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7 Defining Charts for 2014: US Stocks, Bonds, Oil, and More

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These are the sectors to watch in the new year.

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With everyone offering up lists of 14 for 2014, I decided to follow a less ambitious -- but still mathematically justified (2+0+1+4) -- route with a selection of seven charts for 2014 that are top-of-mind as we enter the trading year.

1. Crude Oil

WTI crude oil continues its broad consolidation of 2008′s crash to as low as $33.20 (January 14, 2009) and 2009-2011′s immense measured move to as high as $114.83 (May 2, 2011). The symmetrical triangle that began following the completion of the latter move saw a breakout higher in Q3 2013, only to form a head-and-shoulders top that took the contract as low as $91.77 on November 27, 2013. Crude staged a December 2013 rebound to $100 and triangle resistance in the form of a rising wedge that has broken down over the last few sessions. $100, and then $112, remain the levels to breach overhead; the wedge breakdown suggests a test of $92-$94 may be back in the cards, with the potential for a measured move below to as low as $80.


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2. Gold

Gold's worst year since 1981 may be set to continue with little to hold it up ahead of rising long-term trend line support near $1,080. The bump-and-run reversal top pattern underway in gold suggests a target matching up with 2009′s horizontal breakout (highlighted below) between $950-$1,000. There is one major opportunity to arrest this decline, which may now be underway at November/December 2009 resistance and June 2013 support in the $1,180-$1,226 range. December 31, 2013 fell as low as $1,181.40 (just above June 27, 2013′s low at $1,179.40), but rebounded nicely with yesterday's session following through as high as $1,228. Gold either double-bottoms here, shooting higher into Q1, or it fails to hold at $1,180, opening $1,080 next and $950-$1,000 later.


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3. Euro/US Dollar

The euro's good fortune versus the US dollar is about to be sealed or scuttled as EUR/USD presses hard inside its rising wedges (one underway since mid-2012, the other inside it since mid-2013) against falling long-term trend line resistance near 1.38-1.40. Highs in March and June 2008, and again in April 2011 established the trend line, setting the stage for its first legitimate test with a brief touch in late October 2013, and then a succession of nonstop salvos against it in December. A snap higher looks wide open to summer 2011′s resistance zone near 1.45, while a decline to wedge support takes the pair to 1.32, and a breakdown through wedge support to long-term trend line support near 1.24-1.25.


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4. The Japanese Yen and the Nikkei

The Japanese yen and the Nikkei (INDEXNIKKEI:NI225) were the dark and light sides of Abenomics' apparent (I stress apparent) success story in 2013. Many are calling for the massive debasement of the JPY to continue, and the Nikkei's concurrent break of secular trend line resistance in 2014. While this may be the case, the deep negative correlation between JPY and Nikkei paired with the yen's most chronically oversold condition ever and near-record long hedging among commercial speculators suggests one of its not-unusual-but-usually-violent short-covering rallies is just around the corner. Given their present and deep inverse relationship (with the cheap and ever-cheaper JPY supporting the long Nikkei trade), the Nikkei's long-awaited breakout may have to wait a little longer.


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5. Small-Cap US Stocks

Small-cap US stocks bested all but a few broad indices and sectors in 2013, with only the Dow Jones Transportation Average (INDEXDJX:DJT) (+39.5%) and S&P 500′s (INDEXSP:.INX) consumer discretionary (+38%) sector besting the Russell 2000′s (INDEXRUSSELL:RUT) 37% return last year. That performance belies the precarious spot the small-cap benchmark ended up at: cyclical rising channel resistance, intracyclical rising channel resistance, Fibonacci cluster resistance (including the 1.618% extension off the 2007 high), bearish deep crab resistance, and secular trend line resistance off the 2000 and 2007 highs. Look no further than 2013′s bullish persistence for evidence that the Russell 2000 could breach this array of resistance and continue, but the risk environment is heavily tilted against the long trade until this happens.


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6. Dow Jones Transportation Average

Dow Transports are coming off an incredible run, up a staggering 245% off the 2009 low in a cyclical move that dwarfs its late 1990s-era leg higher. Like the Russell 2000, the Dow is running into secular trend line resistance and major Fibonacci cluster resistance.


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7. 10-Year US Treasury Note

The US Treasury 10-Year Note (INDEXCBOE:TNX) ended 2013 on an ominous note, just breaching 3% on its final day of trade. After breaching a major medium-term descending trend line amidst summer 2013′s taper concerns, the 10-year yield successfully tested it as support in October and is now retesting 2013′s high at 3%. Little appears to be in the way for the 10-year note to reach 115 -116 with a concurrent move up for TNX to ~3.8%.


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Keep in mind that these charts represent a frozen moment in time at the beginning of the year: They carry significant implications that may be confirmed or negated in the coming months. If nothing else, they suggest 2014 will be a very different but comparably eventful year to the one that just passed.

This article by Andrew Kassen was originally published on See It Market.
No positions in stocks mentioned.
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