A Review of 2012 Q1

Further to my post of January 27th, I'll offer the following Quarterly timeframe charts of the Dow 30, S&P 500, Nasdaq 100, and Russell 2000 Indices. There were impressive gains for this year's first quarter...the Dow's range was 1,067.89, the S&P 500's range was 160.29, the Nasdaq's range was 486.44, and the Russell's range was 111.14...they added to the impressive gains made in 2011 Q4...and all were made with barely a pullback on the current candle. They are, however, now trading at major resistance levels.

It's difficult to imagine that Q2 will duplicate this feat without a pullback, but stranger things have happened! I am, however, mindful of my recent posts, so strong vigilance to be on the lookout for developing weakness is the order of the day/next quarter!

So, as I referenced in my post above, I can report that the first layer of the chocolate cake has been whipped up and baked to perfection...we'll see if the rest of the layers and embellishments get added to complete the cake in order to be ready for serving by this Christmas...it all depends on how hungry the bulls are and whether anything distracts them from this delectable tea party...it's not a cheap cake, so the bulls (a ton of them) will have to open their wallets wide from this point on without reservation/hesitation!

Money Flow for March Week 5

Further to my last weekly market update, here is a summary of where money flow ended for Week 5 of March 2012.

The Weekly charts below of YM, ES, NQ & TF show that YM, ES & NQ made a higher close and TF made a slightly lower close than the prior week. The uptrending channel is still holding as support and direction for the Weekly timeframe...although the TF closed on the lower channel...one to watch, again, for potential developing weakness.

I'll reiterate what I said in my last weekly market update...if the Major Indices are going to continue a convincing rally from here, it will be important for the Russell 2000 to break (convincingly) and hold above its February highs to provide added fuel. A failed breakout could lead to the onset of weakness, not only in this index, but also in the others.

The three Daily charts below depict support and resistance levels on the percentage of Stocks Above 20-Day, 50-Day, and 200-Day Averages.

Stocks Above 20-Day Average closed lower than last week and below the 60% support level...one to watch for possible further weakness below what is now resistance, once again.

Stocks Above 50-Day Average closed lower than last week and are in between the 70% resistance level and 50% support level...one to watch for possible further weakness.

Stocks Above 200-Day Average closed slightly lower than last week, but are still holding above the 70% support level...one to watch to see if it continues to hold as support.

The closing levels on all these three charts are lower than the prior week. I'd conclude that, in the short and medium term, stocks remain mildly bullish, and in the longer term, stocks remain bullish...but, as was the case last week, all are still on negative watch for further potential weakness.

The VIX gained on the week by 8.7%, as shown on the graph below. Further to the comments in my last weekly market  update, the Daily ratio chart below of the SPX:VIX shows that the SPX failed to break out to the upside and fell back into the bottom of the consolidation range. Negative divergences are in place on the RSI, MACD, and Stochastics, which suggest further weakness may be in store for the SPX...one to watch, along with the VIX.

As shown on the graph below of the Industry Groups, most closed lower, once again, with Brokers, Gold/Silver, and Oil Services the biggest losers, while Biotech gained on the week.

As shown on the graph below of the Major Sectors, there was a flight to the defensive sectors, while money flowed out of risk...with the biggest losses in Energy, Financials, and Materials.

As shown on the graph below, losses were made by the Commodities, Agricultural, U.S. Financials, European Financials, and Chinese Financials ETFs...once again, the European Financials ETF was the biggest loser...one to watch for possible continued weakness...particularly in view of the comments made in my post of March 22nd with respect to rising volatility in Foreign ETFs.

China's Shanghai Stock Exchange Index continued its decline and has closed below its major support of 2300, as shown on the Daily chart below. There is still no sign of a reversal of the downtrending RSI, MACD, and Stochastics indicators, suggesting further downside to, perhaps, near-term minor support in the region of 2200.

As shown on the graph below, losses were made in Gold, Oil, Silver, and Copper...with Oil incurring the heaviest losses.

The following four Weekly charts of Gold, Oil, Silver, and Copper show support and resistance levels...ones to watch.

As shown on the graph below of the Major Indices, the Dow Utilities made a minor gain, once again, while all the others lost, with the Russell 2000 the biggest loser. The Emerging markets ETF (EEM) was a big loser again this week, and I would refer you to the comments noted in my last weekly market update on the BRIC countries.

As shown on the currency graph below, the Aussie $ and Canadian $ were the biggest losers, again, with minor losses in the Euro. Minor gains were made in the British Pound and U.S. $. The Aussie $ and Canadian $ are ones to watch for potential increasing weakness on any further declines in Gold and Oil.

Any turnaround in Copper to the upside (and on China's Index and Financials ETF) may negatively impact the U.S. $...one to watch. I'd also look for either continued weakness in the Euro and the European Financials ETF, or a turnaround to the upside. Any bounce in these may, ultimately, be short-lived, if the U.S. does, in fact, enter a recession by the middle of this year, as outlined in my post of March 27th.

Enjoy your weekend!

Friday's Mixed Data

There was mixed data released on Friday.

The graphs below show that Personal Spending was up while Personal Income was down...this seems to be a re-occurring theme, as I last reported in my post of March 1st. Add to this the information from my post of March 7th, and it seems that the consumer is headed for disaster. How long it's sustainable is anybody's guess.

The graph below shows that the Core PCE Price Index was down. As noted on the graph, this is rumoured to be the Federal Reserve's favourite inflation measure...more on this in my post of January 25th.

The graphs below show a decrease in the Chicago PMI, while Revised UoM Consumer Sentiment rose.

It would seem to me that the only thing the Fed cares about are unemployment and its own adopted formula of inflation measurement, as has been stated repeatedly in their "Dual Mandate" policy. As long as their "inflation" number stays below their targeted 2% range (with some "allowances" made along the way to achieve an acceptable level of unemployment), I doubt whether they will relax their inventive monetary easing tactics any time soon. However, if the U.S. does, in fact, enter into a recession by the middle of 2012, as noted in my post of March 27th, the markets may begin to react to negative data releases by then. Until then, I don't think they have much meaning.

Revisiting "Mr. Fat Finger"

I've done a couple of posts in the past on "Mr. Fat Finger"...one on April 21, 2011, and the other on December 3, 2011. The following is a brief update.

There are two shaded circles on each of the Weekly charts below of YM, ES, NQ & TF. The first contains the infamous "Fat Finger" day in 2010. The second contains the downdraft following Standard & Poor's downgrade of the U.S. credit rating in 2011. For all you wave traders, we may be approaching the final segment of a Wave 5 on the Weekly timeframe. It may be prudent to be prepared for sudden "Fat Finger" downdrafts, particularly if the TF is not able to break out and hold above 2011 highs.

In this regard, the support levels, which coincide with the upper portion of the 2011 downdraft, are 12500 for YM, 1330 for ES, 2420 for NQ...850 represents that level for TF, but it hasn't even closed above it yet, so it's holding as resistance.

On a smaller 4-Hour timeframe, the charts below contain an uptrending channel from December 2011 lows. They show the YM as the weakest after the 2-day pullback, so far, this week, then ES, TF, and NQ.

The last 4-Hour charts below contain an External Fibonacci retracement. We could get a bounce here if the YM holds above the confluence of the 38.2% retracement and the lower channel. The NQ retested its Fibonacci breakout and bounced at the 100% External Fibonacci level after reaching its 200% External Fibonacci level...it's back inside the channel.

In summary, the important players are YM and NQ on a 4-Hour timeframe, as well as the TF on a Weekly basis...ones to watch for potential further weakness.

ECRI's COO Re-iterates that a 2012 U.S. Recession is Imminent

Data released on Tuesday revealed a decline in manufacturing and consumer confidence, and a rise in the price of single-family homes, as shown on the graphs below.

This latest data on the increase in the price of homes is at variance with declining home sales, as noted in my post of March 26th, and a decline in the purchase price of homes with mortgages backed by Fannie Mae and Freddie Mac...one to watch to see if single-family home prices continue to rise if home sales (which are still at their 2009 lows) continue to drop.

This article published in Toronto's Globe and Mail on March 26th re-iterates ECRI's co-founder and COO, Lakshman Achuthan's call that a U.S. recession is imminent. According to the article, "ECRI predicted back in September that it would begin by the middle of 2012...and it hasn't backed down from that prediction...ECRI's bearish view is not  only backed by its data, but by its track record. The firm, founded in 1996, has correctly predicted each of the past three recessions - and has yet to be wrong in throwing down the dreaded 'R-word.' By contrast, the stock market - whose recent upswing has been credited at least in part to the improved economic sentiment - has proved a much less reliable predictor, particularly with its tendency to deliver false signals of impending turning points."

Perhaps ECRI's position is the reason for the Fed's predilection towards its ongoing monetary easing stance, coupled with its assumed "dual mandate" role. ECRI's position is in keeping with weakening global data, as reported in my post of March 23rd and numerous prior posts that I have referenced therein, as well as with the weak (still declining) housing data. Normally, housing is one of the first sectors to recover after a recession...this time it hasn't. This is obviously an area that has never been resolved by the Fed's QE1&2 and Operation Twist programs, or by the politicians (Republicans and Democrats alike), since the 2007/08 financial crisis began.

Time will tell whether ECRI's forecast does, in fact, materialize, what tools the Fed may employ to counteract a recession, and whether those tools are effective this time, particularly with respect to housing. However, in the event of further global economic, political, and social erosion, it's doubful that the U.S. can escape further softening or even a recession.

Pending Home Sales Still Declining

My post of February 23rd contained data showing a decline in Existing Home Sales and in the Purchase Price of Homes with mortgages backed by Fannie Mae and Freddie Mac.

Data released on March 23rd also showed a decline in New Home Sales, as shown on the graph below.

Data released on March 26th shows a further decline (into negative territory) of Pending Home Sales, as shown on the graph below. Since it's a "leading indicator of economic health because the sale of a home triggers a wide-reaching ripple effect...renovations are done by the new owners, a mortgage is sold by the financing bank, and brokers are paid to execute the transaction," this declining data, along with the declines noted above, do not confirm what the stock markets have been doing.

The stock (and commodity) markets have been going up since 2009, while Existing, New, and Pending Home Sales have basically been stagnant at their 2009 low levels...this is a huge negative divergence.

This is obviously an area that has never been resolved by the Fed's QE 1&2 and Operation Twist programs, nor by the politicians (Republicans and Democrats), since the 2007/08 financial crisis began.

Money Flow for March Week 4

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

The Weekly charts below of YM, ES, NQ & TF show that YM & ES made a lower close and NQ & TF made a higher close than the prior week. The uptrending channel is still holding as support and direction for the Weekly timeframe. Secondary support levels lie at the middle Bollinger Band (12440 for YM, 1298 for ES, 2438 for NQ, and 772.80 for TF). Both the YM & TF pierced below their lower channel, once again, but managed to close inside...ones to watch for potential developing weakness.

I'll reiterate what I said in my last weekly market update (and as noted in my post of March 15th), that if the Major Indices are going to continue a convincing rally from here, it will be important for the Russell 2000 to break (convincingly) and hold above its February highs to provide added fuel. A failed breakout could lead to the onset of weakness, not only in this index, but also in the others.

The three Daily charts below depict support and resistance levels on the percentage of Stocks Above 20-Day, 50-Day, and 200-Day Averages.

Stocks Above 20-Day Average closed slightly lower than last week, but managed to close just above the 60% resistance level...one to watch to see if it holds as support next week, or if it's breached again.

Stocks Above 50-Day Average closed lower than last week and are in between the 70% resistance level and 50% support level...one to watch for potential further weakness.

Stocks Above 200-Day Average closed a tiny bit lower than last week, but are still holding above the 70% support level...one to watch to see if it holds as support, or if it's breached, once again.

The closing levels on all of these three charts are lower than the prior week. I'd conclude that, in the short and medium term, stocks remain mildly bullish, and in the longer term, stocks remain bullish...but, all are on negative watch for further possible weakness.

The VIX fell by a smaller loss of 1.46% this past week than the prior week, as shown on the graph below. Further to the comments in my last weekly market update, the Daily ratio chart below of the SPX:VIX shows that the SPX did, indeed, pause and consolidate on negative divergences on the RSI, MACD, and Stochastics. On Friday, there was a crossover on the Stochastics, which suggests that a breakout to the upside may be in the offing on the SPX next week...one to watch.

As shown on the graph below of the Industry Groups, most closed lower, with Oil Services the major loser, and Retail the biggest gainer, followed by a minor gain in Internet.

As shown on the graph below of the Major Sectors, most closed lower, with Energy and Industrials the biggest losers, and minor gains made in Consumer Staples, Utilities, and Consumer Discretionary.

As shown on the graph below, losses were made by the Commodities, Agricultural, U.S. Financials, Euopean Financials, and Chinese Financials ETFs...the European Financials ETF was the biggest loser.

With volatility rising again on Foreign ETF weakness, as noted in my post of March 22nd, the Financials ETFs are the ones to watch for possible further weakness, particularly with the weak data released Thursday night showing a decline in China's CB Leading Index, as shown on the graph below.

China's Shanghai Stock Exchange Index is declining and closed just below the 50 sma, as shown on the Daily chart below. As yet, there is no sign of a reversal of the downtrending RSI, MACD, and Stochastics indicators, suggesting further downside to, perhaps, near-term support in the region of 2300.

As shown on the graph below, losses were made in Silver, Copper, Oil, and Gold.

The following four Weekly charts of Oil, Gold, Silver, and Copper show support and resistance levels...ones to watch.

As shown on the graph below of the Major Indices, the Dow Utilities made a minor gain, while all others lost, with the Dow Transports the biggest loser...one to watch for a potential breakout above/below major resistance/support levels, as shown on the Weekly chart below. The Emerging Markets ETF (EEM) was a big loser on the week, and I would refer you to the comments noted in my posts on the BRIC countries on March 15th and March 12th.

As shown on the currency graph below, the Aussie $ and Canadian $ were the biggest losers, with the British Pound and U.S. $ incurring minor loses, and the Euro made a minor gain. The Aussie $ and Canadian $ are ones to watch for potential increasing weakness on any further declines in Gold and Oil.

The Weekly chart below of the U.S. $ shows that price closed just above the 200 sma (pink)...major resistance and support are at 82.00 and 79.00, respectively...one to watch to see how it performs over the week(s) to come.

Enjoy your weekend!