Thursday, July 17, 2008

Today's Markets

Actually, I'm going to pull the camera lens back a bit and look at the last 4 days of action:

The markets dropped on Monday and then gapped down on Tuesday. However, the markets formed a double bottom with the first bottom occurring early Tuesday and the second bottom occurring early Wednesday. Prices moved through the 200 minute SMA on mid-Wednesday. They have been hugging the upwardly sloping SMAs since, using the 10, 20 and 50 day SMA for technical support. Prices have moved up nearly 5% in the last three days.

On the daily chart for the SPYs, notice the following:

-- Prices have moved through the 10 day SMA.


-- All the SMAs are still headed lower

-- The shorter SMAs are below the longer SMAs

-- Prices are still below the 200 day SMA

-- Prices are below three SMAs

This is still a bearish chart.

There are several reasons the SPYs are rallying

The financials ETF have rallied almost 20%. that's a huge move. The reasons for this rally are several. Several banks reported better than expected earnings. In addition, the sector was horribly oversold. Also note the incredibly high volume over the last three days. This is the type of volume that occurs on a market reversal. I'm not saying we're there because we won't know for a bit. But the volume indicates there is a great deal of excitement about the sector right now.

Oil has dropped hard over the last three days and has quickly moved though important technical levels. It has dropped through the 10, 20 and 50 day SMA along with the upward sloping trend line that started in late March/early April. Traders are taking profits, using the opening of Federal lands as a reason to sell. In addition:

Crude oil fell more than $5 a barrel, dropping below $130 for the first time in six weeks, as natural gas futures tumbled and global economic growth slows.

Natural gas dropped more than 7 percent after a government report showed that U.S. supplies rose a greater-than-forecast 104 billion cubic feet last week. Some users can switch between oil- based fuels and gas depending on cost. Oil also fell because of reports showing that the U.S. and Chinese economies are slowing.

``The rout in natural gas is pulling oil lower,'' said Addison Armstrong, director of market research at TFS Energy LLS in Stamford, Connecticut. ``The sheer weight of the decline is bound to impact all the energy markets. A consensus was already forming that prices were too high.''

The question now becomes, can this continue? Tune it tomorrow.