. The downtrend continuation scenario is more likely (70% probable).

Category: Forecasts, Short-term Forecasts


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