New Year's Resolution...;-)

2011 Market Wrap-up

2011...what a year! A year of social unrest, demonstrations, riots, government overthrows, mass murders, earthquakes, tsunamis, floods, nuclear reactor meltdowns, political discord, economic distress (the "R" word has resurfaced), austerity, financial weakness, credit rating downgrades, volatility, financial fraud, law suits, assassinations, and the passing of Steve Jobs...no wonder the markets have been so reactive (sometimes quite violently) rather than proactive in a measured manner.

Here's a look at how some markets closed out 2011...actually, I'm a bit surprised that the U.S. Equity Market Indices aren't down more, considering the above turmoil...perhaps they've been artificially elevated...

The Fate of Oil

Oil is up 9.1% Year-to-date, as shown on the first graph below (courtesy of www.Stockcharts.com).

The second Year-to-date graph below shows that Oil is at resistance, while Gold is just above support, and Copper is in in a triangle formation in between support and resistance.

The Year-to-date chart of Oil below shows that Oil is sitting just above confluence (price, Fibonacci, Monthly VWAP, and Year-to-date Volume Profile POC) support at 99.00. The prior bearish Death Cross moving average formation has now changed, as of December 22, 2011 to a bullish Golden Cross formation. Price has been unable to hold above resistance at 102.00 since May of this year...a break and hold above this level could fuel a further rally in equities...failure to hold above 99.00 could send equities tumbling. Whether or not its near-term fate from today lies with the future direction of Gold and Copper remains to be seen.

European Money Supply and Private Loans Dip

Another time-out from my mini-holiday to slip this in:

Data released pre-market today showed a drop in European Money Supply, as shown on the graph below (courtesy of www.forexfactory.com). As can be seen, the total quantity of domestic currency in circulation and deposited in banks is still well below the levels seen from 2000 to 2009...not a healthy sign that would point to additional spending and investment in Europe.

Additionally, data released pre-market today showed a drop in Private Loans to consumers and businesses, as shown on the graph below. As well, the level of loans taken out are well below the levels seen from 2003 to 2009...which indicates that consumers and businesses are not confident in their future financial position, nor do they feel comfortable spending money.

Below is a Monthly chart of EUR/USD. At the moment, price has dipped below the 1.30 level and is hovering below trendline support. It has had difficulty moving above the 1.50 level since 2009 and has been, basically, range-bound from around 1.90/20 to 1.50. There is confluence support around 1.24...a break of that level could send price down to 1.20...a break of that level with confidence could see price drop to a confluence support level around 1.09/10.

This big picture view of the Euro tells me that it is weak and has not been able to sustain its rallies above 1.20 since October 2008. I wouldn't be surprised to see it retest that level sometime in the new year, with a possible dip, or significant drop, below. Also, the economic releases out of Europe lately (which I've posted) all point to a shrinking economy...there's no reason the currency shouldn't also follow suit.

Back to my holiday...

Yet Another Indicator Confirming European Economic Weakness

A quick time-out from my mini-holiday to report this...

Data released today showed a further drop in the Swiss economy, as shown on the graph below (courtesy of www.forexfactory.com). It's a combined reading of 12 economic indicators related to banking confidence, production, new orders, consumer confidence, and housing. It's designed to predict the direction of the economy over the following 6 months. The impact tends to be significant, but varies from month to month. It's just another set of data that's been released lately which confirms weakening in the European economy.

At the moment the EUR/USD has broken below recent support of 1.30 and is hovering just above a downtrend line, as shown on the 4-hour chart below...it has made a new low today over the course of the past 180 days.

Additionally, the European Financial ETF, EUFN, has also dropped in today's trading and is sitting just above recent support of 14.70, as shown on the 4-hour chart below...it is showing relative strength to the EUR/USD...further weakening of this ETF should have a negative impact on the Euro, particularly if it breaks its 180 day low of 13.71.

Back to my holiday...

Holiday Week

Today's action, so far, tells me not to bother trading this week...will take some time off to snooze with Smudge, instead...so I probably won't be posting until the weekend. Good luck to all!

European Stability Mechanism

This excerpt is from Wikipedia:
"The European Stability Mechanism (ESM) is a permanent rescue funding programme to succeed the temporary European Financial Stability Facility and European Financial Stabilisation Mechanism in the 17-member Eurozone. The ESM is due to be launched as soon as Member States representing 90% of the capital commitments have ratified it, which is expected in July 2012.^[1]"

Here is the link to that article:
http://en.wikipedia.org/wiki/European_Stability_Mechanism

Below is a video on this subject, which a trading acquaintance recently brought to the attention of fellow traders:

From my limited exposure to this proposal, it appears to me that they're going to create a bottomless money-sucking vacuum with no accountability from a select few in charge...sounds like a hard-line dictatorship in the making to me...



Merry Christmas 2011!

The following Christmas-theme graphics are provided, courtesy of www.infographiclist.com, together with their respective links (clink on link to see large version):

http://infographiclist.com/2011/12/12/christmas-around-the-world-infographic/

http://infographiclist.com/2011/11/26/the-twelve-days-of-christmas-infographic/

A description of the Twelve Days of Christmas is provided by this Wikipedia link: http://en.wikipedia.org/wiki/Twelve_Days_of_Christmas

Enjoy your day!

3 Dows...DBC vs AUD/USD...DBA vs POT vs SPX

Below are 3 Daily chartgrids of the following (first I'll show a series of charts, then provide some general comments and a summation at the end of this post):

1. 3 Dows
2. DBC (Commodities ETF) and AUD/USD
3. DBA (Agricultural Commodities ETF), POT and SPX

Below are a series of percentage comparison charts of these instruments on varying timeframes:

General Observations:

• All instruments are at or near their overbought level on the Stochastics indicator
• Momentum is in positive territory above Zero on all instruments
• The only one to have made a new high since August this year is the Dow Utilities, and it is in a definite uptrend on the Daily timeframe
• Of the 3 Dows, Utilities has been leading in strength this year, followed by the Dow 30, then Transports
• They have all rallied this past week
• The Dow 30, Dow Transports, and SPX are attempting to re-form an uptrend on the Daily timeframe
• DBC, AUD/USD, DBA, and POT are all still in definite downtrend
• During the past 30 days, DBC fell below the AUD/USD, but regained in terms of strength the past 4 days
• During the past 5 Years, POT has shown relative strength as compared to DBA and SPX...SPX began to diverge and fall in 2008, while POT shot up to new highs...POT was the first to show signs of recovery before SPX near the end of 2008...during the Year-to-date, we're seeing a divergence this past quarter with SPX advancing while POT and DBA continue to drop, apart from an upswing this past week
• Over the past 10 Days, POT and DBA stabilized...DBA moved above SPX...and POT jumped ahead of both DBA and SPX during the past 2 days

Summary:

Generally, these markets are beginning to look a bit overbought. However, with momentum in positive territory, they may only pull back sufficiently to relieve this situation in the short term...a "tell" as to whether they may then continue to rally would be to see if momentum stays above zero. I'd look for continued strength in DBC and AUD/USD...any developing weakness of significance could have an negative effect on the equity markets. I'd also look for continued strength in DBA and POT...a drastic drop in POT could, ultimately, have a major impact on the equity markets.

Twas the Night Before Christmas...

The origins of the poem, "Twas the Night Before Christmas," are described here: http://en.wikipedia.org/wiki/A_Visit_from_St._Nicholas

Where I have and have not been... ;-)

I have been in many places, but I've never been in Cahoots. Apparently, you can't go alone. You have to be in Cahoots with someone.

I've also never been in Cognito. I hear no one recognizes you there.

I have, however, been in Sane. They don't have an airport; you have to be driven there. I have made several trips there, thanks to my friends, family and work.

I would like to go to Conclusions, but you have to jump, and I'm not too much on physical activity anymore.

I have never been in Doubt. That is a sad place to go, and I try not to visit there.

I've been in Flexible, but only when it was very important to stand firm.

Sometimes I'm in Capable, and I go there more often as I'm getting older.

One of my favorite places to be is in Suspense! It really gets the adrenalin flowing and pumps up the old heart! At my age I need all the stimuli I can get!

And more and more I think of the Here After .. Several times a day, in fact, I enter a room and think "What am I here after?"

Gappy Christmas!

Below are a series of chartgrids of the YM, ES, NQ & TF. I'll provide a bit of commentary on each.

Year-to-date Weekly charts:

• Each e-mini futures index is either at or near a resistance confluence of price plus indicator
• YM is at Volume Profile POC, but trading above its mid-Bollinger Band and 50 sma (red)
• ES is at its 50 sma, above its mid-Bollinger Band, and below its POC
• NQ is at just below its POC and 50 sma, and above its mid-Bollinger Band
• TF is below its 50 sma, well below its POC, and above its mid-Bollinger Band

Year-to-date Daily charts:

• Each one is either at or near a resistance confluence of price plus indicator
• YM, ES & TF are still under the influence of the bearish moving average Death Cross formation
• YM is approaching its upper Bollinger Band, and is above its POC, 50 & 200 smas
• ES is just above its 200 sma (pink), is above its Mid-Bollinger Band and 50 sma, and is well below its POC
• NQ is just below its 200 and 50 smas, is just above its mid-Bollinger band, and is further below its POC
• TF is below its 200 sma, above its mid-Bollinger Band and 50 sma, and is well below its POC

4-Hour charts:

• Each one is either at or near a resistance confluence of price plus indicator, and volumes have been steadily declining on this latest rally since their December lows
• YM is at its upper Bollinger Band and above the 50 & 200 smas
• ES is at its upper Bollinger Band and above the 50 & 200 smas...still under the influence of the bearish moving average Death Cross formation
• NQ is at its 200 sma and above its 50 sma, and in between its upper and mid-Bollinger Bands...still under the influence of the bearish moving average Death Cross formation
• TF is above both the 50 and 200 smas, and is in between its upper and mid-Bollinger Bands

Year-to-date Daily charts:

• All are now trading above their "Thin Ice Zone"...the top and bottom levels are the high and low of the August 5th candles (the day of the U.S. credit rating downgrade)...I've written a number of posts on this zone and this one on December 14th explains: http://strawberryblondesmarketsummary.blogspot.com/2011/12/some-bears-are-still-awake.html
• YM is well above its 61.8% Fibonacci retracement level
• ES closed just above its 61.8% Fibonacci retracement level, once again
• NQ closed just above its 61.8% Fibonacci retracement level, once again
• TF closed just above its 50% Fibonacci retracement level, once again

20-Day 30-minute (market hours only) charts:

• Each one has several unfilled gaps from its November 25th swing low

In conclusion, each one is at a level of confluence resistance. This latest rally has taken place on declining volumes. The rally from November 25th contains several unfilled gaps...these markets have only been able to rally within the "Thin Ice Zone" after gapping up on thinly-traded overnight pushes...a further and sustainable advance above their current price levels without, first, filling these gaps, is suspect.

Diverging Data

A variety of data released today, shows a divergence between a decline in personal spending and income versus an increase in new home sales (although sales remain depressed at the lows of their 2008/09/10 levels), as shown on the three graphs below (courtesy of www.forexfactory.com).

It appears that more household debt is being accumulated than can be effectively managed.

Canada's GDP declined from 0.2% to 0.0%, as shown on the graph below...another indicator of a slowdown in global growth.

S&P 500 vs (nearly) Everything Else

Below is an updated Daily chartgrid, about which I wrote in my post of December 20th: http://strawberryblondesmarketsummary.blogspot.com/2011/12/markets-sample-christmas-pudding-early.html

In a nutshell, the ES (S&P 500 e-mini futures index) is high-basing after its big rally that day...a sign of distribution on lower volumes, potentially, in preparation for a push higher. There is considerable resistance overhead, however, but with the VIX trading below 25.00 now, that may be a higher probability than in recent months. Of note, however, is the fact that the U.S. $ is still trading near its highest levels since equities fell in July of this year...something to watch and see if the $ continues to rally, particularly under the scenario that I've described in my last post: http://strawberryblondesmarketsummary.blogspot.com/2011/12/currency-wars-about-to-begin.html

The first graph below (courtesy of www.forexfactory.com) shows a drop in the CB Leading Index...yet another indicator which shows a softening of economic conditions relating to employment, production, new orders, consumer confidence, housing, stock market prices, money supply, and interest rate spreads. The second graph shows a drop in the Home Price Index, which is a leading indicator of the housing industry's health.

Perhaps these are saying that the markets are overvalued at their current levels...time will tell.

Currency Wars About to Begin?

Data released (quarterly) pre-market today shows that Britain's Current Account dropped to the lowest level since the December 2007 release, as shown on the graph below (courtesy of www.forexfactory.com).

Since it's directly linked to currency demand, I've put up the following three Forex charts. The first is a Weekly chart of GBP/USD. The British Pound has been dropping against the U.S. $ since November 2007. It's currently trading in the lower one-third of the Fibonacci retracement...below resistance at 1.58 and above support at 1.54...below both the 50 and 200 smas...and below the 5-Year TPO Profile POC (red horizontal line), which is roughly in line with the 200 sma.

The second is a Weekly chart of EUR/GBP. The Euro has been dropping against the Pound since December 2008. It's currently trading in the middle one-third of the Fibonacci retracement (taken during the same time period as the first chart)...below resistance at 0.86 and above support at 0.83...below both the 50 and 200 smas...and below the 5-Year TPO Profile POC, which is just above the 50 sma.

The third is a Weekly chart of EUR/USD. the Euro has been dropping against the U.S. $ since July 2008. It's currently trading in the lower one-third of the Fibonacci retracement...immediately below trendline resistance at 1.306ish and above support at 1.3...below both the 50 and 200 smas...and below the 5-Year TPO Profile POC.

Since the flow began out of the Pound and into the U.S. $ during 2008, the Pound has firmed in the lower one-third zone and is attempting to hold above major support. Since 2009, the Euro has been dropping against the Pound and is attempting to hold above major support. Since July 2008, the Euro has been dropping against the U.S. $ and is attempting to hold above major support. It would appear that currency wars will now begin in earnest...with the U.S. $ as the potential victor, overall, for the next year, or so...ones I'll be watching, as mentioned in my previous post on December 14th: http://strawberryblondesmarketsummary.blogspot.com/2011/12/us-vs-british-pound-sterling.html

The Game of "Market Leapfrog"

This article by The Wall Street Journal today reported that the National Association of Realtors revised downward its sales figures by 14% from 2007 through 2010, showing that the housing bust was far worse than initially thought: http://blogs.wsj.com/economics/2011/12/21/realtors-lower-2007-2010-home-sales-estimates-by-14/
It makes me wonder if Realty and Home Builders stocks and ETFs are overvalued by 14% by implication...

Below is a Year-to-date percentage comparison chart of the S&P 500 Index with the Realty Majors ETF, ICF, the Home Builders ETF, XHB, the Commodities ETF, DBC, and the Financials ETF, XLF. I mentioned some of these in my post yesterday: http://strawberryblondesmarketsummary.blogspot.com/2011/12/markets-sample-christmas-pudding-early.html

On this particular chart, we can see that Commodities have basically outperformed the S&P 500 from January, but are now very slightly below...the Realty sector has played "market leapfrog" with Commodities and has been in the lead since October 20th...the Home Builders sector has lagged the S&P 500 since July 1st, but has just shot above very slightly...and the Financials sector has lagged all of these instruments since February 22nd.

Something I'll watch for is whether the Realty sector and Commodities sector continue to outpace the S&P 500 and, potentially, move it higher, and whether the Home Builders sector is seriously improving or whether this week's rally was just speculative. Additionally, I'll track the Financials sector to see whether it continues to firm and build support, or whether major weakness sets in. Any ensuing major decline by any of these ETFs could negatively impact the S&P 500.

The 5-Day 5-minute percentage comparison chart below of these instruments depicts the jump higher by XHB over the past 2 days...we'll see whether that continues for the rest of this week and following weeks.

The good thing about today...

...is that tomorrow the days start getting longer again!

Markets Sample Christmas Pudding Early...

Looks like the markets skipped pre-Christmas appetizers and headed straight for the pudding today.

After today's big rally, the YM, ES, NQ & TF may be headed towards their upper Bollinger Bands on the Daily chartgrid below. I seem to recall that Goldman Sachs' 2011 year-end target for the ES is 1250...(and that their original target was 1400, which was then reduced to 1350...and so on)...that would take price roughly up to the 200 sma (pink) on the ES. That's certainly a possibility if the upward momentum continues.

Below is a 4-hour chartgrid of the YM, ES, NQ & TF. Price ended roughly in line with the top of a declining channel, after making a new swing high on this timeframe...the TF has made a higher swing low, as well. The ES, NQ & TF are, however, under the influence of a bearish Death Cross formation on this timeframe, with the 50 sma (red) crossed below the 200 sma (pink) once again. My short-term RSI indicator is looking a bit overbought, and price may pull back a bit from here. If price can't rally and hold above today's high and reverse the Death Cross bearishness, I'd say that these e-mini futures indices could very well drop and make new swing lows...and possibly move much lower...at least to their lower Bolling Band on the Daily timeframe, or lower.

The Daily chartgrid below shows where price is on the ES in comparison with a number of other instruments since its drop in July of this year. The ES and ICF are showing relative strength from their September lows...XLF and DBC are running second...GXC and EEM are next...EUFN is next...TNX and TYX are next...and EUR/USD is last, which puts the U.S. $ in first place and ahead of the ES.

As we can see, the U.S. Financials (XLF) have firmed since their September lows, with the Chinese Financials (GXC) next, followed by the European Financials (EUFN)...however, we've not seen the same bounce in the EUR/USD that we've seen in the EUFN.

Any continued rally in the ES would require the continued participation of XLF...as well, I'd also look for a continued rally in GXC, EEM, and EUFN...otherwise, we'd have a separation of financial strength that would be skewed towards the U.S. markets and away from the the European markets (which is already weak) and the Emerging markets. A leading indicator of this scenario would be a weakening of the U.S. $ and a rise in the EUR/USD, TNX, and TYX.

The Daily percentage comparison chart below is taken from August 1st and confirms the above.

The 1-Day 30-minute percentage comparison chart below shows that, today, DBC rose the least from the market open...something I'll watch for over the next days/weeks to see if weakness is developing in the Commodities sector...which could influence equities, as well.

I'll continue to look at such comparisons to try to gauge equity strength in the near-term. Any future bank failure(s) would, of course, have a major impact on these markets.