Thursday, May 6, 2010

Yesterday's Market

Given all of the international developments that have been happening over the last few months,today I will look at these international markets to see what they are telling us. We'll start with China, where the central bank has been raising reserve requirements in an attempt to slow down the economy.

The above chart is a simple three year line chart that shows the SPYs and FXIs. Notice the extreme close correlation between the markets. Also note the FXIs have topped twice this year before the SPYs, leading the US downward. The reason for this is the inter-related nature of all the world's economies now.

Above is a two year chart which shows the Chinese market has broken an important long-term trend line. It's important to remember that breaking a trend does not mean a reversal -- that is, a complete change in direction. It usually means the direction will change. But most importantly, it does tell us that something is different -- we need to be on the lookout for different events and occurrences in the market.

The yearly chart shows two primary uptrends at (a) and (c) -- both of which have been broken. Recently, prices have found upside resistance at line (b). Moreover, notice there is little actual, clear, long-term direction to the market.

a.) Momentum is clearly dropping but,

b.) Money is not flowing out of the market is a big way right now.