The Bottom Line
Technical, fundamental and seasonal influences point to another volatile week in equity markets around the world. Markets currently are substantially oversold and are set for a significant short and intermediate recovery. However, timing for the low (probably sometime this week) is not known. Preferred strategy is to continue to hold sectors that benefit from favourable seasonal influences (e.g., gold equities, agriculture) and to add to positions on technical signs of bottoming. In addition, prepare to enter equity markets and economically sensitive sectors after equity markets show short term technical signs of bottoming.

The S&P 500 Index plunged 92.90 points (7.19%) last week. Intermediate trend changed from up to down when the Index broke below support at 1,258.07 on higher than average volume and completed a head and shoulders pattern. Measured technical target based on the pattern is 1,128. Short term momentum indicators are substantially oversold, but have yet to show signs of bottoming. RSI already is below March 2010 levels when equity markets reached its ultimate intermediate low and is at the lowest level since October 2009 when U.S. equity markets briefly bottomed following the U.S. bank crisis. The S&P 500 Index subsequently rose 27% by the end of December.

The TSX Composite Index dropped 783.46 points (6.05%) last week. An intermediate downtrend was confirmed when the Index broke support at 12,763.54 on higher than average volume. Short term momentum indicators are oversold, but have yet to show signs of bottoming. Strength relative to the S&P 500 Index has turned positive thanks to recent weakness in the Canadian Dollar relative to the U.S. Dollar.

The U.S. Dollar added 0.70 last week despite a 0.53 decline on Friday. The Dollar remains in a five month trading range between 72.70 and 76.72. Intermediate trend remains down. Its 200 day moving average currently at 76.71 has proven to be formidable resistance. Short term momentum indicators currently have recovered to a neutral level.

Crude oil plunged $9.35 per barrel (9.73%) last week. An intermediate downtrend was confirmed when crude fell below support at $89.61 on Thursday. Short term momentum indicators are oversold, but have yet to show signs of bottoming. RSI has dropped to a level where a recovery is likely when RSI begins to move higher.

Gold gained $36.30 (2.23%) to another all time high. Intermediate trend is up. Short term momentum indicators are overbought, but have yet to show signs of peaking. Gold equity indices continue to weaken relative to gold.

… be sure to check out the other 48 Charts including Seasonal Charts Don posted this morning August 2nd HERE