Here in Spain "Commodity" word has morphed into and adjective and is sometimes used when referring to some good or service that used to be highly valued in the past but has become somehow coarse and vulgar in the present. Is curious but I believe "Commodities" are to play an important role in future financial markets though have received uneven levels of analyst's attention in the past. We can see here how they have been closely participating in March rally but have detached a while ago. Today, as many other indices (i.e. Nasdaq Comp) it left an unfilled gap together with some signals of more downside risk. Let's include them into our toolkit of indicators to see how valuable their "advice" can be :)
As we were pointing out at the Market internals update when ES was around 1021, there were a high risk of penetrating 1016 and then continue to the down side. Finally 1013 provided support and I believe the strong EURUSD reversal together with a weakening JPY put the ending for the selloff. The close was stronger than I expected in terms of price but increasing NYSE down-volume during last 15 mins makes AH rise less likely. In my eyes there is still a remote possibility of a sizable gap down tomorrow bt even if it occurs, remember is 1st day of month (higher probabilities of a green day) and we are due for a pullback to the upside. GL
As currencies where indicating, weakness in the opening was expectable. Nikkei euphoric rally took by surprise many traders and cheated some of them. My advice, never trust event driven moves. Trust on our wise friends (currencies and other proven indicators)
Nikkei chart update. Only 2 consecutive daily closes above resistance will invalidate the setup
As commented recently, it is very important to track market internals data to assess overall market strength/weakness at any given moment. However this data becomes even more important after sustained moves (up or down) since normally will anticipate the trend exhaustion before price confirms it. Although traditional market internals still show the undeniable strength this bulls move have, some other indicators are already showing exhaustion. Last week, news helped to boost mini-rallies but they were unable to consolidate highs. I wouldn't be surprised if price finds a hard roof this week. Hi- lo logic index
Zweig Breadth Thrust :
Absolute breath: Both indicator and its RSI diverges from main indices (QQQQ shown here)
As you may know fixed income investments like bonds are the traditional alternative to stocks for those who are looking for less risk. In general, more people (and more money) flows into bonds when they fear about negative economic outlook and when they lose conviction on more risky instruments like equities. Among different types of bonds, those who deserve maximum grade (credit quality) are the safest and receive a bigger percentage of those investors who are "flying to safety". That is why I believe German bonds are something to be aware of since are the perfect target for wealth getting away from stocks. In other words, once we see this bonds rising above significant levels (marked below) we can be quite sure the smart money is leaving equities.
German Schatz - Weekly
Shatz - Daily
Update 08-29 - Bund daily We can see here many signs that confirme the bullish structure. On Friday, it closed above 200 MA. The only cons I can see is the negative divergence with RSI.
Were you one of the traders that got trapped by last fake bearish moves from SPX? Not only the infamous HS pattern from late June but many other times the indices give us fake signals just to trap everyone and run in the opposite direction. What to do? As usual: look for confimations at other relevant sources. In this case we can see how the EURUSD action did NOT coupled with the bearish move at SPX thus alerting us about the trap.
Finally the pattern we were observing unfolded bearish in the afternoon as expected. Though a close look at volume was revealing weakness since yesterday night I think many bulls got trapped by the green spike at 10:00 EST. Other factors that contributed to this bearish move in the afternoon: Bonds rose (TNX -1.26%), Oil dropped around 4% and EURUSD close in red after testing 1.4330 level for a few hours and also left a disturbing doji candle. As of 7:23 pm EST is opened and evolved red dragging equity down (ES at 1022,5 now)
The OBV above commented pattern, together with the weakness at the close make us think this retracement will continue tomorrow. Oil and currencies opening on 08-26 (EU time) support the ST bearish bias for tomorrow
OK bears don't get too excited but I can't deny this stuff looks bearish. Really don't know what is gonna happen but would like to share this charts with you
As promised, I put some pieces together and now wanted to share with you one integrated picture of my market views: 1st of all, many thanks to UiDezine for his unique insight about markets. Much af my current view has changed due to his arguments which together with market action have made me reevaluate my stance. After researching a lot charts of them last week, I found these ones can sumup what my LT and IT views are.
As I needed more than only mad-bulls-price action to support any bullish view I pulled some internals related stuff (I thank mfc68 for recalling me of its importance) since is much more reliable in my opinion:
Here we can see a picture of IT and ST
Ideally, if divergences provide a retracement to the green arrow, we can have a clean IT long entry.
ST close up view : Divergences at oscillators
Fundamentals view:
Pata: what do you think about news saying economy is really getting better? Pata: BS!!!
It doesnt mean much from the practical point of view since I dont trade LT but I won't buy BS either!I will be happy to trade from the long side (ST and IT) and assume this bullish move can last many months but I refuse to believe in miracles. Period
As we were saying at Seeking the unobvious, many instruments were showing relative weakness and diverging from SPX and other indices. This and other factors led to a retracement today.
Regarding the next steps: Many bears are excited about the shooting star candle this close set on many US and EU indices. I think a little more correction may come tomorrow but wouldn't bet on the bear case for too long since the main trend is bullsish. EURUSD flirted with the key level we identifyed previously, surpassed for some time but failed to close above (correlation with stocks remains high).
Anyway, I will post an integrated vision tonight, so stay tuned:)
Take a look at the updated NQ chart for a nice sum up pic which is also a good example of the 1,2,3 Reg channel move:
Note aside: I was reviewing ES charts with some other indicators since there were some volume spikes that looked suspicious, this is what I found. I am not sure it is what I think but no wonder it looks bad for bulls in the ST.
I couldn't avoid linking current coupling between SP500 and USD and the similar coupling between SP500 and JPY until 2006-7 which made Carry Trade so popular and we described earlier. At those moments large investors borrowed JPY due to its minimal interest rate to buy stocks, therefore rising prices. It was a great business except when the JPY dropped. I used to watch EURJPY and USDJPY specially AH to get valuable clues about next session's behavior at stocks markets . We might be having the same phenomenon now with the USD whose low interest rates are making it attractive for those purposes. Now matter what the ultimate cause is, we can be sure that this coupling is working, thus making EURUSD pair a must-watch for any trader. Fortunately now we have two clear levels to watch for the short term prognosis:
Turning point time guys. This last week has been really shocking but at least set something clear: Bulls are still in total control of this market. I will post later my vision about different time frames and try to put all the pieces together in one picture. Meanwhile I brought this short term charts. The only objective is to balance the astonishing impresion that SP500 and some other indices gave us on Friday's close. I think some other indices and instruments showed less strength, at the close or in previous 2 days. This makes me think that on Monday/Tuesday we can have some correction (finally). After that correction I expect more buying pressure. So this is bear's short term tiny hope as far as I can see :)
SPX- OIL/GOLD spread SPX- DAX/SHATZ spread SPX vs. USD comparison
Hi Just wanted to propose this game. See this chart here and tell me if it is a good short from your technical analysis point of view. As is a blind testing the ticker is not shown for now... Enjoy
Baltic Dry Index As the sharp Spanish investor SimpleNoRiskpointed out timely, there are many reasons to keep an eye on BDI. In general I try to keep my mind clear of economic data on analysis while trading in order to approach markets with no preconceived notions but in any case we always need a "framework" or general idea of what is the most probable scenario for the midterm (IMO long term view is for institutional investors and "gurus" so not my business). That is why I came up with the Bonds studycurrencies, and now with BDI. I want to build some scenarios for the months to come and more important, avoid the influence of all type of financial media to direct my trading. I believe charts are the only trustworthy source.
In this particular case I wanted to point out how BDI has lead stock indices in the past and how now is signaling a potential reversal since is making lower highs. Note also how Shanghai's SSEC is following it much closer than SP500 which presents a bigger divergence. If stocks indices are to follow BDI (which I believe) then SP500 is due for a stronger correction in the midterm BDI, SPX, SSEC comparison. Close up view of divergence
The opening of this and other currencies is what suggested me more upside for stocks today. During the session they continued to put bullish pressure in stock markets. Unfortunately I didn't put enough attention on this factor and only played longs during the morning (some excessive bearishness invaded me in the afternoon :)). I myself overlooked the importance of this message which together with Crude Oil was the driver today.
As a continuation of my previous study on currencies and its relation with stock markets I wanted to show some findings on EURJPY. As I mentioned about EUR, we can use some currencies correlation to confirm moves in stocks. Moreover EURJPY can sometimes spot equities moves in advance,under the form of divergences, so we can use it as an early indicator. In the chart we can see a comparison between EURJPY and SPX. Have a look at the red segments which are signaling the SPX "lagging" price action. Those are the moments we need to spot to avoid fading EURJPY with our trades on equities; and ideally following its footsteps for a profitable trade.
You may recall our recent post about Oil were we were anticipating a retracement inside a consolidation pattern. XOI reached today its target zone (blue rectangle at 916). We hope you could make some profits from it :). Though Oil is still in a main bullish trend, we expect more downside in the short term (see OIH chart). After the consolidation is complete we will re evalute to determine new targets. XOI- reached 1st target.
OIH, showing weakness by gapping down and breaking support
You might recall a previous post on the importance of market internals condition to assess overall indices strength. Now I wanted to show you some stuff I have been observing during last days: the divergences among various market internals indicators and price have been increasing telling us this rally is going out of steam. Divergences can last long but traders should never go against them as risk/reward ratio would be poor. If we were doctors, our prognosis for NASDAQ (and for the rest of indices) will be reserved. I mean, there is no evident symptoms yet but the disease is well underway.
Our therapy: Mr. NASDAQ and Mr. SPX must have some rest (retracement), they need an important breather if their expectations of going higher still exist.
As previous bonds performance and its relationship with main equities indices is a guide, we should keep an eye on what Bonds have been doing last days since they can be sending us a message about short term and mid term direction for stocks. We believe the current divergence may lead stocks down for a retracement since many other important factors also support that idea (will post more about this shortly).
SPX- 10 year T Note comparison
Long term view and background (previously posted on 05-30-2009 at Ui Dezine's Trading Diary Blog)
As we recently posted , many instruments have broken its mid term regression channels. We spoke about the technical relevance of that fact and also described at the charts commentary that after the 1st step (channel breakdown) 2 more steps normally follows to complete the move :
2- Retest the channel or any relevant resistance
3 - Break down again
This is what we saw today at many instruments (see updated charts below)
EURJPY EURUSD S&P100 ES
Another perfect example at QM (oil future)
Conclusion:
The various indications we were observing about more weakness in the bulls run have been confirmed today in various equities sectors as well as oil and gold. We see this move as the beginning of a pullback inside a bullish main trend. To believe this pullback has become some serious mid term bearish trend we need to see a daily close below ES990, which was very close today but is yet to be seen. There are quite a few technical arguments for the bears but need to gain consistence during next week for us to officially turn the mid term trend to bearish.
