Wednesday, May 19, 2010
Let's start with a look at the euro, as it is the cause of the recent problems in the market. First, current prices (b) have moved through previous lows (a) established at the height of the financial crisis. In addition, volume on the recent move (c) is incredibly high.
Note that the euro and the dollar have a nearly perfect inverse relationship - hence the reason for the dollar's recent increase.
Since the beginning of April, we've seen a huge sell-off that included numerous downside gaps (a). Gaps are a bit more common in currency ETFs because currencies are traded nearly 24/7 while ETFs aren't. However, also note the bearish EMA orientation (b) -- the shorter EMAs are below the longer EMAs, all the EMAs are moving lower and prices are below the EMAs. Finally, there has been a massive volume spike (c) over the last few weeks. This could be a selling climax.
Momentum is clearly declining (a) and money is leaving the market in a big way (b).
As a result -- at least recently -- we've seen the dollar as rally strongly.
The dollar has been in a strong uptrend (a) with several different price consolidations along the way (b).
Let's turn to a shot of yesterday's market now, because it started off really well, but then died.
Stocks opened higher, but then fell for the remainder of the day. Notice the disciplined manner in which prices fell (a). Also note that volume increased throughout the day (b).
As a result of stocks dropping, Treasuries caught a bid, rising for the whole day. Prices rallied in two uptrends (a and c) which prices broke at the end of trading (c).
Industrial metals fell for the entire day after opening higher (a).
The dollar rallied, forming two upward sloping channels (a and b). Prices broke through previous resistance (c) and consolidated at the end of trading (d).