Tuesday, September 23, 2008

A Big, Inter-Market Post

First, I live in Houston. Right now my wife and I are using her old house which we are selling because our house is still without electricity. I am using a wireless card, but AT&T has lost a fair number of cell towers in the area so internet access can be spotty.

The news has been coming fast and furious. Usually I focus on a particular market each morning. Unfortunately I have gotten out of that habit this last week as the Wall Street meltdown has progressed. So I'm going to play a bit of catch-up in one big post. This is a great example of what Charles Murphy calls "inter-market analysis". All that means is money flows between markets. As one goes up, one goes down.

Let's start with the SPYs

Last week's action, we wound up bout where we started. However, more to the point, let's see what the chart is telling us:

-- The SMAs are bunched together in a close range

-- All the SMAs are moving lower

-- The shorter SMAs are below the longer SMAs

-- Prices are below all the SMAs

The first point somewhat negates the remaining points. When there is a fair amount of distance between all the SMAs and they are all heading lower it's more bearish than the current chart. A group of bunched up SMAs indicates indecision.

As a result of chaos in the markets, gold rose:

Gold is an inflation hedge. As commodities have dropped so has gold. However, last week's uncertainty created a rush back into gold as investors looked for some kind of safety.

Note the following:

-- Prices broke through the downside resistance level that started in mid-July.

-- Prices broke through all the SMAs

-- The 10 and 20 day SMAs are starting to move in a positive direction.

The dollar was rallying. That changed last week. Note the following:

-- The dollar broke though the upward sloping trend line started in mid-July

-- The dollar broke through all the SMAs

-- Right now the 50 day SMA is providing support

The IEF (7-10 year Treasury) has been really interesting. Note the following:

-- At first this ETF rose, largely because of its safe haven status. However,

-- As details of a plan emerged, Treasuries dropped hard, largely out of concern for the plan's effect on the nation's deficit and debt.

Oil has also benefited, as traders have bet that the bail-out package will help to bolster economic growth and increase oil demand. Notice the following:

-- The shorter SMAs are still below the longer SMAs

-- Prices moved through the 10 and 20 day SMA

-- Prices are right at the downward sloping trend line that started in early/mid-July

-- The 10 day SMA is starting to turn positive, but

-- The 20 and 50 day SMA are still clearly negative.

The bottom line is the market situation is extremely fluid right now and could still change on a moments notice.