Wednesday, May 5, 2010

Yesterday's Market

Yesterday was a very interesting market situation. Remember that over the last few weeks we've seen the Treasury market rally in reaction to the Greek situation. That situation continued yesterday. But, we are starting to see some cracks in the equity markets.

The short term EMAs (10 and 20 day EMAs) have moved lower, indicating the short term trend is now lower (a). Prices have moved through through support levels (b) and are resting right on top of the 50 day EMA. Also note that the support level (b) was established on a higher volume day, indicating it should be given more weight in analysis.

The same analysis of the SPYs applies to the QQQQs

The EMA picture on the IWMs is a little less severe with the 20 day EMA still moving horizontally.

Let's move to the Treasury market -- especially the long-end of the curve:

First, there is a clear uptrend (a) in place which is confirmed by the shorter (10, 20 and 50) EMAs. The 10 and 20 day EMAs have crossed over the 50 day EMA. Prices yesterday gapped higher (c) on strong volume over the 200 day EMA. Technically that is one hell of a bullish move. The one negative to this rally -- and it is a pretty big negative -- is the steep angle of the line. Steep angle rallies typically don't last long. All of this price action is in the face of next week's auction which should be very large.

There are two other important issues here:

The dollar continues to rally, making yearly highs on strong volume. This indicates that US assets are still the world's safety bid. What is interesting is there are countries with far higher interest rates (Australia is at 4.5%). That means other issues are driving the dollar trade such as good economic numbers relative to the other industrialized countries. The stronger dollar

... is putting downward pressure on some commodities. Industrial metals are dropping because of the dollar and indications from China that they are slowing down their economy. Prices have broken a longer-term uptrend (a). The EMAs are turning bearish -- the 10, 20 and 50 day EMAs are moving lower, the 10 day EMA has moved through the 50 day EMA and the 20 day is about to, and prices are below the shorter EMAs. Prices are currently using the 200 day EMA as technical support. Lower commodity prices have good and bad points. The good is lower inflation. The bad is copper has a "PhD in economics", largely because it is used in literally everything. China's attempts to cool its economy could have important short-term ramifications for the world.