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Guest Post: Four Charts: Shanghai, S&P 500, U.S. Dollar And The Dow

Tyler Durden's picture




 

Submitted by Charles Hugh Smith from Of Two Minds

Four Charts: Shanghai, S&P 500, U.S. Dollar and the Dow

Four charts cast a skeptical light on the Status Quo "stories" of endlessly rising equities and the doomed dollar.

Here are the Status Quo's most important investment "stories:"

1) China will continue booming for decades
2) U.S. equities will continue soaring as profits continue rising
3) The U.S. dollar will continue heading down because Bernanke wills it to do so

I would love to believe these magical tales, but the charts cast a skeptical pall on the happy stories.
Beauty and uptrends alike are in the eye of the beholder, so maybe you see uptrends in equities here; I don't.

The chart of the SSEC Shanghai Index is downright ugly. The uptrend line has been decisively broken, and a giant pennant/flag pattern looks busted, too.

 

The SPX (S&P 500) has also busted its uptrend, and the fan pattern indicates a weakening trend off the March 2009 lows. Notice how the trendline that was support is now resistance--a classic technical sign of reversal.



 

 

The dollar's slight uptrend was broken in Bernanke's last-ditch effort to goose the equities market to a new high in April. Since then, the DXY has clawed its way higher while the indicators are showing positive divergence to the buck's weak ascent.

There is great resistance just overhead above 76, as the trendline now offers resistance, as does the 50-week moving average. Those two are roughly aligning with the upper Bollinger band. On a slightly positive note, the lower Bollinger has turned up and the DXY has managed to hover at or above its 20-week moving average.

If the dollar closes decisively above 76.30, then Bernanke has lost control and equities are headed down: a dollar breakout will be in play.



Here is an analog chart of the Dow Jones Industrial Average from 1907 and the present, courtesy of Ron Griess and The Chart Store. Note the uncanny correlation of the two. Correlation isn't causation,of course, so maybe the Dow will sprint to 15,000 from here. But this chart introduces the notion that if history and pattern-matching have any predictive value, the next move will be down.

 



The truism in technical analysis is that you can always find a chart or indicator to support your belief system. But if we look at these simple charts and simple lines without predisposed beliefs, then what story are they telling?

 

 

 

 

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Mon, 07/18/2011 - 12:11 | 1466661 spartan117
spartan117's picture

First three charts look fairly similar, yet you give a bullish bias to the dollar.  Why? 

Mon, 07/18/2011 - 12:18 | 1466687 qussl3
qussl3's picture

Shhhhhh...

Mon, 07/18/2011 - 15:54 | 1467726 Voodoo-economist
Mon, 07/18/2011 - 12:21 | 1466698 I am a Man I am...
I am a Man I am Forty's picture

it would be more obvious with a longer timeline

Mon, 07/18/2011 - 12:38 | 1466764 chartcruzer
chartcruzer's picture

exactly!

for example here's ,,,  china,  note the PSAR sell signal

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3225058&cmd=show[s218729033]&disp=P

but, note the weakest country group if you want to go short = europe (europe has the debt issue)

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3225058&cmd=show[s235660699]&disp=P

here's the europe chart

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3225058&cmd=show[s218732180]&disp=P

the dollar has just thrown a long term buy,  note the reliability of the psar signal.

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3225058&cmd=show[s218820698]&disp=P

also note the euro has been on sell for some time now

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3225058&cmd=show[s218921789]&disp=P

happy trading....

 

Mon, 07/18/2011 - 12:40 | 1466767 chartcruzer
chartcruzer's picture

dupe  opps

Mon, 07/18/2011 - 16:01 | 1467755 Highrev
Highrev's picture

I also agree. Longer term would be good, especially when you're talking about long term secular trends like these:

1) China will continue booming for decades
2) U.S. equities will continue soaring as profits continue rising
3) The U.S. dollar will continue heading down because Bernanke wills it to do so

I would say that something like this might be more appropriate: http://2.bp.blogspot.com/-BSoT-EFzBd4/TWJAcfk83tI/AAAAAAAAEw8/9d9wx61Ki0Q/s1600/x100_03%2BFeb.%2B21%2B05.17_Pro.gif

;-)))

 

 

Mon, 07/18/2011 - 12:24 | 1466711 snowball777
snowball777's picture

That might have something to do with the first two charts being identical (Shanghai twice, no S&P).

Mon, 07/18/2011 - 12:31 | 1466733 French Frog
French Frog's picture

glad that someone else spotted that too; anyone trading will have instantly 'seen' that this wasn't the s&p but that's not to say that the s&p's chart isn't ugly too)!

Mon, 07/18/2011 - 13:42 | 1467046 greased up deaf guy
greased up deaf guy's picture

click on the "of two minds" link at the top of this page to see the s&p chart on chs's blog.

Mon, 07/18/2011 - 12:45 | 1466773 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

First three charts look fairly similar, yet you give a bullish bias to the dollar.  Why?

Tradition.

Mon, 07/18/2011 - 13:49 | 1467075 Toolshed
Toolshed's picture

Methinks the bullishness on the dollar is due to the law of relativity. Compared to most other major currencies, the dollar looks pretty good.

Mon, 07/18/2011 - 12:15 | 1466665 lolmao500
lolmao500's picture

Any good Italian-Spain bond short ETF? That could make us some good money real soon.

And all those ``technical analysis`` don't work right now, haven't been working for the last 3 years because of all the shenanigans the governments and the FED have been pulling.

Mon, 07/18/2011 - 12:13 | 1466671 InconvenientCou...
InconvenientCounterParty's picture

set up well for more fiat largesse. Just a little more misery should do it.

Mon, 07/18/2011 - 12:14 | 1466676 baserunr
baserunr's picture

The obvious story is that Recovery Summer is here!  Again! Still!

/sarc

Mon, 07/18/2011 - 12:36 | 1466755 kito
kito's picture

as long as those stocks keep heading north, the people are happy. calpers kicking ass!!! 

http://www.bloomberg.com/news/2011-07-18/calpers-posts-its-best-annual-gain-in-14-years-on-stocks-private-equity.html

Mon, 07/18/2011 - 12:15 | 1466680 Cycle
Cycle's picture

I think the author meant to post SPX rather than SSEC twice, but the point is valid. I keep looking at long term cycle charts for the DJIA (and the FTSE) and either the cycle models are dubious, or we seem to be at the cusp of a major multi-year drop in equity markets.

http://econocasts.blogspot.com/2011/07/model-djia-longshort_18.html

Mon, 07/18/2011 - 12:19 | 1466692 Cpl Hicks
Cpl Hicks's picture

Those charts did look mighty similar, did they not?

Mon, 07/18/2011 - 12:16 | 1466682 lolmao500
lolmao500's picture

S&P Cuts Bank of Ireland UK Government Bond Rating to A- from A+

More fun.

Mon, 07/18/2011 - 12:23 | 1466704 shushup
shushup's picture

He gave us the Shanghai chart twice instead of the SPX

Mon, 07/18/2011 - 12:23 | 1466707 Stoploss
Stoploss's picture

Descending wedges, all of them. All you need to know.

Mon, 07/18/2011 - 12:26 | 1466719 Tense INDIAN
Tense INDIAN's picture

I just cant wait till tomorrows OPening of the Indian markets ...

Mon, 07/18/2011 - 12:40 | 1466770 Stoploss
Stoploss's picture

Japan was closed today. So far not a peep about it. Guess who gets to play catch up tomorrow. That ought to kill that little 1/2 B pomo tomorrow as well.

Mon, 07/18/2011 - 12:32 | 1466722 Oh regional Indian
Oh regional Indian's picture

We are "In Irons" ladies and gentlemen. Before the ill winds blow, our sails will have little to give us steerage by. That is why so many earth shaking events have happened in this window.

It's all as metaphorical as it is real. Temporary rise in PM's aside, it'll be all down together in a bit, for a bit. Hard.

I'd take a partial profit in metals and sit in cash for a bit.

Dollar cost out over the next 3-4 days. After the 21st, we're in Leo and everyone know's of Cliff high's Sun disease! 

ORI

http://aadivaahan.wordpress.com/2011/07/08/july-15th-aug-15th-month-long-window-coming-up-initial-thoughts/

Mon, 07/18/2011 - 13:35 | 1467016 gmrpeabody
gmrpeabody's picture

I agree with you (on this, anyway). Good time to sell a third and wait.

Mon, 07/18/2011 - 14:32 | 1467276 Oh regional Indian
Oh regional Indian's picture

Respectful consent and dissent are equally welcome to the mix I'm sure gmr.

Glad we agree on something important.

ORI

Mon, 07/18/2011 - 12:29 | 1466726 Saxxon
Saxxon's picture

The '08 crash lost the Republicans the White House. Do you think the current Administration will make the same mistake? Do you think they don't have the ability to keep pumping equities with helium, dropping Corexit on RE and airbrushing the news?

I suggest you think again. This Admin has more control over media and markets than any other beast that has slouched out of the hills.

Short at your peril.

Mon, 07/18/2011 - 12:44 | 1466789 Stoploss
Stoploss's picture

It's long at your peril today, bud. (That is what im seeing there isn't it, a little bud?).

Mon, 07/18/2011 - 12:47 | 1466811 oldmanagain
oldmanagain's picture

The administration is many months late on some basic Keynesian remedies.  It is true that the banking system needed immediate rescue but government so divided by ideology has not been able to do some very basic, tried and true, solutions to job contraction.  Now contraction is built in and the money was wasted on the banks.

A significant number of Zerohedge and leader want a collapse to rebuild some type of dictatorship of the non-taxable.  Depending on animal spirits to drop goodies in the mail box that no longer gets mail.

Mon, 07/18/2011 - 13:03 | 1466878 i-dog
i-dog's picture

"A significant number of Zerohedge and leader want a collapse to rebuild some type of dictatorship of the non-taxable"

Please post links to any ZH'er calling for any kind of dictatorship.

Mon, 07/18/2011 - 13:22 | 1466951 malikai
malikai's picture

Agreed. But it doesn't sound like a bad idea to load up on some cheap puts. They will need an excuse for QE3, after all. Just sell the good ones off by mid August and it might be some decent change.

Mon, 07/18/2011 - 12:31 | 1466730 SilverDoctors
SilverDoctors's picture

Maybe the DOW will continue an uptrend in FIAT terms...not in real value.

Mon, 07/18/2011 - 12:32 | 1466736 Saxxon
Saxxon's picture

SilverDoctors; yep.

Mon, 07/18/2011 - 12:35 | 1466753 SheepDog-One
SheepDog-One's picture

Well thats assuming those are the ONLY 2 factors going forward.

Mon, 07/18/2011 - 12:31 | 1466734 Tense INDIAN
Tense INDIAN's picture

theres no SnP 500 chart

Mon, 07/18/2011 - 12:32 | 1466740 RobotTrader
RobotTrader's picture

Bernanke must be watching the XLF in utter horror.  I bet he has an iPad with the 15-min. chart of BAC on it right now.

Meanwhile, nothing to worry about with the high flyers as the "no-brainer" trade seems to be to short bank stocks and buy AAPL, FOSL, CMG, PNRA, etc.

Mon, 07/18/2011 - 12:45 | 1466788 SheepDog-One
SheepDog-One's picture

The Bernank is looking on in horror? What happened to him going down as the greatest ever in history?

Mon, 07/18/2011 - 13:12 | 1466914 Dirtt
Dirtt's picture

7 come 11.

Roll the dice again Ben.

Mon, 07/18/2011 - 12:33 | 1466741 JW n FL
JW n FL's picture

http://www.presstv.ir/detail/189559.html

 

Israeli navy attacks intl. monitoring vessel in Gaza

 

Sun Jul 17, 2011 11:56PM

**********************************************************

 

http://www.youtube.com/watch?v=fRZSzdQuOqM

 

http://www.ussliberty.org/
The USS Liberty incident was an attack on a U.S. Navy intelligence ship, USS Liberty, in international waters about 12.5 nautical miles (23 km) from the coast of the Sinai Peninsula, north of El Arish, by Israeli fighter planes and torpedo boats on June 8, 1967.

 

So! Let me Guess! Because Israel Behaves this way! I am a Nazi and its all my fault, right? Sure it is! Keep Up the GREAT WORK Israel!! Maybe you can kill a Lil Girl AGAIN!

 

http://www.rachelcorrie.org/ NEVER!! FORGET!!!

Mon, 07/18/2011 - 13:44 | 1467053 gmrpeabody
gmrpeabody's picture

I thought we were talking about bearish charts.

Mon, 07/18/2011 - 13:56 | 1467103 JW n FL
JW n FL's picture

I am talking about the Israelis State that gives more Money to the United States Government than ALL of the Financial Sector Combined in Multiples!

 

You want Bearish Charts? wait until Israel drags us (The U.S.) into a War! or you can go with the Broken Window Hypothesis.

Mon, 07/18/2011 - 12:34 | 1466749 lieutenantjohnchard
lieutenantjohnchard's picture

my vote for the 5th chart is the one comparing jpm $39.35 versus silver $40.50. i like that chart.

Mon, 07/18/2011 - 13:14 | 1466917 fuu
fuu's picture

Keep waiting for the beat down. I would have to go back but I think they were under about a week last time before the 5x margin hike in days bs happened.

 

jesus BAC is almost at par with SVU.

 

And all the crazies are out today which is a good sign of distraction/turfing.

Mon, 07/18/2011 - 12:34 | 1466750 Eric Cartman
Eric Cartman's picture

I stopped reading after I noticed he used 3 indicators to identfy divergence. That is just paranoia. 

Mon, 07/18/2011 - 12:41 | 1466777 Fortunes Favor
Fortunes Favor's picture


AUD/JPY Struggles Imply Risk Off / Liquidity Drain: Not Good For Equity Prices

http://rosenthalcapital.com/blog/2011/07/stock-market-strategy-carry-trade-weakness-suggests-sp-500-overpriced/

Mon, 07/18/2011 - 12:45 | 1466795 newstreet
newstreet's picture

If it were only this easy.

 

Carthago delenda est.

Mon, 07/18/2011 - 12:46 | 1466798 Saxxon
Saxxon's picture

Israel/Iran is another false flag and affords B.O. another Hands-Across-The-Water shot at looking like a peacemaker.

Oh; and The Ceiling will be raised. 

Batten down for 500+ on the ol' DOW (from here) this week.

Mon, 07/18/2011 - 12:58 | 1466855 slaughterer
slaughterer's picture

The ceiling needs to be raised with substantial cuts in the government's budget.  If there are no substantial cuts, then Moody's and S&P will downgrade US debt one level even with a debt ceiling raise. 

Mon, 07/18/2011 - 12:52 | 1466830 Tense INDIAN
Tense INDIAN's picture

He forgot to GIVE the SnP chart ....I may help here a bit ....After a long time ...looking at the SnP charts ...hope this helps...:::

SnP 500

http://markettechnicals-jonak.blogspot.com/

Mon, 07/18/2011 - 13:47 | 1467069 gmrpeabody
gmrpeabody's picture

It really doesn't look broken..., YET!

Mon, 07/18/2011 - 14:05 | 1467141 espirit
espirit's picture

$SPX - Except that a close below fibo pivot is not "good" news for this ponzi.

Mon, 07/18/2011 - 13:06 | 1466892 Dirtt
Dirtt's picture

Israel would like nothing better than to PISS all over the FACE of POTUS44.

Black Swans have come and gone since Goldie pissed Corexit into the GOM.  Which Black Swan will break the back?

My money is on Bibi.  BLOW the 12th Iman TO SMITHEREENS. BABY. CAIR Fruitcakes SUCK.

Mon, 07/18/2011 - 13:13 | 1466920 Saxxon
Saxxon's picture

Nonsense Dirtt; they will not bite the hand the supplies them with what they need to survive.

False flag; deals to come shortly.  Shorts too excited, once again.  Still shorting, after all these years?

http://www.youtube.com/watch?v=46bkXgxb66E

 

Mon, 07/18/2011 - 13:29 | 1466957 THE DORK OF CORK
THE DORK OF CORK's picture

In the end the dollar will destroy everything - only Gold can stop it.

But who wants to live forever ?

www.youtube.com/watch?v=BYOE_b4aYD0

 

 

Mon, 07/18/2011 - 13:24 | 1466960 CustomersMan
CustomersMan's picture

 

              800 and Counting

     If you read TomDispatch (Chalmers Johnson) you'll remember the article on U.S. Military bases around the world. At the time of the article there were about 800, many of these were mega-bases, don't remember the total cost but it's in all the budgets.

     Before Congress does anything more stupid, many of these should be closed.

     The Repugs better enjoy their last days of support from the right-wing media empire cause things are a changin fast.

      Limburger, O'Reilly, Hannity et al will be in the spotlight soon enough.

      I know this is about the charts but they are like a spaghetti sangwich.

 

 

 

 

Mon, 07/18/2011 - 15:02 | 1467471 66Sexy
66Sexy's picture

Risky to press a down move here.

This could swing back into your face.

The markets have always sought refuge in equities, not cash, all year, lat year, and most likely for the the rest of 2011.

Head fake down moves have been consolodation, not bear moves.

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