Tuesday, May 11, 2010

Yesterday's Market

Before we look at the charts, let's review last week. As the markets became more and more concerned about Greece's problem, we saw the safety trade go on. This means stocks fell and commodities fell while the dollar and bonds rose. The stock market was already in an overvalued position, so the sell-off wasn't surprising. However, we did see tremendous price movement in the equity markets over a short period of time on very high volume. The bond markets rallied through the 200 day EMAs, but did so in the face of a strong supply situation. And commodities sold-off in the face of strong Chinese demand. In other words, the bond and commodity markets acted counter to strong fundamentals.

Let's start with the IWMs, which gapped higher at the opening (a), but then traded within two bands (b and c) for the rest of the day. Prices did gap higher at the end of trading (d) on a volume spike (e) indicating traders wanted to position themselves for a possible up move in the AM.

The Treasury market moved lower with a big gap at the open (a), but then traded between two bands (b and c) for the rest of the day.

Notice that after the open on both of these charts, prices are pretty much range bound.

Here's the chart I think is most interesting:

The dollar gapped lower at the open (a) but then rose to just above the EMAs (b). Prices then fell to the 50% Fibonacci level reversed course and the rallied to just above the EMAs. From there, prices were caught in the EMAs for the rest of the day.

What's interesting here is the dollar caught a safety bid last week, largely at the euro's expense. However, the dollar rallied throughout the day, indicating there is concern about the European aid package. This tell could be very important in the upcoming trading day.