The Market is Rising with fewer Stocks

Beware when the market indices rise on the weight of few stocks while most of the market is selling off.  Recently the number of stocks above their 20, 50, and even 100 day moving average is falling.  This seems counterintuitive since the Dow30, S&P500, and other indices keep rising.  As market breadth gets thinner those stocks with the largest market capitalizations have to rise significantly to move the average and when they don’t the market sells off. Eventually momentum shifts and a correction ensues.  In the charts below one can see the number of stocks above their respective moving averages is about to fall.

Is XLB the first crack in the armor?

 

The stock market has been on a tear and many have been waiting for a “crack in the armor” where a sell off might begin.  Materials might be giving us a sign because their chart gave us to indications it was beginning a selloff.  The Williams %R is now below the 70 threshold and our P&F chart has reversed.  If a few more sectors do the same this week it may turn the short term momentum south.  See the charts:

 

The USD turns against the Euro and Sterling

Both currencies have been rallying against the dollar since mid-January recovering some of their losses around the new year period but today reflected a significant reversal.  Below are some 2-day per candle charts and point and figure charts.  On the candle charts we see reversal patterns (Dark Cloud Cover on GBP/USD and Evening Star on EUR/USD) and each has seen its Williams %R move below –30.  The P&F charts each had reversals resuming their longer term downward trends.  See charts:

Risk on or Risk off? AUD/JPY has a clue?

I have been looking for clues as to whether this equity rally will sustain itself long term or have the last few months just been a big bounce in an even bigger range. The SPY is at resistance, the EUR/USD has been ranging around $1.32, Gold is at channel resistance, OIL is in a range - what indicator could be helpful to uncover whether the markets are truly risk on or risk off? How about AUD/JPY? The AUD is a proxy for growth whereas JPY is a proxy for safety. AUD/JPY is at resistance - sooner rather than later this market will reveal its true appetite for risk and AUD/JPY is a good place to watch. See the charts:

Major ETFs at Resistance - Euro not in Sync

Markets have been rising since October and are now pushing against highs since May 2011 and July 2011.  The enthusiasm of a better jobs report on Friday seems to open the possibility that markets could rise higher on economic optimism while corporate earnings have been slowing.


Meanwhile there has been a noticeable disconnect between the EUR/USD relationship and SPY.  While the Euro has been moving lower since August US equities have been moving higher.  This contradicts the conventional wisdom that a higher Euro and a higher stock market move together.  While this relationship return with either a higher Euro or lower stock market or are we seeing a structural change in these relationships?


See the charts:

EUR/USD reverses at Fibonacci cluster resistance

We have been looking at EUR/USD closely for the last week since it has been running into an area we have identified as significant resistance. Another tool we can use are Fibonacci retracements and locating areas of Fibonacci "clusters" where multiple levels converge to form strong resistance. From a fibonacci perspective we use the low of 1.2625 and swing highs of 1.3857 and 1.3431 each of represent an important swing in the move lower. These swing moves are the best places from which to measure retracements to the low. The "cluster" are forms between 1.3246-1.3242. We will continue watching this area and see if price respects resistance and then talk about how we can project prices forward with fibonacci. See the charts.

EUR/USD confirms Dark Cloud Cover

With the definitive move lower today and the concern over Portugal EUR/USD's move lower marks a change in momentum and we believe prices will continue lower potentially to 1.20-1.21 area. See the chart below.