Morning Market

Let's review where the markets are:

1.) With the exception of the QQQs, the markets are below 200 day EMAs and consolidating in slightly upward sloping channels.  However, the QQQs are above the 200 day EMA and have broken through upside resistance.

2.) The shorter ends of the yield curve are moving sideways, probably because of the negative, post inflation return.  Both the IEIs and IEFs have broken shorter, upward sloping trend lines and are now moving sideways.  The TLTs are right at trend support

3.) Oil -- like equities -- is consolidating below the 200 day EMA in an upward sloping trend line.  It is in the middle of a six month donwtrend.

4.) The dollar -- having rallied in reaction to the euro -- is now falling back a bit and has found technical support at the 10 day EMA.  It has sold off a bit, but this could be considered a standard, profit taking sell-off that occurs after a strong rally.

Let's take a look at some charts:

The QQQs have moved through the 200 day EMA on increased volume.  The 10 day EMA has moved through the 200 day EMA, and the 20 is about to follow suit.  The question now becomes -- will the QQQs pull the other averages higher or will the other averages pull the QQQs lower again?

A good place to look for the answer to that question is the Russell 2000 -- the equity average with the riskiest profile.  Unlike the QQQs, the IWMs have not rallied in a meaningful way through the 200 day EMA -- which is this case is moving lower and has been for about a month and a half.  And, in comparison to the QQQs, the latest IWM "rally" is composed of very small candles that show a distinct lack of upward momentum in the market.  The above chart does not say "follow-through;" instead, it says stuck (at best).  So, I wouldn't not expect to see the other averages move significantly higher in the current environment; instead, I'd be looking for shorting opportunities.

 Oil is in the middle of a six month down trend.  After peeking in April, it moved lower using the200 day EMA for technical support.  At the end of July and beginning of August it moved lower again and has since been moving higher, but in an upward sloping pennant pattern.  However, the 200 day EMA is moving lower indicating the long term trend is down.  While the MACD is rising it is still in negative territory.  Fundamentally, both the IEA and OPEC have lowered their demand projections for the next year.  And prices have hit resistance in the 90/price area.   Also consider the dollar has recently rallied and should continue to benefit from the EU situation.  In short, any upward move in oil should be contained.

The dollar has rallied strongly, rising to just above the 200 day EMA before moving lower and using the 10 day EMA as technical support.  After the sharp move higher, the 10, 20 and 50 day EMA are following suit.  I think the dollar will stay at these levels to "catch its breath" which will allow traders to reconsider the rally in relation to the EU situation.  The dollar does not have the fundamentals to back up a rally at this point -- the economy is slowing and interest rates are low.  It's rallying because it's the last "safe" currency without a strong intervention policy backing it.