Let's start with the IWMs. We have a gap down on last Tuseday's open (a) followed by a general decline (b). Prices gapped higher on Monday after the announcement of the EU rescue package (d). Prices have rallied since, printing a strong upward move (d). From trough to peak there is nearly a 10% increase.
However
We don't see the SPYs rally with nearly the same vigor. First, after a gap higher (c) prices don't rally nearly as strongly, but instead stay within a general box with a slight upward tendency. In addition, the overall gain from Friday's close to yesterday's close is 5.4% 00 far lower than the IWMs.
At the same time we have a stock market rally, the Treasury market has fallen, gapping down (b) after a strong safety bid rally (a). Prices have moved lower, but not at a strong downward angle (c).
The next puzzle piece is the dollar:
After a very strong rally (b) that contained a lot of upward gaps (a), prices dropping on Monday (c). But they have since risen (d) out of concern for the long-term viability of the EU rescue package (d). As a result, we've see commodity prices stall.
Oil is consolidating after a strong price drop. Part of this is a stronger dollar, and part is increased US supplies along with concern about a drop in demand from the US.
Agricultural prices have dropped, but not as far as oil prices. But also notice the consolidation over the last several days.
Industrial metals have also consolidated, partly because of the dollar, but also because of concern regarding a drop in Chinese demand.
The verdict on the EU plan is clear:
Still, three days after the eurozone bail-out was launched, the verdict is becoming clearer: equities and bond markets like it but single currency traders and gold investors are less sure.
