Market Update 5-29-12

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Seattle Technical Advisors provides technical analysis of

the equity, fixed-income, commodity, and currency

markets for RIAs, Hedge Funds, Money Managers, and

Financial Advisors.

Rinse, wash, repeat

Seattle Technical Advisors.com

May 29, 2012

Ed Carlson [email protected]

Seattle Technical Advisors website, PO Box 2415, North Bend, WA 98045, is published as an informational service for subscribers, and it includes opinions as to buying, selling, andholding various securit ies. However, the publishers of Seattle Technical Advisors are not investment advisers and do not provide investment advice or recommendations directed toany particular subscriber or in view of the particular circumstances of any particular person. ANY REDISTRIBUTION of Seattle Technical Advisors Market Updatewithout the writtenconsent of the publishers of Seattle Technical Advisors is PROHIBITED. Legitimate news media may quote representative passages, in context and with f ull attribut ion, for thepurpose of report ing on our opinions. Copying and/or electronic transmission of the Seattle Technical Advisors website or content is a violation of international copyright law.Information provided by Seattle Technical Advisors is expressed in good faith but is not guaranteed.

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SeattleTechnicalAdvisors.com Page 1

Internal IndicatorsVIXLast Fridaysshort-term signal worked well incalling a bottom in equities. Confirmed buy-mode (sell equit ies); Target 26

McClellan Oscillator We also mentioned a buysignal for this indicator last week. The bounce inthe oscillator since then has been less-than-convincing that a tradable bottom has beenseen; i.e. Complex structure below zero.

Euro-Yen cross, unlike equities, the highlycorrelated cross peaked on Tuesday and saw

new lows last week. BWI isnotconfirming.Sentiment: Another $3.5 billion was pulled outof domestic mutual funds per ICI bringing thetotal to 13 consecutive weeks of outflows,and52 weeks of outflows in the past 56 weeks.2012 redemptions amounting to $46 billion,compared to just $6.5 billion for the same periodin 2011.

AAII Sentiment: Bullish sentiment rebounded asbearish sentiment pulled back from unusuallyhigh levels in the latest AAII Sentiment Survey.Bullish sentiment, expectations that stock priceswill rise over the next six months, rose 6.9percentage points to 30.5%. Well be watchingfor divergences in our sentiment indicators(with any new lows in the averages) this weekas a bottom signal.

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Market Leaders

Energy Oil and Gas (XOI) and Exploration (OSX)both participated in last weeks equityadvance but neither was confirmed by BWI.

Financials: Ditt o for Bankers (BKX) and Brokers(XBD).

Technology Same here

Small Caps: bearish head-and-shoulders patternin the Russell 2000 (RUT) targets a minimummove to 720; Confirmed sell-mode. BWI failed

to confirm last weeks advance.

Ratio Charts: Pretty much what you wouldexpect last week with defensives taking abreather after weeks of outperformance. Theratio between small caps (Russell 2000) and thebroad market (SPX) makes for an interestingpicture with the descending triangle pattern.Descending triangles typically (but not always)resolve themselves to the downside. That iswhat we would expect with any further

downside in the broad market.

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Lindsay t ime intervals, Cycles &

Confluence ZonesWe wouldnt plan on riding out (staying short) the tradable advance we expectto get started next week. With our view that the post October 2011 rally is anadvance from a Sideways Movement, it s quite possiblethat this low is the12year low weve been writ ing about for the last year; the market has certainlydropped enough to qualify for t hat t it le and a June low is right in the pocket ofour MarchSeptember forecast.

We can count two different basic declines from last years highs in May and Julywhich both work for a final low on June 4.

We are bothered that we have a very clear middle section which points to a lowon 11/12/12. A not-so-obvious middle section does point to June 4, however; fullmoon on Monday, 6/4/12.

We were expecting the final low later in the year and that may sti ll be the case but with the bounce expected to be tradable and our uncertainty about thelonger term we believe the prudent thing to do is follow the signals we get fromthe Confirmation model and stay on our toes. If the October lows are breached,no final low until this autumn.

Fibonacci support zones; 1,310, 1,285, 1,220

Fibonacci resistance zones; 1,310, 1,340

Fade Dates: None identi fied this week, 6/4/12

Last weeks fade date on 5/23/12 turned out to be a low which was printedintraday. Fridays expected fade, at first glance, looks to be a low (in the Dow) buta higher high was seen intraday in both the SPX and RUT.

13-weekcycle low is due this week

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US Equi tiesBear Market

After some relief last week, we expect onefinal week of decline this week rinse,wash, repeat... Now for the grinder! IfJune4 is the low for the year, then that willmake for a record-sett ing short bear market(unless we see a crash). BWI is in aconfirmed sell mode and is declining (notconfirming) last weeks advance.

14-day RSI was unable to even get above i tsown 20-dma last week and 3-day RSI

peaked at 60 (sub-80). Weak! A 13-daycycle top was due last Thursday.

A Fib support zone and 200-dma are near1,285. Well make that our target for ourJune 4 bottom.

Coppock Curves: the weekly and monthlyare declining. Daily t urned up last week. Welook for a posit ive divergence at a bottom.

Long term, Lindsays Three Peaks and a

Domed House formation tells us to expect amove back to the October 2011 lows butthat assumes no new high this year.

Mode: sell Signal: sell Position: short

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FTSE/ Xinhua25

With 14-day RSI trading below 30, we wouldnormally believe FXI to be in a bear market.FXI seems to work dif ferently than other assetclasses in this regard. These extreme prints byRSI (above 70 or below 30) tend to forecast achange in trend. We believe FXI is telling us toexpect a tradable rally.

FXI looked more like the Euro-Yen cross thanUSequities last week as both spent the betterpart of the week declining. It must be in a

hurry to get to our price target of 30.50.FXI closed in the Fib support zone at 32.50 onFriday. A breach here targets the next zone at30.50.

A 21-daycycle is due June 4 and a 21-weekcycle hits the week-ended June 1.

Fib resistance zones: 38, 41,

Fib support zones: 32.50, 30.00-30.50

Coppock Curves: The daily, weekly, andmonthly are all in decline: very bearish.

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Nikkei225Bear market

NKX spent the week bouncing alongthe bottom, the Fib support zonesurrounding 8,550. BWI has startedto decline and we see posit ivedivergences in both 3- and 14-dayRSI.

233-dma and Fib resistance zoneboth at 9,100. Well make that our

price target once the rally getsstarted in June.

Fib support zones: 8,550, 8,450-8,500

Fib resistance zones: 8,600, 9,100,9,450

Coppock Curves: The daily is trying toturn upward but the weekly andmonthly are both in decline.

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US Treasuries, TNXBear market

Last week we wrote We look for a bouncenow and a re-test of this level at month-

end. We saw the bounce last week andnow for the testbut wait! Is that a trianglewe see forming? Being a continuationpattern, the t riangle implies furtherdownside. We believe this triangle will belike the one we saw in the Nikkei lastDecember and it wil l function as a reversal

pattern (this time)but be careful.

TNX has attained our target of 17. Webelieve this level will hold for theforeseeable future at least until thesummer rally in equit ies is finished.

A 21-week cycle inflection point is due theweek-ended 6/1/12and a 13-day cycle isdue5/31/12. Those both work well with ourexpected bottom in equit ies about then. But

before getting long rates/short bonds, letslook for a break of the 13-dma.

Fib support zones; 17, 14

Coppock Curves: The daily has turned up butboth the weekly and monthly are in decline.

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US DollarBull Market

DXY gave us the breakout we wereexpecting last week but BWI has turneddown indicating that the month-longadvance is long-in-the-tooth (nearing itsend). Sti ll in a confirmed buy-mode,however, so well be looking for anopportunity to get long again but we dontexpect itfor a few weeks.

21-week cycle due the week-ended 6/1/ 12

21-day cycle due 6/1/12

Coppock Curves: Daily, weekly, andmonthly all pointed up; Very Bullish.

Fib resistance zones: 84.50, 85.50

Longer term price target of 90.

USD: Over the last 25 years, the Dec-June period has been the strongest sixmonths of the year. Election years areusually USD bullish

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Euro

Bear Market

The Euro attained our downside price targetlast week and went on to print lower lows.BWI has turned down with last weeksdecline so we know were close to a bottomhere.

21-day cycle due today and 13-day cycledue 6/4/ 12

21-weekcycle low due next week (6/8/12)

With no resistance until 1.315 this could bea big rally. Remember, the biggest ralliesare in bear markets! Dont get pulled intothe meat grinder.

Fib support zones; 1.265, 1.245

Fib resistance zones; 1.315, 1.350

Coppock Curves: All three curves, daily,weekly, and monthly are declining; Uberbearish.

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Japanese Yen

The Yen got sucked back into the Fibresistance zone at 125.50 after the previousThursdays break-out. Although it ended theweek lower than where it began, it was - forall intents and purposes - a sideways week.

With one more week of downside expectedfor equities, the inversely correlated Yencould have a litt le more life left in it particularly with that red tr iangle we seeimplying a continuation of the advance.

With a Fib resistance zone at 127.50 andonly a week left in our game plan, wewouldnt get long if not already. Longposit ions could be held with tight stops. Aclose below the 21-dma will be our first cluethat the sushi has gotten old. A break-outfrom the wedge is our next clue.

34-day cycle is due6/18/ 12and looksimportant. Mark it on your calendar.

Fib resistance zones; 125.50, 127.50

Fib support zone at 124.00, 122.50, 120.50

Coppock Curves; Daily is declining and hasnot confirmed the new high in price;negative divergence. Weekly is advancingbut the monthly continues to decline.

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Crude Oil

Bear market

Crude printed a new low on Wednesdayfollowed by inside-days on Thursday/Friday.We can see positive divergences in both 3- and14-day RSI. A falling BWI is another reason toexpect a rally in the near future. As part of therisk-trade it makes sense to expect a rally incrude together with equit ies and TNX.

But before any rally, we believe crude either hasmore downside this week or needs to spendsome time building a bottom. Last Fridayappears to have been a fade-date.

34-day cycle hits on 5/30/12

21-week cycle is due the week-ended 7/6/12

Long-term trendline at 80

Fib support zones; 90, 88, 85.50, 84, 82

Fib resistance zones: 93, 96, 99, 108, 114

Coppock Curves: Daily has turned up but weeklyand monthly are declining.

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Gold

Lindsay intervals imply a top to thisadvance May 31-June 2 (See 4/19/12Special Report). Also, a 21-week cycle targets

a turn during the week-ended June 1. Ithasnt been much of an advance so far, butthe decline has been arrested. BWI finallystarted to drop with last weeks bounceupward (failure to confirm).

Rally target of 1,625 1,660

Confirmed sell- mode (sell bounces)

Fade-date this Thursday. We look for theadvance to sustain itself until then.


21-week cycle low due this week


Coppock Curves: The daily is up but with bothweekly and monthly in descent, any advancein price should be short-lived.

Fib support zones: 1,535, 1,460

Fib resistance zones: 1,815

Documents

Market Update 5-29-12