Oil Slick

Further to my post of November 4th, WTI Crude Oil has pierced through its next major support level of 64.50, as shown on the following Weekly chart. Also, we now have a bearish Death Cross formation on this timeframe.

Oil has been in free fall since the beginning of October. The next major support level is 50.00. However, as I mentioned in the aforementioned post, price may pop up to retest the moving average cross-over level, which is now sitting around 95.00ish, before it plunges again...although, it may have a tough time rallying above, what is now major resistance, at 75.00.

I Rest My Case....

Regarding my post of  November 18th, what more can I say? Central Bankers continue to offer proof, as mentioned in today's Zero Hedge article.

Here's a shot of the S&P 500 E-mini Futures Index as it trades pre-market today. Although price has been climbing, it has been doing so on declining momentum...however, it's still above the zero level, so it can be considered cautiously positive.

And, world market reaction today (screenshot taken at 10:18 am ET)...

World Market Index data supplied by www.indexq.org

What is Japan Trying to Accomplish?

Year-to-date, the Japanese Yen has lost more value on a percentage basis than its Nikkei Index has gained, as shown on the following percentage gained/lost chart.

If this "value-erosion" disconnect continues to accelerate at its current pace, I wonder what will be the point in anyone "investing" in the Nikkei?

Where Have the Stock Markets Gone?

The following is a definition of "STOCK MARKET" as provided by Investopedia.com:

     "The market in which shares of publicly-held companies are issued and traded either through exchanges or over-the-counter markets. Also known as the equity market, the stock market is one of the most vital components of a free-market economy, as it provides companies with access to capital in exchange for giving investors a slice of ownership in the company. The stock market makes it possible to grow small initial sums of money into large ones, and to become wealthy without taking the risk of starting a business or making the sacrifices that often accompany a high-paying career."

I would suggest that, since various world Central Banks (A.K.A. financial policy-makers) have been busy buying into a variety of world markets since the bottom of the 2008/09 financial crisis, these former stock markets are no longer a "component of a free-market economy." The Bank of Japan is but one example of this practice, as evidenced in their most recent policy statement issued on October 31st. Therefore, the markets that you have been (and are still) trading do not fall under the definition of a STOCK MARKET. Rather, they are entities totally under the control of Central Banks and no longer exist as stock markets.

Macro & Micro Views of World Markets, Commodities, & Currencies

I'm showing a comparison, in graph format, of the percentages gained/lost of a variety of world market indices, commodities, currencies, and U.S. ETFs.

The first graph in each category shows the percentages gained/lost from March 2, 2009 to November 13, 2014.

The second graph in each category shows the percentages gained/lost Year-to-Date.

U.S. Major Indices

9 Major U.S. Sectors + Homebuilders ETF

Germany, France + PIIGS

Emerging Markets + BRIC Countries

Canada, Japan, UK, Australia + World Index

Commodities

Currencies

Commodities, Lumber, Homebuilders, USD + U.S. Bonds

OBSERVATIONS:

• Transportation and Utilities are favourites this year, while Small-Caps are flat for the year (but remain strong from the beginning of March 2009).
• The "defensive" sectors are more in favour this year, while Energy and Homebuilders have lost ground.
• Although most of Europe is under water for this year, Germany and Ireland still hold substantial gains from the beginning of March 2009...Greece is the weak link in this group.
• Although Russia is under water for this year, it still holds a fair amount of gains from March of 2009, while emerging markets are flat for the year...and China has finally made some gains for the year.
• Although a substantial amount of profit-taking has occurred in the UK, Australia and overall World markets, their gains are still substantial from March, 2009...although Japan is leading in this category from the beginning of March 2009, its gains have slowed for this year.
• The only commodity that has made any gains for this year is the Agricultural ETF...although WTIC crude oil and Brent crude oil have taken substantial losses this year, they still hold substantial gains from the beginning of March, 2009.
• The only currency to have made any gains for this year is the U.S. $, but it remains flat from the beginning of March, 2009, as does the Euro, while the Aussie $ remains in the lead.
• The Homebuilders ETF and Lumber have certainly outpaced the gains from the beginning of March 2009 when compared with Commodities, U.S. Bonds, and the U.S. $...meanwhile, U.S. Bonds and the U.S. $ have been favoured this year.

CONCLUSIONS:

I'd say that, unless confidence returns in the housing sector, along with Lumber and Copper, as well as Small-Caps and the "riskier" sectors, we'll see reduced rates of returns in any continued bull market in the U.S. as it remains in a "tentative and "defensive" mode, or we may even see a substantial market slump until these markets can prove that a meaningful sustainability is possible (without support from the Fed). In any event, these categories may remain subdued or choppy until other world markets (Europe, Japan, Brazil, and China), including commodities, pick up.

Beware of the "Abe" Rhetoric

As I reported in this recent post on Japan's Nikkei Futures Index, price has entered "froth" (major resistance) levels seen in the beginnings of the 2007/08 financial crisis. As of tonight (Tuesday), price has held above the "line-in-the-sand" level of 16,666 and is now trading at 17,325, as shown on the Weekly chart of NKD below.

Beware of speculation that Prime Minister Shinzo Abe may be "considering dissolving parliament to shore up support," as reported today in this Bloomberg article. This report may have simply been released to stir up emotions in the market place to lure short-sellers into the mix at these critical levels.

Volumes spiked on November 4th after retreating from a high of 17,480 set on the 3rd and have been subdued since that day (including today). Watch for a climb and hold above 17,480 to the next confluence resistance level of 18,365...if we see a build in volumes approaching that level, we may see a continued push above resistance...if not, or if volumes decline, this may signal that a formidable decline is imminent somewhere in between 16,666 and 18,365 down to, potentially, 15,000, 13,700, or 12,600 (or even lower). In any event, we may see increased volatile and large overnight and intraday swings occurring in between those levels for awhile until a firm direction is established.

In my opinion, a rejection of the Nikkei at these levels is a rejection of Japan's economic recovery and Prime Minister Abe's policies...negative effects of such a rejection may very well spill over into the U.S. and European markets.

No doubt, markets will be awaiting any "new" news or promises from the upcoming joint Fed-ECB conference in Washington on November 13th. UPDATE November 13th: no new news, as reported by Nasdaq.com.

Small-Caps Lagging for 2014

The following two Year-to-date Daily charts show how much the Russell 2000 Index is lagging behind the Dow 30, S&P 500, and Nasdaq 100 Indices.

The first chart is a simple comparison which shows the percentage gained for each from the beginning of this year.

Small-Cap stocks have, basically, spent a considerable amount of time in negative territory, while trading sideways from the beginning of this year; meanwhile, Technology stocks have been the favourite, followed by stocks in the SPX and the INDU.

The second chart shows the percentage-gained/lost for the RUT, SPX, and NDX relative to the INDU (which is shown as a horizontal line at the zero level).

As you can see, Small-Cap stocks have been in a downtrend since March in comparison with the Dow, while the NDX is still in uptrend, and, although the SPX is still slightly ahead of the INDU, it has made a lower swing high recently, but has yet to make a lower swing low.

Unless buyers step into Small-Caps with any conviction to slough off any risk-taking concerns and to re-enforce any continued support for U.S. equities, we may see some further weakening creeping into the SPX, with some profit-taking commencing in the NDX.

From the RUT:RVX Daily ratio chart below (note: the RVX is the Volatility Index of the Russell 2000), it would appear that the price level of 60.00 must be held to signal potential renewed buying in the Russell 2000 Index.

65.00 would be the next resistance level to be overthrown, followed by 70.00, 75.00, and, finally, 78.00. We'd also need to see a new swing high established on the Momentum indicator; otherwise, any buying may be quite short-lived. This is one chart to watch in relation to the above two charts to confirm the conviction and momentum of future price action in Small-Caps.

Oil is on the Brink

This Weekly chart of WTI Crude Oil Futures says it all.

Oil is sitting just above a major price and Fibonacci Confluence support level of 75.00 (as I write this on Tuesday at 3:45 pm)...a break and hold below 75.00 could see it drop to around its next support level of 64.50.

Furthermore, we may see a bearish Death Cross form soon on this timeframe...should that occur (or even sooner in anticipation of that event), price may briefly pop up to re-test the cross-over level around 96.00 before plunging to, potentially, new depths.

The last time it broke below 75.00 was October of 2008 (during the financial crisis) when it sliced straight through the 200 MA. With volumes increasing over the past few weeks, we could see some fairly volatile price swings enter soon...one to watch.

SPX...Overvalued or Undervalued?

A look at a 20-Year Daily chart of the SPX (below) shows that price has popped up to close on Friday just above a major resistance level of 1,975 and has penetrated back inside an uptrending channel from the October 2011 lows. The Momentum indicator has spiked to a new 20-year high.

Failure to hold above 1,975 could see a re-test of 1,900, 1,820 (Fibonacci and price support), or lower.

Price on the SPX:VIX ratio (see 20-Year Daily ratio chart below) closed on Friday just below the 150.00 major resistance milestone level that this ratio reached before succumbing to the pressures of the 2007/08 financial crisis. So, although the SPX made an all-time closing high on Friday, the SPX:VIX ratio has not; however, the Momentum indicator has also made a new 20-year high on this chart...signalling an expansion of extreme bullish sentiment.

We may see some very volatile intraday and overnight swings come into play before market players finally decide whether to go "all in" on equities in preparation for a potential Santa rally. Such a scenario could, theoretically, see price on the SPX reach a level of 2,140-50ish by the end of the year (the next Fibonacci and channel convergence resistance level). Watch for confirmation (or divergence) of sentiment and momentum on the SPX:VIX ratio chart during this time.

Japan's Nikkei...Into The 2007/08 Froth

After the Bank of Japan's policy announcement on October 31st to increase the amount of money they're pouring into the markets (including U.S. markets), the Nikkei Futures Index soared and ended the week just above major resistance (around 16,666) and is back into the 2007/08 froth, as shown on the Weekly chart of the NKD below.

Failure to hold this level (which is, no doubt, an important psychological level to surpass), could see this index slip back to 15,000, 13,700, or even 12,600 (as I discussed in my post of  October 12th) before they step in and prop it up, once more. Daily volumes may hold the key to direction in this regard...former buying from November of 2013 was thin and resulted in "dead-cat-bounces."