Major Indices pull back on weakness in Financials and Euro

The YM, ES, NQ & TF all traded lower today on slightly higher volumes than on Friday as shown on the Daily chartgrid below.

A pullback in the Financials sector, XLF, (see my earlier post today), the EUR/USD forex pair, the AUD/USD forex pair, and the Commodities sector, DBC, (see my October 29th post) contributed to this weakness...the Financials and the Euro were particularly weak, as shown on the 1-day 1-minute percentage comparison chart below.

I heard a common thread being mentioned on the Canadian and American Financial TV networks today that there is concern about the growth potential of some of the European countries, and not just on issues regarding the recapitalization of their banks...there is uncertainty as to where any meaningful growth is going to come from over the coming quarters (for example, see my post on the weakness in the Portuguese Stock Index on October 28th)...no doubt this will be reflected in the price of the European countries' stock indices, as well as in their banking stocks in the next days/weeks...worth watching as new details on various European fincial, monetary, and fiscal issues, plans, and concerns about these unfold.

Income Tax Paid by America's Largest Corporations

Financials are weak today...watching Deutsche Bank...

The Financials sector is underperforming the Major Indices today after leading on Friday:

So far, the weakest of the banks today is Deutsche Bank (DB), which is listed as one of the largest creditors in MF Global which filed for Chapter 11 Bankruptcy today: http://strawberryblondesmarketsummary.blogspot.com/2011/10/weakness-at-mf-globalone-to-watch.html ...one to watch over the coming days/weeks, along with JP Morgan...

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G'day, Mate!

Charts of interest for the next while are the Australian Composite Index ($AORD), AUD/USD Forex pair, Commodities Index ($CRX), and the Commodities ETF ((DBC). They are each at levels of resistance, have trended similarly, and the Australian currency is leading this latest rally...whether it will continue to lead the Commodities and Equities markets upwards to possibly new highs for this year remains to be seen...a reversal of the current Death Cross of the 50sma and the 200 sma to form a Golden Cross, with price holding above the 50 sma on all of them could also see this latest downtrend reverse with higher highs and lows continuing into next year.

Otherwise, if price fails at the current levels, we could see a return to weakness in these markets with price falling back into their large trading range with volatile moves in both directions until a new trend is established.

If the VIX returns upwards to 25.00 and holds above that level, there is a good chance for volatility to return once more (see my post of September 12, 2011):  http://strawberryblondesmarketsummary.blogspot.com/2011/09/money-is-always-interesting-subject.html

The Daily charts below speak for themselves in this regard.

Portugal is lagging...

The Portuguese Stock Index is lagging the recent rally enjoyed by other Eurozone countries as it retreats from the declining 50 sma today...the next country on the radar, perhaps? In any event, one to watch over the next days/weeks...

How low can the US $ go?

As the markets gorged themselves on the long side today, the US $ broke below a near-term support level of 76.00 and its 200 sma (pink)...it sits on another fairly major support level of 75.00 at the moment, but is not far away from a very significant support level of 74.00. There is intersecting regression channel confluence at 74.00...if price drops to that level, we'll see whether it holds, or whether the US $ is, in fact, doomed, since a potential reversal of the Golden Cross to form a Death Cross could so predict.

The Major Indices (Dow 30, S&P 500, Nasdaq 100 & Russell 2000) and the Financials sector (XLF) ended at major resistance levels on their Daily charts as shown below.

Correspondingly, the YM, ES, NQ & TF also ended the day at major resistance levels as shown on the 4-hourly charts below. The YM, ES & NQ ended just below the +2 deviation level of the downtrending regression channel...this level is significant since a break and hold above could very well see price breaking through major overhead resistance and ultimately making a new high this year...the NQ isn't far from accomplishing that now, while the TF is still lagging.

The TF is trailing the bullishness, but it's one to watch to see if it begins to outpace the others on a move upwards over the next days/weeks in order to reach a new high by year's end...looking at a 5-day 5-minute chart below, we can see that the Russell 2000 has led the other Major Indices (on a percentage-comparison basis) in this latest segment of the rally, with quite a move ahead on today's action...I'll be watching to see if this trend continues, or if it was just a "flash in the pan" event.

This latest push up in the markets could either be the desire for month-end gains by fund managers with a drop to follow, or the beginning of major short-covering with the rally gaining momentum...we'll see what happens after the end of October.

"Euro-friendly?"

The EUR/USD forex pair is running into a confluence of overhead resistance at 1.42 as shown on the 5-Year Weekly chart below...will see if it continues up, or if it begins to consolidate between 1.42 and 1.40 before either resuming upward, or if its attractiveness fades and it reverses trend.

Will Financials lead or bust this rally?

An important sector that I'll be following over the next days/weeks is the Financials sector, XLF...as I write this, it is leading today's pullback as can be seen on the 1-day 1-minute percentage comparison chart below of the Dow 30, S&P 500, Nasdaq 100, Russell 2000 & XLF.

Future price action in this sector may provide valuable insight into overall market reactions to the Eurozone debt deal.

The Daily chart below finds price in between Fibonacci fan line support and trendline resistance...a break and hold on either side could establish market direction in the days/weeks to come.

Watching Japan's Nikkei...

After putting in an outside bearish engulfing candle which closed on higher volume below the falling 50 sma (red) today on the Daily chart of Japan's Nikkei e-mini futures index, NKD, price has already fallen below today's low in overnight trading as I write this...it failed to rally to the extent that the U.S. Major Indices has recently. This is another index that I've written about in past posts, and which I'll be watching in the days/weeks ahead as a possible gauge of equity strength/weakness, since it used to trade almost identically to those indices.

Weakness at MF Global...one to watch...

I heard today that MF Global has gone long on Europe peripheral debt...this is a Monthly chart of their stock:

The Daily chart below shows that the stock closed today just fractions of a point above its all-time lowest close on November 20, 2008:

Also, here is a link to a write-up about them on Bloomberg: http://mobile.bloomberg.com/news/2011-10-24/mf-global-may-be-lowered-to- junk-by-moody-s-as-corzine-adds-trading-risk?category=%2F

Their long trade looks like a big last-ditch gamble...I'll be watching their stock in the days/weeks ahead as it could portend what's coming down the pike in Europe.

P.S. October 31, 2011 -- MF Global filed for Chapter 11 Bankruptcy (based on its disclosed assets as of September 30th, it is likely to be added to the list of the 10 largest bankruptcies in U.S. corporate history, slotting in just ahead of Chrysler as #8) -- JP Morgan & Deutsche Bank are listed in the court filing as among MF Global's largest unsecured creditors (trading halted today).

Major Indices Struggle at Resistance

An attempt to add to the past several weeks' advance was sharply halted at resistance today on the Major Indices, as shown on the following 60-day 60-minute charts of the Dow 30, S&P 500, Nasdaq 100, Russell 2000, and Financials ETF...price stopped at or around recent support (critical technical and psychological support levels)...should these support levels be broken with conviction, we may see these markets resume their bearish tilt with moves down to the bottom of their large trading range. I'm mindful of a variety of unfilled gaps below (which I've spoken about in prior posts) which represent "thin ice," above which present a questionable and risky continued advancement scenario for the bulls at this time.

Below are 4-hourly charts of the YM, ES, NQ & TF, which corroborate the retreat from resistance levels...these are comprised of a confluence of Fibonacci levels and regression channel deviation levels as shown...note the high selling volume today.

The Daily chartgrid below of the YM, ES, NQ & TF show that price has been unable to penetrate above the 200 sma (pink) on the YM, ES & TF so far...time will tell whether the NQ will be able to hold above its 200 sma.

The following two Daily charts of the Financials ETF, XLF, also show the retreat at overhead resistance...13.29 is a major stumbling block at this time, while 13.00 is an important near-term support level. I've said repeatedly that the Equities markets will need the Financials to come on board if they are to continue in a meaningful rally.

Shiny & Slick...for how long?

Further to my post last night, I will be watching commodities closely on a longer term basis over the next days/weeks in light of the Bank of Canada Announcement today:

Bank of Canada Announcement

Released on 10/25/2011 9:00:00 AM Prior Consensus Actual Change 0 bp 0 bp 0 bp Level 1.0 % 1.0 % 1.0 %

Highlights As expected the BoC left key interest rates on hold at today's policy setting meeting. The target overnight rate thus remains at 1.0 percent while the Bank Rate stays at 1.25 percent and the deposit Rate at 0.75 percent. However, the central bank has clearly become much more cautious about the economic outlook, especially prospective developments overseas. In particular, the Eurozone is seen as a major risk to growth. The U.S. market is anticipated to be soft over the first half of next year while a construction-led rebound in Japan is seen constrained by the impact of a strong yen. Activity rates in the Canadian economy are seen supported by relatively robust domestic demand as net exports continue to suffer in the wake of an uncompetitive C$. Real GDP growth is now put at 2.1 percent this year before slowing to 1.9 percent in 2012 and then rebounding to 2.9 percent in 2013. The softer GDP profile means that excess capacity is more than previously expected and a return to full capacity is not anticipated before the end of 2013. As a direct consequence, the underlying inflation forecast has been revised down and now shows the annual core CPI rate declining through 2012 before returning to 2 percent by the end of 2013. More complete details of the new economic projections will be released in the Monetary Policy Report tomorrow but today's announcement is likely to be viewed as supportive of a possible interest rate cut at some point.

Definition The central bank of Canada periodically announces its monetary policy with regard to interest rates. The announcement conveys to the financial markets and investors if and what change in policy might be. Why Investors Care

The Bank of Canada has an inflation target: a 1 to 3 percent range with a specific focus at the 2-percent midpoint. To better track the core rate of inflation, the Bank uses a consumer price index that excludes eight volatile components: fruits, vegetables, gasoline, fuel oil, natural gas, mortgage interest, intercity transportation, and tobacco products (as well as the effect of changes in indirect taxes on the remaining components.) The Bank of Canada has renewed its inflation target agreement with the government for another five years to December 31, 2011. Data Source: Haver Analytics Of particular interest are Gold, Oil, Copper and the Commodities ETF, DBC... The Daily chart below of Gold shows price bouncing in between several Fibonacci confluence levels of 1590, 1660 and 1700...a break and hold below 1590 could confirm the resumption of a bear market move in equities. The Daily chart below of Oil shows price re-testing the falling 200 sma (pink) today...it could be forming the right shoulder of a very large H&S pattern that began in mid-2009 at around 95.00...a drop and hold below 80.00 could tie in with a bearish scenario in Gold and equities. The Daily chart below of Copper shows that price re-tested a resistance level of 3.53 overnight...I'd be looking for a drop and hold below 3.15 to confirm the bearish scenario above. Each candle on the chart below of the Commodities ETF, DBC represents 3 days...the current candle began yesterday...price is re-testing resistance confluence of the 100 sma (yellow) and price at 28.00...a break and hold below 25.50 would also tie in with the resumption of a bear move in Gold, Oil, Copper and equities.