Monday, October 25, 2010

Yesterday's Market

As the three charts below show, there was little movement in the equity, bond or dollar market on Friday. Treasuries tried to rally about resistance in the AM (a), but quickly fell back into a quiet and narrow trading range.

Notice the technicals for the dollar are indicating a turnaround is in order: the A/D line is rising, the CMF is positive and the MACD has given a buy signal. However, consider this against the fundamental background with the Fed indicating they will be buying Treasuries, engaging in QEII. Is this really an environment where we'll see a meaningful change of trend, or will the "rally" really be an opportunity to find a short entry point? The answer is most likely the latter.

Let's take a look at the three major equity averages -- the QQQQs, the SPYs, and the IWMs:

Over the last rally, the QQQQs and IWMs -- the riskier areas of the market -- have been outperforming the SPYs.

Cotton is still in a strong upswing. The chart has a "fanning" set of lines -- a set of continually escalating trend lines, pointing to a higher and higher rally. Also note the EMAs are bullishly alighted and the MACD is in clear buy territory.