JANUARY 2011 - MAJOR MARKETS (DOW, S&P, GOLD, OIL) Technical Commentary

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HO HO HO! Santa Claus rally did happen (again!!!). Perhaps, this seasonal phenomenon is really worth playing.
Following the previous analysis in November, technically the markets were carving out bullish structure across the
board with the fundamental backdrop of QE2 – therefore a few conditional (bullish/reversal candles at key levels) calls
were made, which went down successfully. However, at this juncture probability increases for sizeable pullbacks and
corrections in risk assets.

DOW

Longs were covered at close of Friday, 14 January 2011. Entry levels were outlined in previous analysis and precise
entries based on candle patterns on dailies are explained in Model Portfolio section of this document.

Price nicely retested 200SMA on weekly which was also around previous resistance levels and bounced off to break
previous highs. However, now it is reaching its previous resistance zone on RSI, perhaps calling for a potential medium
term top.

The current rally may continue further up to 12000/12090 (pivot resistance) before facing some pressure of at least
profit-taking if not outright selling. If the price returns to 10SMA (currently around 11173) or channel support (currently
around 10840), then we may look for bullish patterns to go long again. Regions / zones for start looking for shorts are
12500 and 13000 – below these levels, unless a pattern such as double top or head and shoulder emerges in coming
days/weeks, there are no technical signs to begin shorting.

On a more worrying note, in November and December 2010, the AAII bullish sentiment index has been at its highest
since 2003/2004 and put/call ratios are also at near extreme levels. In summary, it means that the majority of the market
is confident that the market rise will continue and it is all rosy from here on – precisely the time to re-evaluate current
risk-on positions.
GOLD

No change from last update which was - Upswing from 682 to 1227 carves out a Fibonacci extension up to 1435 as next
resistance. Although, Gold missed to touch that by about 10 points, the resistance has already come into play. I have
carved out my buy zone on chart and will only be buying if a right price pattern emerges on shorter timeframe (which is
Daily). The buy zone is based on confluencing factors such as previous support becoming resistance around 1227 and
1269, monthly support pivots and two shorter trend lines. The Gold bull story is far from ending - per technical
structure and also given the QE 2 / potential risk-aversion backdrop.
S&P

Price nicely bounced off the 50SMA and fib confluence zone which was previously identified and where we were looking
to go long from (1180) which were closed on 14 January 2011 (same as Dow).

Significant resistance seems to be coming into play in the region of 1302 and 1350 (zones marked on chart) look for
potential short candle setups there or around current levels in days to come. RSI is also on resistance trend line carved
out from and held since March 2010. Fundamentally (macro headwinds around sovereign bonds) and market sentiment-
wise (eg, AAII, put/call ratios mentioned in Dow Jones section), a correction is very likely. This is further supported by
the fact that VIX is testing April 2010 lows (significant VIX support level) and therefore we prefer to look for selling S&P
as it is more technically aligned at present for a short play.
OIL

Text book example of previous resistance becoming support, Oil was offered several times around 86.9 to 89 zone, but
this time it broke through, came back and retested it twice and rallied after forming a double bottom on previous
resistance zone. Technically, there is no major resistance until 100 on charts, where some level of resistance coupled
with the round number factor may come into play. So 100 is the level to watch for bearish/reversal candle patterns on
Oil.

Model Portfolio

Instrument Direction Entry Stop Target Risk Closed P/L Balance Comment
position at
10,000.00 Opening Balance
Dow Short 11138 11250 11000 1 11133 5.00 10,005.00
Dow Short 11390 11470 11000 0.5 11180 105.00 10,110.00
Dow Long 11052 10900 1200 1 11775 723.00 10,833.00 Was watching for candle
setup around 10980.
Entry triggered at 11052
on 18th November 2010
Dow Long 11282 11141 11600 1 11775 493.00 11,326.00 Trade trigerred on 02
December 2011 and stop
moved to b/e on 08
December 2010.
Gold Long 1227- TBD TBD TBD TBD Not trigerred but still valid
1269
S&P Long 1155 TBD TBD TBD TBD Not trigerred - expired

S&P Long 1185 1170 1300 10 1290 1,050.00 12,376.00 Setup triggered at 1185
on 17 November 2010
Dow Short 12500- TBD TBD TBD TBD Watching for candle
13000 setups
 Dow Long 10840- TBD TBD TBD TBD Watching for candle
11173 setups
S&P Short 1302- TBD TBD TBD TBD Watching for candle
1350 setups
Oil Short 100-105 TBD TBD TBD TBD Watching for candle
setups

Price Patterns (to watch for levels /zones discussed above)

Levels and zones are potential pivot areas – For trade entries, the price patterns / candles around these levels/zones
should be observed or pyramid your entries with money management for aggressive trading approaches.

Bullish Patterns

Bearish Patterns

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