Some chart updates this morning. The market retraced some of Monday's loses (up nearly 50bps or 6 points) on light volume. The high volume swing on the SPY is around $129 price level, and we note that this is within the gap that opened on June 6. This suggests that this range will be filled, or a 2% downside.

  

The price action in the precious metals complex shows no conviction for higher prices. The three month charts on the GLD and SLV show downside volume outpacing upside volume. We also note that the MACD and RSI on both show weakening trends.

 

One of the reasons for the weakening trend in precious metals (and the entire commodity complex for that matter) is the strength in the dollar index. In our minds, the dollar strength has been an indicator of "risk off" trade. For example, the directional trend in the Dow Jones CBOT treasury index and the UUP, although not one-for-one, appear correlated.

That said, the UUP looks like it is rejecting the $23 dollar price level after coming into the June 6th price decline. This may suggest a restest into the low $22 level on the UUP. June 6th is looking like an important date on the market, huh.

 

On the commodity front, oil continue to look weak and in our minds the price action suggests further downside. Over the last three months, upside price action has been on low volume and investors have used any upside price action to pair positions. The MACD and the RSI also look weak. 

 

That said, natural gas looks to have found a floor. The RSI has shown a clear divergence from the price trend. Ditto for the MACD. In addition, upside volume has increased with high prices, suggesting that investors are accumulating the commodity. Is there a way to play this? Well for one, coal stocks may react positive if this price action continues. (as a side note, our back-of-the-envelope analysis suggests the natural gas market inventories in the US may come back into parity with the 5-year average storage levels later in September through early November this year. Is the market discounting this?). Of course, natural gas stocks such ECA, APA, or TLM are also likely to benefit from higher gas prices. We would avoid UNG for anything but a trade. This ETF uses future contracts to gain exposure to the natural gas prices and the NAV is subject to the negative effects of the contract roll.