Money Flow for November Week 4

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

• 6 Major Indices
• 9 Major Sectors
• Trendlines on 7 Major Indices
• China's Shanghai Index and the European Top 100 Index
• 30-Year bonds

6 Major Indices

The three chartgrids below show Monthly, Weekly, and Daily timeframes of the six Major Indices, along with the Stochastics indicator. Inasmuch as today (Friday) closed out the month of November, I thought I'd show where price is relative to these timeframes.

Price is pushing up against resistance (either near-term or major, longer-term) in overbought territory on negative Stochastics divergence on the Monthly timeframe. The Stochastics indicator is bouncing up off oversold territory on the Weekly timeframe, and it is in overbought territory on the Daily timeframe.

They all closed higher on the week, as shown on the 1-Week percentage gained/lost graph below. The Utilities Index made the biggest gains, followed by the Russell 2000 Index. The Dow 30 Index was, basically, flat on the week.

9 Major Sectors

The three chartgrids below show Monthly, Weekly, and Daily timeframes of the nine Major Sectors, along with the Stochastics indicator.

As with the Major Indices above, price is also pushing up against resistance (either near-term or major, longer-term) in overbought territory on negative Stochastics divergence on the Monthly timeframe. The Stochastics indicator is bouncing up off oversold territory on the Weekly timeframe, and it is in overbought territory on the Daily timeframe.

Seven of the nine Major Sectors closed higher on the week, as shown on the 1-Week percentage gained/lost graph below. The Utilities Sector made the biggest gains, while losses were made in the Energy and Financials Sectors...slightly favouring the "Defensive" sectors.

Trendlines on 7 Major Indices

Below are Weekly charts of 7 of the Major Indices, with a major trendline shown on each (discussed in last Friday's weekly market update), which begins from the October lows of 2011.

This week, the SPX tested both sides of its break back above its trendline (which it made last week) and closed above it for the second week in a row. It's important for the SPX to hold above 1400 and this major trendline in order to continue to support a bull case. The RUT and the OEX closed on the underside of their respective trendlines today and will need to cross and hold above to support any further rally on the SPX. The NDX and the three Dow Indices have yet to backtest their major trendlines.

What may interfere with a continued rally next week is the overbought reading on the Stochastics indicator on the Daily timeframes on the Major Indices and Major Sectors, as I mentioned above. We may see a bit of a pullback to relieve such a situation, before they, potentially, continue what is, traditionally, a Christmas rally.

However, market participants may be expecting further monetary stimulus measures to be announced at the next FOMC meeting on December 12th, and a potential resolution of the "Fiscal Cliff" issue before Congress begins its vacation on December 14th, so we may not see a pullback until we get closer to Christmas, and possibly the end of the year.

Intraday volatility has been varying wildly recently from large, swift swings to narrow, compressed ranges, with price moving on news events...making for schizophrenic and unpredictable moves...not surprising with the Major Indices and Sectors pushing up against major resistance on Monthly timeframes in overbought territory, as well as the unresolved "Fiscal Cliff" issue (and looming Debt Ceiling issue), seasonal factors (Christmas/Boxing Day market closures), upcoming unemployment data on December 7th, Options Expiration (Quadruple Witching) on December 21st, and end of Q4 on December 31st. I expect this type of volatility to continue until the end of the year, and possibly into next year...particularly, until the Monthly overbought Stochastics cycle has reversed and been resolved on the Major Indices and Sectors.

We may also see a continuation of unusual buying of beaten-down, high-beta stocks, as has been occurring recently in the Social Media stocks and RIMM, as I mentioned in my post of November 24th, as fund managers attempt to top up their yearly portfolio gains before the end of the year. I'll be looking for any parabolic rise and climax on high volumes on stocks such as these as a precursor to a potential major market trend reversal. If this type of stock continues to explode higher in the near-term versus value stocks, I'll also be warned of potential Q4 earnings weakness (markets favouring beta-movers versus actual value). Here's an updated Daily shot of how they ended this week...FB is leading the rally in this group.

China's Shanghai Index and the European Top 100 Index

The Shanghai Index continues to make new lows, while the European Top 100 Index remains range-bound at major resistance levels, as shown on the Daily charts below. These are two other indices I'm following, as further weakness in China, and any further weakening economic data coming out of Europe could depress any further meaningful advance on the U.S. markets (unemployment continues to rise unabated in Europe, which will, no doubt, be exacerbated by further austerity measures that may be imposed on EU countries). Any further stimulus measures that may be forthcoming from the ECB would be announced at their upcoming rate announcement and press conference on December 6th.

 

30-Year Bonds

Price on the Weekly chart below of 30-Year Bonds closed on Friday just above near-term support, after retesting a level just below. Failure to hold this support level may induce serious bond-selling, which could begin on a larger scale if price then failed to hold at the next support level (around the lower Bollinger Band/50 sma). Any substantial weakening of Bonds may produce a large-scale rally in equities...one to watch over the next days/weeks.

Enjoy your weekend and good luck next week!

Rising European Unemployment and Slumping German and U.S. Data

Economic data released today (Friday) was below analysts' expectations as Europe's Unemployment Rate rose to 11.7%, German Retail Sales dropped to -2.8%, U.S. Personal Spending and Personal Income dropped to -0.2% and 0.0%, respectively, while the U.S. Core PCE Price Index remained at 0.1%, as shown on the graphs below.

This latest data is still confirming slumping European, German, and U.S. economies and consumer spending/income.

My "Fiscal Cliff" Gripe

Here's my gripe for today...and for the rest of the year...and possibly (probably) into next year...

If Speaker of the House, John Boehner, is so "serious about trying to resolve the Fiscal Cliff fiasco," why is he wasting time blabbing to the press, yet again? What a joke this whole issue is! Surely he's got more important things to sort out than to continually run to and whine to the press.

The press is NOT involved in the decision-making.

It reminds me of a whiny kid running to his parents to tattle-tail about something that his brother did...over and over...ad nauseam.

I'm tired of the tantrums...just quietly do your work! That's what taxpayers are paying you to do...they expect a resolution, not constant political grandstanding.

My comments also apply to Senate Majority Leader, Harry Reid.

Finally, the longer that politicians delay making important decisions on this issue and finalizing a deal, the more I think that neither side has a clue on what to do...after all, they've had four years to think about it and nothing has been done yet...too busy writing election speeches and press conference speeches. And, the U.S. National Debt Clock just keeps on ticking.

New Closing Low Since Feb/09 for China's Shanghai Index

China's Shanghai Index closed today (Tuesday) at a new low not seen since February 2009. The 1-year Daily chart below shows that price slipped and closed just below near-term support as the RSI, MACD, and Stochastics indicators turned down again, with the MACD histogram beginning to accelerate below zero again.

The next chart is a Daily ratio chart comparing the Shanghai Index with the S&P 500 Index. What I notice is that price on the Shanghai Index has held up a bit better than the S&P 500 inasmuch as the SSEC began to rally in late September, while the SPX has been in a slow decline since then. Price has not made a new low for the year on this ratio chart.

The next chart is the same ratio chart, but with the RSI, MACD, and Stochastics indicators added. As with the first chart, these indicators are still in decline, and the MACD histogram's decline is still accelerating...signs of recent comparative weakness of the SSEC to the SPX.

The 1-year percentage comparison chart below shows the net gains to date on the SPX versus the net losses on the SSEC.

The next percentage comparison chart below shows the net gains from November 7th to date on the SPX versus the net losses on the SSEC. While the SPX is attempting to rally from its recent lows, the SSEC has continued to decline and make a new (nearly) four-year low in the process. This chart is reflecting the recent comparative weakness of the SSEC to the SPX, as shown on the third chart above.

 

Whether this is the beginning of a new leg down on the Shanghai Index remains to be seen, but with downside momentum accelerating again and the other indicators turning down, it would appear that it may be starting Alternatively, this may be the low point for 2012, China's Year of the Water Dragon, as I wrote about on January 4th of this year, to, finally, begin a rally into next year...one to watch over the next days/weeks, along with its performance against the S&P 500 Index. It's my guess that if European Indices fail to advance with confidence in the near term, we'll likely see further weakness in the SSEC.

 

***UPDATE December 5, 2012: This December 4th Bloomberg article is worth noting:

"U.S. regulators, in a move to sanction auditors for blocking investigations at China-based companies, have set a course that jeopardizes the listing of more than 100 stocks from the world’s most populous nation." The entire article is here: http://www.bloomberg.com/news/2012-12-04/sec-auditor-case-seen-jeopardizing-chinese-u-s-listings.html

 

An Off-Topic "Slice-of-Life" Moment

It was one of those "Slice-of-Life" moments that made me smile when I happened to look out my den window late this afternoon and spied a cute scene. My neighbours and their friends were outside in their backyard dressed in warm jackets, gloves, and hats, sipping hot chocolate, and roasting marshmallows over an open fire. The kids were excited and will, no doubt, dream of their outdoor feast tonight as the taste of the scorched white fluffy stuff lingers and tantalizes their senses.

We don't have any snow, but it has been cold here as the rain finally stopped a couple of days ago and was replaced with sunshine here in the Pacific Northwest. The countdown to Christmas Day says that the kids only have to wait 28 more days to see what Santa has brought for them.

We traders only have 19 1/2 trading days left until we see what Santa brings for us...hopefully lots of goodies! I can dream, too...

Mark Carney Leaving Canada's BOC for England's BOE

It was announced today (Monday) that the Governor of the Bank of Canada (and former Goldman Sachs' executive), Mark Carney, will be leaving his position on June 1, 2013 to fill the role of Governor of the Bank of England on July 1, 2013 for a fixed five-year term.

This Wikipedia link provides background information on Mr. Carney:
http://en.wikipedia.org/wiki/Mark_Carney

At the time of my writing this post during market hours, the USD/CAD forex pair is currently trading just below parity at 0.9945, while the GBP/USD is trading at 1.6015, and the EUR/USD is 1.2968, as shown on the Daily charts below. Whether Mr. Carney's departure next year will negatively impact the Canadian Dollar and positively impact the British Pound (and, possibly, the Euro) in the near-term and long-term remains to be seen.

 

 

Canada's TSX Index is down slightly from Friday's close at 12,172.50. London's FTSE 100 Index closed down today by -32.42 at 5786.72. Other major European indices closed down slightly today, as well.

 

After-Hours Market UPDATE: Here's a 1-year Daily shot of the TSX, FTSE 100, and EUR 100 Indices which shows today's close. As you can see, they are all approaching major resistance levels that were established earlier this year...whether they can reach and break above those levels remains to be seen.

 

 

The year-to-date graph below shows that Canada's TSX Index lags in terms of net percentage gained compared with the other two indices...a sign of commodity weakness from September.

 

 

The 2-year Daily chart below of the Commodities ETF (DBC) is reflective of the TSX's weakness. It is also approaching a major resistance level at around 28.22. A break and hold above that price is possible, as I don't see any negative divergences on the MACD, Stochastics, and RSI indicators...one to watch, along with the TSX, as such a break above could fuel a further rally in the TSX, and, potentially, positively influence other equity markets in the U.S., U.K., and even Europe.

 

 

3-Month Average of Chicago Fed National Activity Index Fell for Eighth Straight Month Below Zero

Data released today (Monday) shows that (as reported by Nasdaq News & Commentary):

"October was a sub-par month for economic growth based on the Chicago Fed's national activity index which fell to minus 0.56 from zero in September. The production component fell to minus 0.45 from September's minus 0.06 reflecting Hurricane Sandy's big hit to the industrial production report. The component for consumption & housing, dragged down by a decline in housing permits, fell to minus 0.19 from minus 0.17.

The report's other two components made positive contributions to the index but to a lower degree. Employment contributed plus 0.07 to the index, down from plus 0.13 in September, while sales/orders/inventories contributed plus 0.01 from the prior month's plus 0.10.

The three-month average fell to minus 0.56 in October (the same as the single month reading) from minus 0.36 in September for the eighth straight month below zero. A reading below zero suggests that growth in national economic activity is below historical trend."

Also released today was the Dallas Fed Manufacturing Survey, which shows that the Business Activity Index dropped from 1.8 to -2.8 and that the Production Index dropped from 7.9 to 1.7, as shown below.

An hour after the open, the Major Indices are, basically, consolidating after last week's rally, slightly below Friday's close.

Social Media Stocks/ETF

Due to the recent activity in some of the cheaper, beaten-down Social Media stocks and ETF, as well as RIMM, as shown on the Daily charts below, I'll be monitoring this group over the next days/weeks. I'll be looking for any parabolic rise and climax on high volumes on stocks such as these as a precursor to a potential major market trend reversal. If this type of stock continues to explode higher in the near-term versus value stocks, I'll also be warned of potential Q4 earnings weakness (markets favouring beta-movers versus actual value).

To illustrate what I mean, the following graph shows the decline of these stocks from the date of  Facebook's IPO to this past Friday. Percent-wise, ZNGA and GRPN have been the biggest losers, followed by FB and the Social Media ETF (SOCL).

The next graph shows the level of interest in these stocks/ETF compared with the Major Indices over the past two weeks...quite a stark contrast. Whether this continues, remains to be seen.

Larry Hagman (Sept. 21, 1931 - Nov. 23, 2012) ~ R.I.P.

I was saddened to hear of the passing of Larry Hagman yesterday...he was one of my favourite TV actors and I always enjoyed his television series, most notably the most recent Dallas series.

This link, courtesy of Wikipedia, contains information about Larry:
http://en.wikipedia.org/wiki/Larry_Hagman

Rest in Peace, Larry...you'll be missed.

Money Flow for November Week 3

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

• 6 Major Indices
• 9 Major Sectors
• Trendline Breaks on 7 Major Indices
• Percentage Comparison Chart of 4 Major Indices
• Ratio Charts of SPX:VIX, RUT:RVX, NDX:VXN
• Ratio Chart of AAPL:NDX
• 30-Year Bonds
• European Top 100 Index

6 Major Indices

Five of the six Major Indices rallied and closed higher this past week, as shown on the Weekly charts and the 1-Week percentage gained/lost graph below. The Utilities Index extended its prior weeks' losses.

9 Major Sectors

Eight of the nine Major Sectors  rallied and closed higher this past week, as shown on the Weekly charts and the 1-Week percentage gained/lost graph below. The Utilities Sector extended its prior weeks' losses.

Trendline Breaks on 7 Major Indices

Each candle on the charts below represents a period of three (3) days. The current candle closed today (Friday). I first wrote about these seven Major Indices and their major trendline breaks here and here. Since then, price did continue downward, but has since rallied during the past six days.

Those indices now testing the underside of their major uptrends from the October lows are the OEX and SPX. In fact, the SPX has now closed just above this trendline. A hold above 1400 and this trendline should produce a continued rally in the SPX. Similar backtests, breaks and a  hold above trendlines on the others should bolster such a rally in the SPX. Alternatively, a failure of the SPX to hold above 1400 could send it, along with the other indices, down to new lows.

 

Percentage Comparison Chart of 4 Major Indices

I mentioned here that the Russell 2000 Index was the leader ahead of the Nasdaq 100, S&P 500, and Dow 30 Indices in terms of percentage gained from the lows of last Friday (November 16). As shown on the updated percentage comparison chart below, that's still the case, and it's still the one to watch to see if buying favours the riskier Small-Cap sector over Technology and Large-Cap/Blue-Chip stocks. Alternatively, I'd watch to see if this index begins to weaken, particularly below the 800.00 level and on rising volatility, which could send the other indices down to fill their respective gaps from this past Money, and lower.

I've also included the updated 60 min (market hours only) chart of the TF (E-mini Russell 2000 Futures Index) (counterpart of the RUT), which shows the corresponding 800.00 level, which is around the 40% Fibonacci retracement level from the September high to the recent low.  Monday's gap remains unfilled, and, whether this is a breakaway gap and the beginning of a trend reversal remains to be seen. I'd like to see price hold above the 800.00 level and begin to make higher highs and higher lows on this timeframe before I'd make such a call. Otherwise, a failure around this level would likely send price down to, potentially, fill the gap and on to a lower low.

Ratio Charts of SPX:VIX, RUT:RVX, NDX:VXN

I'm still monitoring market volatility to try and gauge market strength versus weakness going forward. I prefer to measure the strength of several of the Major Indices against their respective Volatility Indices by looking at the following Daily ratio charts. As you can see on SPX:VIX, RUT:RVX, and NDX:VXN, they broke above major resistance (broken horizontal blue line), continued to rally, and stopped just below the next resistance level. The Momentum indicator has continued its ascent above the zero level and may be signalling that more strength is in store for the SPX, RUT, and NDX. A break and hold above these next resistance levels will likely produce a continued rally in these indices...particularly if the SPX holds above its 1400 level, as mentioned above, and if the other Major Indices break back and hold above their respective major trendlines.

Ratio Chart of AAPL:NDX

I've also added a Daily ratio chart of AAPL:NDX. You can see that AAPL has declined at a greater rate than the NDX, has been comparatively much weaker, and price on this has also closed above major resistance (broken horizontal blue line) to rest in between the bottom of the rising channel and horizontal price resistance. The Momentum indicator, while still in a downtrend, may be signalling a positive divergence with last Friday's bounce into the close...one to watch going forward into next week(s), as any gathering strength (and break and hold above resistance) would likely positively influence the SPX and NDX. Alternatively, a resumption of accelerating weakness, which sends AAPL below its equity price of 500.00 (and lower), would likely negatively impact these Indices (last Friday's low on AAPL was 505.75, so this is still a possibility, as noted here).

30-Year Bonds

Price on the Weekly chart below of 30-Year Bonds closed on Friday just above near-term support. Failure to hold this support level may induce serious bond-selling, which could begin on a larger scale if price then failed to hold at the next support level (around the lower Bollinger Band/50 sma). Any substantial weakening of Bonds may produce a large-scale rally in equities...one to watch over the next days/weeks.

European Top 100 Index

I last mentioned the European Top 100 Index here. Price had broken and closed below horizontal support. It then proceeded down to the 200 sma and bounced to close back above the 50 sma and in between support and resistance, as shown on the Daily chart below. As you can see, price has been wandering sideways in a range since the beginning of August and has been reactionary to news events from Europe. As I recently mentioned here, it would appear that delays are to be expected indefinitely while Europe grapples with its many issues related to their unraveling European Union and recession. As long as major decisions keep on being delayed, no doubt we'll continue to see this kind of uncommitted price action in Europe, which, would, likely have a negative affect on those U.S. (and foreign) business/financial institutions involved with Europe.

In summary, I'll be monitoring market reaction to Beige Book data once its released this Wednesday at 2:00 pm EST. Any surprises may send equity markets down...otherwise, I'll be looking for a strengthening rally on declining volatility, if the Major Indices can continue to advance and break (and hold) above major trendline resistance. Along with that, I'll be watching the 30-Year Bonds and the European Top 100 Index for strength/weakness signals.

Enjoy your weekend and good luck next week!