Let's start with an observation about where the markets are. Starting a few weeks ago, traders grew concerned about the EU situation. They sold risk assets (stocks and commodities) and moved into less risky assets (bonds and the dollar). This situation became more and more concerning as the movement continued. However, there are now signs of a bottoming and a reversal of that situation. But it's important to remember that curing the problem will take time -- a single day's price action won't accomplish the task; it will take several days of activity in a variety of markets.
On the daily chart, equity prices pierced the 200 day EMA (a) yesterday although the volume could have been better. However, the EMA picture remains bearish (b) with the shorter EMAs moving lower and the shorter EMAs below the longer EMAs (the 10 is below the 20 and the 20 is below the 50).
On Tuesday, the market opened lower but rallied strongly throughout the day (a). This was a very good development. However, on Wednesday the markets sold-off at the end of the day (b) out of concern about China possibly diversifying out of EU assets. Yesterday, China stated this was not the case and the markets opened higher and then rallied throughout the day (c).
This situation started with a sell-off in the euro. However
Is the euro forming a double bottom? We have a price formation along those lines and a weaker volume reading on the second bottom. In addition,
The MACD is very close to giving buy signal (a) and the A/D line indicates money is flowing into the security.
The dollar may be printing a double top with the appropriate smaller volume on the second top. However, both of these charts are bearish (the euro) and bullish (the dollar). That is, what we have is a price formation indicating a possible reversal but we still have strong indications that the overall trend is still in place.
Also note the MACD is giving a sell-signal (b) and the A/D line is moving lower.
Also note in the long-end of the Treasury market we have a possible island reversal in place (a). Also note that yesterday's price action (b) gapped lower and the 10 day EMA has moved lower, albeit it for only a few days. In yesterday's market post I noted the gaps in the long-end of the curve's rally and wondered whether we possibly saw an exhaustion gap prior to the island.
Oil may have turned the corner as well. Prices have moved though the 10 day EMA (a), the MACD is giving a buy signal (b) money is moving into the security (c).
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