Monday, March 28, 2011

The Week Ahead

Stocks: The rally over the last week or so has been very weak. Volume has been down and half of the upward moves occurred at the open with no intra-day follow through. The SPYs are still contained by a downward sloping trend line. However, the IWMs (which have led the market higher) have broken through their trend line but also have a declining MACD. While the underlying technical are still OK (for example, the MACD is about to give a buy signal on the SPY) the underlying economic situation (weakening durable goods orders, high gasoline prices, increasing agricultural prices) are concerning.

Bonds: The IEFs are in a clear downward trend for the last eight days. Prices are currently right at the 200 day EMA. The 10 and 20 day EMA are both moving lower, but the EMAs are in a tight bunch right around the 200 day EMA. Prices are right below a short-term trend line. Additionally, before the latest rally, prices were moving lower in a move that looked like a flight from safety to risk, which is a standard move at this point in the market cycle. The real question is has the negative fundamental news which rallied the bond market over the last few weeks ameliorated to the point where bond traders are comfortable selling bonds into the risk markets again?

The dollar: the UUP ETF is still in a confirmed downtrend and has been since the beginning of the year. All the "rallies" have been upward sloping pennant patterns that hit resistance at an EMA and then moved lower. The ETF has moved through the 22 price area, which was an area of major technical support and is now moving higher, probably to retest the 22 price area. In addition, the market widely expects the EU to raise interest rates before the Fed, making the Euro a more attractive bullish play.

Oil: Oil is consolidating in a triangle pattern. Right now, the primary question is which direction will prices break in.