Monday, June 18, 2012

Morning Market Analysis

Let's start the week by looking at where we are in the bigger cycle -- the monthly charts:

The QQQs are right at long0term support (long-term here meaning a three year uptrend).  While the EMA picture is good, notice that momentum has stalled and prices are fairly weak (the RSI).  A move below the 60 area would signal the end of a three year rally, with the 20 and 50 week EMAs as the next logical support level.

The SPYs are also nearing a three year support level.  Also note that prices rallied to resistance around the 140 level (a price level established in late 2007) and have not moved lower.  The MACD reading -- one of equal heights and about to give a sell signal -- is not encouraging.

The IWMs have rallied into the upper 80s/lower 90s twice over the last year, only to be rebuffed.  More importantly, the latest rally was to a lower high -- another technical development that is concerning.  And, momentum is declining.

Technically, on the long term charts, the averages are at (in the case of the QQQs) or near very important technical levels.  In addition, we see a weakening MACD situation across the board, which is not encouraging.  On the positive side, volatility is low and the CMF's are positive.  However, there are chinks in the armor of the market.

Now let's turn to the bond market, and again look at the various elements of the curve from a monthly perspective:

The entire treasury curve is in the middle of a long-term (and by long-term, I mean multi-year) rally.  The SHYs (top chart) are compressing, but that's because shorter yield literally have very little room to move lower.  The IEIs (5-7 years and second chart from the top) are in the middle of a multi-year rally; notice the strong EMA position.  The IEFs and TLT are also showing a very strong multi-year trend, especially from the EMA perspective.

What do these two sets of data tell us?

1.) The equity markets are starting to teeter on the edge of breaking long-term upward sloping trend lines at the same time that treasury bonds are rallying.  This means the rally which we've seen in the equity markets over the last three years is, by definition, weak.