Friday, November 7, 2014

A Breakdown of the US Dollar Index

The US Dollar is one of the more fascinating markets today. There are so many things going on currently that I think it’s hard to just group them all together. Remember there are several components that make up the overall index, so today I wanted to breakdown the different pieces and see how they fit together to make up the entire basket. We’ll focus on the biggest 4 names and see what we can learn from what is currently going on.
First here is the US Dollar Index itself consolidating nicely above the upper of these two converging trendlines since the 2005 highs. I have to say that as long as we’re above this downtrend line, there is no reason to be bearish this currency basket. In addition, the longer it remains above the downtrend line, the more likely that this breakout is for real. Momentum in a bullish range since 2011 and now confirming that as it enters overbought conditions is another positive for the US Dollar Index as a whole (see here for more on US Dollar):
11-6-14 dx wkly
The Euro is something very interesting here. We do a lot of sentiment analysis and they really loved this thing in May; at the worst possible time. Now that the Euro has gotten crushed, the sentiment is at levels not seen since Summer 2012, right before the Euro exploded higher into year end. (more)
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Priceline Group (NASDAQ: PCLN): Charts Say This Giant Stock is Headed for a Swift Sell-off

Shares of online travel company Priceline Group (NASDAQ: PCLN) fell sharply on Tuesday, down 8.4% after the company reported better-than-expected third-quarter revenue and earnings but disappointed investors with its outlook.
Sales jumped 25% year over year in Q3 to $2.84 billion, beating analysts' estimates for $2.83 billion. Adjusted earnings of $22.16 a share came in 28% higher than a year ago, easily topping expectations of $21.07.

But the stock took a beating on the company's guidance for the fourth quarter. Management forecasted 11% to 18% top-line growth and earnings of $9.40 to $10.10 a share excluding items. Analysts were expecting a much more robust 24% revenue increase and a $10.91 per-share profit. Priceline blamed the deterioration in European exchange rates, which it said is "indicative of weakening economic conditions in key markets." (more)

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Major Trend Remains Down Despite New Highs

I rely heavily on my market timing signals and despite the massive snapback rally to new highs that we’ve seen I remain extremely cautious of this move. You may be saying that that is good from a contrarion view as a market climbs a wall of worry, however I believe for the most part I’m in the minority regarding a bearish stance. It’s remarkable how the sentiments have gone from bullish to uber bearish to blue sky bullish again. This volatility is not necessarily a good thing from a markets standpoint and should be a reminder that sentiment can change on a dime.
Be careful out there as something is off with the markets in my opinion and it’s backed up by strange readings with my market timing signals. You’d think with the sort of move that we’ve had that my major trend and market timing signals would be green by now and that is just not the case. Something feels off and when that happens I either am out of the market or hedged until the smoke clears.
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Wright Medical Group Inc (NASDAQ: WMGI)

Wright Medical Group, Inc., a specialty orthopaedic company, provides extremity and biologic solutions that enable clinicians to alleviate pain and restore their patients lifestyles. The company offers products that are used primarily in foot and ankle repair, upper extremity products, and biologics products. Its extremity hardware products comprise implants and other devices to replace or reconstruct injured or diseased joints and bones of the foot, ankle, hand, wrist, fingers, toes, elbow, and shoulder. The company also provides biologic products, which are used to replace damaged or disease bone, stimulate bone growth, and provide other biological solutions for surgeons and their patients, as well as offers a bone graft product incorporating antibiotic delivery. Its biological products focus on supporting biological musculoskeletal repair by utilizing synthetic and human tissue-based materials.
Take a look at the 1-year chart of Wright (Nasdaq: WMGI) below with my added notations:
1-year chart of Wright (Nasdaq: WMGI)
Over the last 4 months the WMGI seems to have formed an inverse head and shoulders pattern (blue). I have noted the head (H) and the shoulders (s) to make the pattern more visible. The stock’s neckline resistance is at the $32.50 level (red). WMGI would confirm its H&S by breaking through the neckline.
Lastly, keep in mind that simple is usually better. Had I never pointed out this inverse H&S pattern, one would still think this stock was moving higher simply if it broke through the $32.50 resistance level. In short, whether you noticed the pattern or not, the trade would still be the same: On the break above the key $32.50 level.

The Tale of the Tape: WMGI has formed an inverse head & shoulders pattern. A long trade could be entered on a break through the $32.50 level, preferably on an increase in volume.
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Euro Falls on ECB Stimulus Plan / Dan Norcini / November 6, 2014
The Euro went one way ( down ) and stocks went the other ( up ) when comments from ECB President Draghi hit the wire this morning.
What caught the attention of the Forex crowd, and the equity guys, was the indication that the Central Bank’s program of buying asset-backed securities would last for two years. That news was not in the markets.
Traders are interpreting it a evidence that the ECB is taking a more concerted stance at staving off the deflationary issues currently afflicting the Eurozone.
Here is a chart of the Euro.
The common currency has fallen through a temporary support zone that had formed near the 1.250 region. Depending on its subsequent price action for the remainder of the week, it appears headed for a test of 1.2250 zone.
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