Big Drop in Aussie Private Capital Expenditure

Data released Wednesday evening shows a big drop (into negative territory) in Private Capital Expenditure in Australia, as shown on the graph below.

Since it's a "leading indicator of economic health," it's one worth monitoring over the next months/quarter.

At the moment, the AUS/USD forex pair is trading in a range in between major price resistance and the +1 deviation regression channel level, as shown on the Daily chart below. Inasmuch as the MACD, Stochastics, RSI, and ROC indicators are diverging negatively, it's one to watch...near-term support lies around a confluence level of 1.04.

The Daily chart below of the Australian Index shows that price has stalled at major resistance. There are negative divergences on the RSI, MACD, and Stochastics indicators. Price is still subject to the influences of the existing bearish 50/200 sma Death Cross formation, and will be until such time as price breaks and holds convincingly above major resistance, and the moving averages cross to form a bullish Golden Cross pattern.

As I write this post late Wednesday evening, the Australian Index is currently trading 0.90% below Wednesday's close, as shown on the 5-day intraday chart below.

So, on my radar for the days ahead are the AUS/USD forex pair and the Australian Index to watch for possible further weakness, since a drop in business investment levels can be an early signal of declining future economic activity such as hiring, spending, and earnings.

Effects of ECB LTRO 2 on EUFN and EUR/USD

The ECB made available $530B in loans to EU banks today in order to provide liquidity to banks...known as LTRO 2. $489B in loans (LTRO 1) was made on December 21, 2011.

The reaction, so far today, on the European Financials ETF (EUFN) has been negative, as shown on the Daily chart below. Price has been trading in a range just below major resistance, and is still subject to the bearish influences of the existing 50/200 sma moving averages Death Cross formation. Additionally, there are negative divergences in play on the MACD, Stochastics, and RSI.

Similarly, the reaction, so far today, on the EUR/USD forex pair has been negative, as shown on the Daily chart below. Price has been trading in a range just below major resistance, and is still subject to the bearish influences of the existing 50/200 sma moving averages Death Cross formation. Additionally, there are negative divergences in play on the MACD, Stochastics, and RSI.

Time will tell whether the European financials and the EUR/USD hold at current levels, or whether a pullback follows in these instruments, and, ultimately, in the European banks.

What Do The Complacency Odds Say?

The 5-Year Weekly chart below shows a comparison of the S&P 500 Index to the VIX. We can see what can happen when price has traded around the levels at which they are currently situated. On each of the past four years, price has spiked rather quickly from these levels by large percentages on the VIX, sending the S&P 500 plunging.

The next 5-Year Weekly chart below shows the ratio between these two indices. The S&P 500 is at a major resistance level compared with volatility. No doubt we'll see whether history (this cycle) repeats itself over the next days/weeks.

With spikes occurring in four of the past five years from current levels, I'd say the odds of another spike this year are running around 80%...possibly sooner rather than later.

The Grass is Always Greener... ;-)

Home Price Index Continues its Decline

Data released this morning shows that the selling price of  homes continues to decline, as shown on the graph below. Since it's a "leading indicator of the housing industry's health because rising house prices attract investors and spur industry activity," this only adds fuel to the unfolding story of slowing demand/growth in 2012.

Today's data confirms data released on February 23rd which also showed a decline in the purchase price of homes with mortgages backed by Fannie Mae and Freddie Mac, as outlined in my post of February 23rd. As you can see in that post, existing home sales also declined, according to data released on February 22nd...these sales are down at 2009 levels...not a healthy environment at the moment in the housing industry.

Durable & Core Durable Goods Orders Drop to 2009 Levels

Data released this morning shows that Durable and Core Durable Goods Orders dropped considerably...down to 2009 levels, as shown on the graphs below.

Ones to watch for possible continuing weakness as a confirmation of slowing global growth in 2012. In the short term, this may take some of the steam out of the current equity market rally, as the futures markets dropped immediately following the release. In this regard, I've outlined where short-term support lies for the four e-mini futures indices (YM, ES, NQ & TF) in my post of February 27th.

Emerging Markets ETF versus BRIC Countries

Below are a series of 2-Year Daily charts. I'll be comparing the current levels of the Emerging Markets ETF (EEM) with those of the BRIC countries for the purpose of determining relative strength of each.

The first chart is of the EEM. Price is currently in a trading range just below major resistance established in the first half of 2011 and just above major support established in the second half. There are negative divergences on the RSI, MACD, and ROC indicators, as well as declining volumes. Price is still subject to the influences of the existing bearish 50/200 sma Death Cross formation, and will be until such time as price breaks and holds convincingly above major resistance, and the moving averages cross to form a bullish Golden Cross pattern.

The next chart is of the Brazilian Index. Price is currently in a trading range just below major resistance established in early 2011, and just above a downtrend line from November 2010. There are negative divergences on the RSI, MACD, and ROC indicators. Price is subject to the influences of the existing bullish 50/200 sma Golden Cross formation.

The next chart is of the Russian index. Price is currently trading below major resistance established in the first half of 2011 and a downtrend line from April, and just above recent minor support. There are negative divergences on the RSI, MACD, and ROC indicators. Price is still subject to the influences of the existing bearish 50/200 sma Death Cross formation, and will be until such time as price breaks and holds convincingly above major resistance, and the moving averages cross to form a bullish Golden Cross pattern.

The next chart is of the Indian Bombay Index. After hitting major resistance, price has been dropping the past few days and is currently trading at major support established in 2011, and a downtrend line from November 2010. The RSI, MACD, and ROC have all turned down. Price is still subject to the influences of the existing bearish 50/200 sma Death Cross formation, and will be until such time as price resumes convincingly above the major support/resistance confluence level, and the moving averages cross to form a bullish Golden Cross pattern.

The next chart is of the Chinese Shanghai Index. Price has been rallying the past few days and is currently trading at major resistance established in 2011, and the downtrending 200 sma. There is a negative divergence on the MACD histogram and ROC, and the RSI has reached overbought territory. Price is still subject to the influences of the existing bearish 50/200 sma Death Cross formation, and will be until such time as price resumes convincingly above the major support/resistance confluence level, and the moving averages cross to form a bullish Golden Cross pattern.

The graph below shows the percentages gained/lost during this two-year period for all of the above indices and ETF.

Since the beginning of March 2010, Russia has gained the most, followed by EEM, and then India. China has lost the most, with Brazil losing about the same in percentage as India gained.

With the exception of Russia, EEM has outperformed China, Brazil and India by a considerable percentage, and is not an accurate measurement of how the actual BRIC indices have actually performed.

Inasmuch as price on all of these instruments is trading below major resistance in the presence of negative divergences on indicators, and (with the exception of Brazil) are still subject to the influences of bearish moving average Death Cross formations, we may see a pullback occurring at some point soon. I'd keep a close watch on Russia and China for indications of possible weakness developing which may also affect the other indices and ETF...India has already been dropping and may be the signal that the others will follow suit. Ones to watch over the next days/weeks.

TF is the Weak Cousin to the YM, ES & NQ

Further to my post of February 11th, the YM, ES & NQ have advanced above the minor support levels that they had formed just before the latest unemployment data was released during pre-market hours on February 3rd. These e-mini futures indices rallied strongly (on high volumes normally seen during market hours, not during the pre-market session) immediately after that data was released before cash markets opened.

The TF also rallied on higher than normal pre-market volumes, but it has failed to advance above pre-market highs set that day.

As shown on the 4-Hour charts below, the uptrend remains intact for the YM, ES & NQ, while the TF is stuck in a trading range. The TF has re-tested the lows of this pre-market high-volume area five times now and rallied today, along with the YM, ES & NQ...all four e-minis rallied on increased volumes today.

Until such time as each of these four e-minis breaks and holds below this pre-market high-volume level, they have a chance of continuing their upward trek. The 23.6% Fibonacci retracement level is approximately in line with the highs of the pre-market high-volume rally on the YM, ES & NQ, and it is in line with the lows of the pre-market high-volume rally on the TF (the Fibonacci retracement begins from the lows of this year).

Below is a 1-Hour comparison chart of the Dow 30, S&P 500, Nasdaq 100, Russell 2000, Dow Transports, and Dow Utility Indices. It begins on February 3rd. As can be seen, the Nasdaq 100 is the leader in the rally from that date, with the Russell 2000 in negative territory, and Transports the laggard.

I'd look for any developing weakness in the Russell 2000, and a break and hold on the TF of its February 3rd pre-market high-volume level as a signal that the YM, ES & NQ may follow suit. Additionally, I'd look for a resumption of selling in Transports, as a confirmation (any further advance in Oil may have a negative impact on this index). Alternatively, a strengthening of the Russell 2000 and Transports should provide support for any further advance in the Dow 30, S&P 500, and Nasdaq 100 Indices.

As an aside, markets are watching to see whether the Dow 30 can recapture and remain above 13000 (which was hit again today but not held), and whether the S&P 500 can recapture and remain above its May 2011 high of 1370.58 (which was hit today but not held).

Money Flow for February Week 4

First of all, I apologize for the length of my post, but I have plenty to say...I appreciate you allowing me my indulgence and intrusion into your time.

Further to my last weekly market update, here is a summary of where money flow ended for Week 4 of February, 2012.

The Weekly charts below of YM, ES, NQ & TF show that the YM, ES and NQ made a higher weekly close than the prior week, and that the TF made a lower weekly close...it's also the only one not to have made a higher weekly close in February since Week 1...one to watch for possible developing weakness. The NQ is climbing along its upper channel line resistance for the second week in a row.

The three Daily charts below show that Stocks Above 20-Day, 50-Day, and 200-Day Averages are still trading at or above near-term support levels...a lower support level was re-tested on the 20-Day Average chart and stocks bounced back up to close within this new support level. It will be important that these support levels be maintained on all three charts to confirm any further advance in equities...since it appears that weakness has set in on the 20-Day Average chart, it will be important, in the short-term, for stocks to rebound sooner rather than later, otherwise they risk further downside pressure.

The VIX fell by 4.84% this past week, as shown on the graph below...one to watch to see if equity strength continues, although it popped up on Friday as it sits just above major support at 15.00.

Oil was the big gainer in the Industry Groups for the week, followed by Biotech, Brokers, and Gold/Silver, as shown on the graph below. I've added the S&P 500 Index to the equation, and its gain, in comparison, was miniscule. Banks were the big losers.

As reflected above, the Energy Sector was the big gainer, followed by Technology, Consumer Staples, Healthcare, and Utilities, as shown on the graph below. Financials were the big loser. It would appear that the markets were moving to a more defensive position, compared with the miniscule gain in the S&P 500 Index.

As shown on the graph below, the Commodity ETF was the big gainer, followed by Emerging Markets, and the Chinese Financials ETF. The U.S. Financials ETF was the big loser, followed by the Agricultural ETF. Buying in the European ETF was miniscule (and was not reflective of the buying in the Euro), as was in the S&P 500 Index. Whether buying continues in Emerging Markets remains to be seen in the face of a potential move to defensive positions.

As shown on the graph below, Silver marginally outpaced buying in WTI Oil and Brent Crude Oil, followed by Copper and Gold. Gains made on the S&P 500 Index were miniscule in comparison. If the buying continues in the Chinese Financials ETF and Emerging Markets, and if it strengthens in the Major Indices, we may see Copper rise further.

As shown on the graph below, minor gains were made in the Major Indices, except for the Dow Transports (which lost for the third week running). There was minor buying in the High Dividend-Paying Stocks ETF, and comparatively higher buying in Emerging Markets and the Corporate Bonds ETF...with higher oil/gasoline prices looming, we'll see whether buying interest continues in these instruments.

As shown on the currency graph below, the Euro gained the most, followed by a slight rise in the British Pound and the Aussie $. The U.S. $ lost the most, followed by the Canadian $. If the buying continues in the Chinese Financials ETF, we may see the Euro rise further...however, we'll see what effect, if any, higher oil prices may have on the Euro. Also, since the U.S. $ did not lose as much as the Euro gained, we may see a firming in the price of the U.S. $ if oil continues to rise.

Since it seems to be all about Oil this week, I've put up a few more charts, and as a follow-up to what I was saying in my last post.

Brent Crude Oil closed at 125.47 (above major resistance), as shown on the Daily chart below.

WTI Light Crude Oil closed today at 109.45 (just below a minor resistance level of 110.00), as shown on the Daily chart below.

The Daily comparison chart of Brent to WTI Oil below shows that Brent reversed its decline against WTI today and closed back above support at 1.15, as shown on the chart below...it's the one to watch for continued leadership in further advancement of oil prices over the next days/weeks since it has broken above major resistance, and since WTI has run into minor resistance.

The Daily comparison chart of Brent Crude Oil to the S&P 500 Index below shows that Brent has run into a major resistance level. If the S&P continues to rise, it will be interesting to see if buying slows in Brent, or if it continues to rise, as well...if so, at what pace.

The Daily comparison chart of WTI Oil to the S&P 500 Index below shows that WTI is nearing a major resistance level. As above, if the S&P continues to rise, it will be interesting to see if buying slows in WTI, or if it continues to rise, as well...if so, at what pace.

The last graph below shows the widening spread between the S&P 500 Index and the 10-Year T-Note yield...the spread has been ever-widening and has reached an all-time high (since January 1999). Normally these move in tandem but started diverging in 2010...one of these will have to reverse at some point.



Next week (Wednesday) will see the release of the latest Beige Book data...also, on Wednesday, Ben Bernanke will be delivering the FOMC's semi-annual report to the House Financial Services Committee. As volatility approaches major support, as the spread continues to widen between the S&P 500 and the 10-Year T-Note yield, and with the Dow 30 pressing up against 13000 (but unable to close above), the S&P 500 approaching its 2011 high of 1370.58, the spike in Oil, and a month-end close mid-week, it should be an interesting (and possibly volatile) week.

Enjoy your weekend!

Brent Crude versus WTI Light Crude Oil

Brent Crude Oil closed today at 123.62, as shown on the Daily chart below.

WTI Light Crude Oil closed today at 108.54, as shown on the Daily chart below.

The Daily comparison chart of Brent to WTI Oil below shows that Brent has been declining against WTI since early in February of this year.

The percentage comparison chart of Brent to WTI Oil below shows that, during this same one-year timeperiod, Brent has gained more overall in percentage than WTI.

Beginning on February 6th, WTI crossed above Brent Oil and has gained the most in percentage to date, as shown on the percentage comparison chart below, indicating a surge in interest in WTI.

Conclusions:

• Brent Oil is trading at/just above major resistance
• WTI Oil is nearing minor resistance around 110.00 and major resistance around 115.00
• Brent:WTI recovered from a lower open and closed at a major support/resistance level today (1.14)...the next support level is 1.12, then 1.10
• inasmuch as Brent may have topped out/be topping out, it will be interesting to see whether WTI continues to rise and at what pace compared to Brent...ones to watch over the next days/weeks

Existing Home Sales and Home Prices Decline

Data released yesterday and today shows a decline in Existing Home Sales and in the Purchase Price of Homes with mortgages backed by Fannie Mae and Freddie Mac, as shown on the graphs below.

Perhaps home buyers are waiting for prices to bottom and become more in line with the low (2009) level of home sales.

Japan's Trade Balance at 12-Year Low

Data released on February 19th shows another monthly drop in Japan's Trade Balance. As shown on the graph below, it's at a twelve-year low and shows no signs of reversal, although the "actual" figures were slightly better than those "forecast."

Further to my post of February 9th, Japan's Nikkei Futures Index has continued to rally (on increased volumes) and paused today and closed for a second consecutive day just above the overnight pre-market low that was made on the Monday after the earthquake in mid-March of 2011, as shown on the Daily chart below.

This index generally traded in between this level and 10000 until it plunged, along with the U.S. markets, after the U.S. credit rating downgrade in August by Standard and Poor's. In spite of three attempts, it failed to hold above the 10000 level at which it was trading before the earthquake hit.

Additionally, the USD/JPY forex pair has also been rallying and paused today just below 80.00 (a level that was supposedly agreed upon by the U.S. & Japan after the earthquake (see my post of April 22nd, 2011).

Today's Tokyo news article reports that the S&P "left its credit rating for Japanese government debt unchanged at AA-minus with a negative outlook."

Inasmuch as there is a very large negative divergence in economic data for Japan and recent market/currency movement, we're left with two important levels to be watched over the coming days/weeks relative to both to see if they can be held (maintained in the case of the Index, and, first of all reached, then maintained in the case of the currency). Whether Japan's recent enhanced monetary easing activities will actually succeed in reducing that divergence in due course remains to be seen.

On This Day...February 20th...

On this day...

From the United Nations:

• The General Assembly proclaimed 20 February as World Day of Social Justice in 2007, inviting Member States to devote the day to promoting national activities in accordance with the objectives and goals of the World Summit for Social Development and the twenty-fourth session of the General Assembly. Observance of World Day of Social Justice should support efforts of the international community in poverty eradication, the promotion of full employment and decent work, gender equity and access to social well-being and justice for all.
• Declaration on Social Justice for a Fair Globalization

..."justice for all."