Money Flow for August Week 5

Further to my last weekly market update, this week's update can be summed up in three words...more profit-taking.

The following Weekly charts and graphs (for the past week) of the 6 Major Indices and 9 Major Sectors show that these markets have not advanced for a second week as they struggle at major resistance.

The following two charts and graphs depict money flow for the month of August. You can see that the majority of interest/buying occurred in the riskier growth-oriented Technology and Small Cap Indices and Sectors versus a virtual non-interest in the value-oriented defensive Indices and Sectors.

In summary, whether we'll see a rotation of Sector preference in September remains to be seen. I suspect that market action will, generally, be news-driven as we await important decisions by the Fed, ECB, Germany's Constitutional Court ruling on the legality of the ESM, Eurogroup meetings, further economic data, the Dutch election, and any fall-out from the U.S. election campaigning, etc.

Since this tends to produce volatility, I'll continue to monitor it as depicted by the following Daily ratio charts of the SPX:VIX and RUT:RVX. As of Friday's close, both the S&P 500 and Russell 2000 Indices are sitting near the apex of trendline/channel resistance/support. Volatility has been rising the past two weeks and a break of the apex one way or the other is inevitable soon. We may see a build in volumes as price tries to establish a trend away from the apex...something else I'll be monitoring in order to assess the viability/sustainability of such a move. Perhaps we'll see a rotation into the more defensive Sectors and Large Cap Indices in preparation for volatility.

Enjoy the long weekend and best of luck next week!

The Waiting Room...

While markets digest Bernanke's latest non-statement, it looks like they may barhop here next while they wait for Draghi's beernuts...

The Emperor's Clothes Are In Plain Sight

We all know the naked truth that it's up to you, the politicians, to strengthen the weak/high-risk fiscal and economic environment...the Fed really can't do your job ad infinitum/ad nauseam as it can't fix the economy by monetary policy alone, as re-iterated by Ben Bernanke today in his speech at Jackson Hole:

      "As I have discussed today, it is also true that nontraditional policies are relatively more difficult to apply, at least given the present state of our knowledge. Estimates of the effects of nontraditional policies on economic activity and inflation are uncertain, and the use of nontraditional policies involves costs beyond those generally associated with more-standard policies. Consequently, the bar for the use of nontraditional policies is higher than for traditional policies. In addition, in the present context, nontraditional policies share the limitations of monetary policy more generally: Monetary policy cannot achieve by itself what a broader and more balanced set of economic policies might achieve; in particular, it cannot neutralize the fiscal and financial risks that the country faces. It certainly cannot fine-tune economic outcomes."

It's time for politicians to wake up, get out of bed, get dressed, and own up to your responsibilities by acting for the good of those whom you purportedly serve.

Volatility is Rising

A break and hold below channel support on the SPX:VIX ratio pair would indicate further weakness to come in the S&P 500 Index, as shown on the Daily chart below (as observed in intraday action on Thursday).

The RUT:RVX ratio pair is approaching channel support, as shown on the Daily chart below. A break and hold below would also signal further weakness ahead for the Russell 2000 Index.

 

Major price support is at the bottom of the rising channel, as shown on the Daily chart below of the Major E-mini Futures Indices.

 



Bears Like Their Comfort, Too ;-)

Retail Sector Looking Toppy

Major support on the Retail Sector (RTH) is well below (16% below) current price, where there is also decent volume support, as shown on the Daily chart below. I wouldn't be surprised to see a correction to this level at some point in the near future (before the end of this year).

No Panic Sell-off in 30-Year Bonds Yet

This Weekly chart speaks for itself:



Profit-Taking in Tech Leadership

The first two Daily charts below show the profit-taking that is occurring in the Nasdaq 100 Index. It's currently sitting at the lower end of its smaller, steeper upward-sloping channel as I write this during intraday action on Tuesday.

You can see how it pulled further above the other Major Indices at the beginning of August on the third Daily chart (which shows percentages gained year-to-date for these indices) to form the steeper channel.

The fourth 1-day intraday chart shows a percentage comparison chart of the Major Indices to the Emerging Markets ETF (EEM). You can see that the Russell 2000 Index leads the Nasdaq 100, so far, today, while EEM is the laggard (it's also the laggard for the year, which suggests that traders are generally staying away from riskier foreign markets...a growth-averse vs value-favoured environment).

Whether any further profit-taking turns into a sell-off remains to be seen, but clues lie in the channels. A break and hold below this steeper channel on the Nasdaq 100 Index, along with a break and hold below the "mean" of the channels on the other three Major Indices, may signal the beginning of a sell-off in equities...particularly if the Nasdaq 100 breaks and holds below the upper edge of the larger channel below. Look for confirmation of such a move using the methods outlined in my posts of August 27th and August 24th.

On the other hand, if leadership switches to EEM on an intraday basis, that may be signalling the beginning of a parabolic move upwards in the equity markets before we see a sell-off/correction.

The Stock Markets in Action

Percentage of Stocks Above 20-50-200-Day Moving Averages

The three Daily charts below show the Percentage of Stocks Above their 20-50-200 Day Moving Averages. At the moment, they are all above 50%.

In the event that the 6 Major Indices and 9 Major Sectors drop and hold below their middle Bollinger Band on their Daily timeframe, I'd check to see if the percentage on the above referenced three charts also drops and holds below the 50% level. If all three fall and hold below, it's a likely confirmation of further weakness to come in the equity markets in the short, medium, and longer terms...possibly signalling a correction.

Money Flow for August Week 4

Further to my last weekly market update, this week's update will be a very simple top-down look at the 6 Major Indices and 9 Major Sectors. To keep my analysis simple, I'll be looking at Friday's closing price relative to its position within the Bollinger Bands (BB) on three timeframes. The upper BB represents resistance, the middle BB represents either support or resistance, and the lower BB represents support. Price in between the middle BB and the upper BB is said to be in the "Bull Zone" (still under bullish influences/buying pressure with support at the middle BB) and price in between the lower BB and the middle BB is said to be in "Bear Zone" (currently under bearish influences/selling pressure with resistance at the middle BB).

The first three chartgrids show a Monthly, Weekly, and Daily timeframe for the 6 Major Indices.

• In the longer term (Monthly), price is sitting in the "Bull Zone" for all 6 Indices.
• In the medium term (Weekly), price is still in the "Bull Zone" for 5 of the Major Indices, with only the Dow Utilities Index now in the "Bear Zone."
• In the short term (Daily), price closed in the "Bull Zone" for 5 of the Major Indices, with only the Dow Utilities Index remaining in the "Bear Zone." The one to watch for either further developing weakness or a strengthening is the Dow Utilities Index. 

The graph below depicts percentage gained/lost for the past week for the Major Indices. Profits were taken in all 6 Indices (with the least taken in the Nasdaq 100 Index), as some of them met with resistance at the upper BB. The Nadsaq 100 Index is worth keeping an eye on to see if it can maintain its bullish lead.

The next three chartgrids show a Monthly, Weekly, and Daily timeframe for the 9 Major Sectors.

• In the longer term (Monthly), price is sitting in the "Bull Zone" for XLY, XLK, XLI, XLE (just), XLP, XLV, XLU, and XLF (just). Price on the XLB is just in the "Bear Zone."
• In the medium term (Weekly), price is still in the "Bull Zone" for all 9 Major Sectors (XLU is just inside this zone).
• In the short term (Daily), price closed in the "Bull Zone" for XLY, XLK, XLI, XLB (just), XLE, XLV, and XLF. Price closed in the "Bear Zone" for XLP (just) and XLU.

The graph below depicts percentage gained/lost for the past week for the Major Sectors. Profits were taken in 7 Sectors, as some of them met with resistance at the upper BB, while XLF remained flat, and XLV gained on the week.

In summary, and in the coming week(s), it will be important to monitor price action on all 6 Major Indices and 9 Major Sectors on all 3 timeframes around the middle BB to try to gauge whether buying pressure continues to surface at this point, or whether more bearish selling begins to appear. Furthermore, we'll see whether buying overcomes the resistance of the upper BB on any retests at this level, firstly, on the Daily timeframe (to gauge the strength of their support levels from where they bounced on Friday). Otherwise, I'd look for a retest of this near-term support, and possibly lower support levels (e.g. the lower BB on the Daily timeframe, or the middle or lower BB on the Weekly and Monthly timeframes).

Before I conclude this post, I'll also take a look at where volatility ended on Friday for the S&P 500 Index and the Russell 2000 Index. The two Daily ratio charts below of SPX:VIX and RUT:RVX show that price pulled back after running into major resistance, but both bounced on Friday at their respective near-term support levels...two to watch to see if volatility reappears in coming days/weeks. (Please refer to my last weekly market update and to my post of August 15th to get a longer-term perspective on these charts.)

Enjoy your weekend and best of luck next week!

AAPL "Fritters" at the "Mean"

At the moment (intraday on Thursday), AAPL is consolidating at the "mean" (broken pink line) of its uptrending regression channel, as shown on the Daily chart below. A drop and hold below this and the 50% Fibonacci fan line (heavy yellow line), could send it down to around 580.00, its next confluence support level, or lower.

So, this little bit of "frittering" within this range (675.00 to 648.00) is important...one to watch!

Consumers Grow More Uncomfortable in Europe

Data released today (Thursday) shows that consumers in the Eurozone are growing ever-more uncomfortable, as shown on the graph below.

Since Consumer Confidence is a "leading indicator of consumer spending, which accounts for a majority of overall economic activity," and they are approaching the 2009 lows, this does not match the buoyant signals that the European markets have been sending/portraying. As they are major importers of Chinese products, this will, no doubt, continue to impact China's slowing economy, as mentioned in my last post.

China Slowdown Continues

Data released after hours on Wednesday shows that the slowdown in China continues, as shown on the graph below.

As I mentioned in my post of August 15th, China's Shanghai Index is struggling to stabilize at three-year lows. Without a sizeable pickup in demand for its products, any temporary stimulus measures that its Central Bank may employ may not have much effect. This is a major player in the global economic slowdown that is currently unfolding, and is one to watch over the coming weeks.

What's Really Changed?

What's really changed since Standard & Poor's downgraded the U.S. credit rating on August 5, 2011?

One year has passed, and the SPX has gone from a low of 1074.77 on October 4, 2011 to a high of 1426.68 yesterday (Tuesday), as shown on the Daily chart below. A double top has formed at major resistance.

The credit rating has not been upgraded. The Fed also downgraded the economic outlook at their meeting on August 9, 2011, as mentioned in my post of August 9th. The Fed remains committed to holding long term interest rates low for the foreseeable future. Europe's economic condition has weakened. The global economies have slowed. And, finally, the U.S. National Debt continues to rise (unabated) to all-time highs each second. The Fiscal Cliff looms.

Who is convinced that economic and fiscal conditions have improved since then? The only ones, so far, have been the buyers above the yellow arrows. No doubt they will begin to take profits at current levels and re-think their positions after the next FOMC meeting in September. A drop and hold below June's lows of this year would confirm that their sentiment has changed.

DBC in Between a Rock & a Hard Place

The Commodities ETF (DBC) began and ended today (Tuesday) at the apex of and in between trendline resistance and support, as shown on the Daily chart below...an important one to watch tomorrow and thereafter!

An indication of weakness would likely be confirmed by a failure of AUD/USD to regain and hold above 1.05, along with further weakness in China's Shanghai Index, as discussed in my posts of August 17th and August 15th.

A View of EUR/USD in 500 pip Segments

Each candle on the chart below of the EUR/USD forex pair represents 500 pips. The current candle bounced from a Fibonacci and price confluence support level on July 10th of this year at 1.2041 and has rallied 446 pips, so far. Should it continue to advance by a total of 500 pips, it would put price at 1.2541, which is at a confluence of price and Fibonacci resistance.

You can see that this 500 pip level, as depicted by the two white horizontal lines, represents a major level of support and resistance. A break and hold either above or below this "500 pip zone" would set the stage for the next move up or down over the ensuing days/weeks...an important zone to monitor.

P.S. Price target of 1.2541 was hit in 'After Hours' trading on Wednesday, August 22nd...a new 500 pip candle has begun...let's see where EUR/USD goes from here!

Money Flow for August Week 3

Further to my last weekly market update, this week's update will look at:

• 6 Major Indices
• 9 Major Sectors
• SPX:VIX and RUT:RVX ratio charts
• Major World Indices
• Commodities
• 7 Major Currencies
• Commodities ETF (DBC) and AUD/USD Forex pair
• 30-Year Bonds
• Lumber and the Homebuilders ETF (XHB)

The Daily chartgrid below of the 6 Major Indices shows that, with the exception of the Dow Utilities Index, all made higher closing highs on the week.

All of them, except the Dow 30 Index and the Dow Utilities Index have now reached their measured closing targets that I mentioned in my post of August 3rd, and the Dow Transports Index has finally made a higher closing swing high.

The Daily chartgrid below of the 9 Major Sectors shows that the only ones that haven't reached their measured closing targets yet are XLP, XLV and XLU (the Defensive Sectors).

The two Daily chartgrids below depict candle action on the Major Indices and Major Sectors. You can see they are all in the vicinity of major resistance at or near their one-year highs.

The next graph depicts percentage gained/lost for the past week for the Major Indices. As evident from the first line chart, Dow Transports gained the most, followed by the Nasdaq 100, Russell 2000, S&P 500, and the Dow 30. Further profits were taken in the Dow Utilities.

The next graph depicts percentage gained/lost for the past week for the Major Sectors. You can see the continued surge in Technology, followed by Consumer Discretionary, Industrials, Financials, Consumer Staples, Materials, and Energy. Profits were taken in Utilities and Health Care.

The Year-to-Date Daily chart below of the SPX:VIX ratio shows that the S&P 500 Index closed just above resistance for this time period and its channel. The Monthly chart shows an expanded view and puts major resistance up at 120...a point which happens to converge with a measured move target, as depicted by the 200% external Fibonacci retracement level on the Daily chart. When or if this target is met remains to be seen.

The Year-to-Date Daily chart below of the RUT:RVX ratio shows that the Russell 2000 Index closed well above resistance for this time period. The Monthly charts shows an expanded view and puts major resistance at, firstly, 46.00, then 50.00. Price closed on Friday just below the first major resistance level and just above its channel.

As I mentioned in my post of August 15th, these are important ones to watch over the coming days/weeks, particularly in the run-up to the Jackson Hole Symposium from August 30th to September 1st, and the FOMC Meeting results and Fed Chairman's press conference on September 13th (as well as the Eurogroup Meetings on September 15th and the European Council Finance Ministers Meeting on September 16th).

In summary regarding equities, inasmuch as the Major Indices and Major Sectors are all facing major resistance levels, I would expect that higher volumes would have to enter these markets to produce a robust rally from here that would punch these markets through to higher levels. Alternatively, we could see the market playing "Leap Frog" by pushing the "Offensive Sector" trade up one week, then the "Defensive Sector" up the next. At the moment, the markets are favouring the "Offensive Risk-On" trade. I'd watch to see if the Nasdaq and Russell Indices continue to outpace the other Major Indices, and if the "Offensive Sectors" continue to outpace the "Defensive Sectors" as a possible means to achieve this break-through scenario.

The next 1-Year Daily chartgrid features Germany and France, as well as the PIIGS countries (Portugal, Italy, Ireland, Greece, and Spain). The laggards for the year are Portugal, Italy, Greece, and Spain.

The next graph depicts percentage gained/lost for the past week for these countries. The heaviest buying occurred in the Spanish, Greek, and Italian Indices...ones to watch to see if this trend continues, and to see whether buying picks up in the Portuguese Index. The German and French Indices are near their highs for the year and are ones to watch for any signs of weakness.

In a press conference held in Canada this past week, Angela Merkel said that they are "...looking into further rights of intervention on those countries not abiding by the rules." Whether we hear any more on this remains to be seen. It's worth keeping a close eye on the laggards to see if weakness returns to those countries' indices anytime soon.

The next 1-Year Daily chartgrid features the Emerging Markets Sector (EEM), and the BRIC countries (Brazil, Russia, India, and China). They have basically been basing for the past week, with the exception of the Shanghai Index, which pulled back to its recent lows.

The next graph depicts percentage gained/lost for the past week for these countries. As you can see, the Shanghai Index lost 2.49% for the week.

My post of August 15th mentioned that if this index breaks and holds below its recent/three-year lows, that would be very bearish, which may prompt China to act with more stimulus measures...although, they may wait to see what the Fed does at its September meeting before committing any further funds.

The next 1-Year Daily chartgrid features the Canadian ($TSX), Japanese ($NIKK), and World Indices. They have all advanced to close just above their major resistance levels...ones to watch to see if these hold as support levels.

The next graph depicts percentage gained/lost for the past week for these countries. The largest gains were made in the Japanese market.

The next 1-Year Daily chartgrid features the Commodities ETF (DBC), Agricultural ETF (DBA), Gold, Oil, Copper, and Silver. Commodities and Oil continued to advance, while the others remained in consolidation mode.

The next graph depicts percentage gained/lost for the past week for these ETFs and Commodity Futures Indices. The one to watch is Oil, as I discussed in my post of August 15th to see if price holds above its former resistance (now support) level of 95.00.

The next 1-Year Daily chartgrid features the 7 Major Currencies (U.S. $, Euro, Canadian $, Aussie $, British Pound, Japanese Yen, and Swiss Franc). The U.S. $ is, effectively, high-basing near its 1-Year highs, while the Euro and Swiss Franc are low-basing. Should the Euro break and hold below this year's low, it could drag the European Indices down, as well.

The next graph depicts percentage gained/lost for the past week for these currencies. Profits were taken in the Japanese Yen and Aussie Dollar.

The next Weekly chartgrid shows the Commodities ETF (DBC) and the AUD/USD forex pair. It will be interesting to see if Commodities continue to advance into overhead price and trendline resistance, particularly if AUD/USD continues to drop...ones to watch, along with China's Shanghai Index.

The next Weekly chart of the 30-Year Bonds shows that profits have been taken recently. Price is sitting just above a confluence of major support at 144'30. A break and hold below this level would likely see the equities markets advance further. Inasmuch as Friday's data indicated that consumers are expecting higher inflation of 3.6% over the next year, no doubt the markets (and any further QE measures by the Fed) will deliver that result at some point...possibly sooner rather than later.

The next Weekly chart of the Homebuilders ETF (XHB) shows that price closed on Friday at major resistance after breaking above the apex of a small "diamond" pattern. A break and hold above this level may indicate that the markets are expecting some kind of assistance with respect to the housing/mortgage/foreclosure problems from the Fed at their September meeting. Existing Home Sales and New Home Sales data being released next Wednesday and Thursday, respectively, should provide further clues as to the health of this sector. Both saw drops in sales last month, as shown on the 2 graphs below. Existing Home Sales have been, basically, declining since they peaked in December of 2009, and New Home Sales have stabilized just above their 2009 lows.

The next Weekly chart of the Lumber Futures Index shows that price pulled back on exceptionally high volumes by Friday, after reaching major price and channel resistance. It's worth watching XHB to see if it breaks and holds above its major resistance level, since Lumber may follow. Otherwise, I'd look for profit-taking to begin in both of these.

Enjoy your weekend and best of luck next week!