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Friday, November 16, 2012

Money Flow for November Week 2

Further to my last weekly market update, this week's update will look at:
  • 6 Major Indices
  • 9 Major Sectors
  • Ratio Charts of SPX:VIX, RUT:RVX, and NDX:VXN
  • Ratio Chart of AAPL:NDX

6 Major Indices


Last week's losses were extended this week on all six Major Indices, as shown on the Weekly charts and the 1-Week percentage gained/lost graph below.



9 Major Sectors


Last week's losses were also extended this week on all nine Major Sectors, as shown on the Weekly charts and the 1-Week percentage gained/lost graph below. The Defensive Sectors (Consumer Staples, Health Care, and Utilities) lost the least as markets were more in a "Risk Off" mindset.



With the weekly Stochastics cycle nearing the lower end on most of the Major Indices and Sectors, we are left wondering if the decline from the September highs in these markets is winding down in preparation for a reversal and Santa rally to new highs, or if a much bigger decline is waiting at the bottom of Mr./Ms. Market's Christmas stocking, and this is just the beginning. After all, we saw some major trendline breaks on the Major Indices last week, as mentioned here and here, so I wouldn't be surprised to see further weakness at some point.  We may, however, see a bounce and backtest of these major trendline breaks before any further weakness resumes. The Head and Shoulders targets on the E-mini Futures Indices (as I discussed here) were nearly reached today (Friday) on the YM and ES, but the TF remained about 25 points above its target.


As I've mentioned in prior posts, the markets have been subject to some fairly volatile and wide intraday swings, many of which have been news-driven. The most recent of these was today's press statements regarding the Fiscal Cliff discussions, which have now begun between Democrats and Republicans, and which sent the markets up (although nothing concrete was said to indicate that this issue has actually been satisfactorily resolved).

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


With these things in mind, I'll be 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 have been stuck in a range for the past several weeks and closed just below major resistance (broken horizontal blue line) on Friday. The Momentum indicator has just turned positive 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 resistance levels will likely produce a rally in these indices.




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 just below major resistance (broken horizontal blue line). The Momentum indicator, while still in a downtrend, may be signalling a positive divergence with 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 (Friday's low on AAPL was 505.75, so this is still a possibility, as noted here).


N.B. Next week will be interrupted by the Thanksgiving Holiday on Thursday (all day) and Friday (afternoon), so whether we'll see any significant movement in either direction in these markets remains to be seen. Also, whether the markets are prepared to buy into the Higher-risk Sectors versus the Defensive Sectors remains to be seen. I'm also mindful of weakness in China, recessionary weakness in Europe, and weak U.S. economic data (which I've written about recently), more of which (along with unexpected global and national news-related announcements) may produce a drag and further intraday volatility on any ensuing bounce in these markets.

Enjoy your weekend and good luck next week!