Thursday, April 29, 2010

Yesterday's Market

Let's start with a look at yesterday's IWMs:

Prices gapped higher at the open (a) and then used the EMAs for technical support throughout the day (b), ending with a big buy trend at the end of trading on high volume (c).

This is important because the IWMs represent risk-based capital. Yesterday's move indicated traders are comfortable with the idea of risk again. Of course -- we'll have to see how long that lasts with Europe on everybody's radar.

With the longer market pictures, consider the following charts in two groups. The SPYs and the DIAs represent less risky stock capital while the IWCs and the IWMs represent more risk based capital. Notice that the larger cap indexes are moving more sideways right now while the riskier indexes are still more bullish.

Also notice the difference between the MACDs. The SPYs and the DIAs are moving sideways and have been for sometime while the riskier assets have a bit more upward momentum. This is on track with how the averages have performed on a relative basis for the last few months: the riskier assets have outperformed the less risky assets.

Oil had a big move yesterday:

Prices gapped higher at the open (a) and then spent the rest of the day in a tight range (b).


The daily chart is showing some interesting signs. First, remember this is April -- a month before the summer driving season. Oil prices should get a natural lift right now. In addition, there are some bullish indicators. While prices did break the general uptrend (a), they have consolidated twice (b and c) in downward sloping pennant patterns. The EMAs are mixed (d). The short term EMAs (10 and 20 day EMA) are moving lower while the longer EMAs (50 and 200) are moving higher, albeit in a mellow upward slope. However, the shorter EMAs are more volatile and hence more prone to whipsaws. Prices yesterday broke through important upside resistance (e). The MACD is on the verge of giving a buy signal (f) and the A/D line shows continued accumulation. On the bearish side, we've seen an inventory build-up, while the bulls can look at Asia and US demand increasing.

On the "very interesting and possible concerning side" is the drop in industrial metals. Prices have broken the two main uptrends (a and b). We saw a big drop down on Monday (c) in reaction to the European situation. In addition, the 10, 20 and 50 day EMAs are moving lower (d), while the 10 day EMA has dropped through the 20. The MACD has given a sell-signal (e) but we're still seeing some money flow in.

On the daily 5 minute chart we see the main technical issue:

Prices can't get meaningfully above the 200 minute EMA. Part of this is risk aversion -- that is, the European situation is causing people to move into more stable assets. Part of the recent drop is increased Chilean production. But I have to wonder whether there is concern in the industrial metals market about the expansion itself.