Monday, November 19, 2012

Morning Market Analysis

The overall tenor of the markets has become decidedly defensive.  The dollar and bonds are outperforming commodities and equities over multiple time frames (weekly, monthly and three month) as money looks for safe plays.  The technology sector continues to drop as well.  Staples, health care and utilities dropped last week, but at a smaller rate than other sectors, further reinforcing the safety trade dimension to current trading.

The 30 minute SPY chart (top chart) shows two important technical developments last week.  First, prices broke support between the 137.5-138 level and fell about 2% to 135.  Next, prices consolidated in a sideways move between 135 and 136.5 on Thursday and Friday.  The daily chart (bottom chart) shows that prices have broken the 200 day EMA and are now headed for the 38.2% Fib level just above 134.  All of the underlying technicals argue for a continued move lower: the MACD is dropping, prices are weakening, money is flowing out of the market and the shorter EMAs are all moving lower.

The entire treasury curve has caught a bid and moved through important technical areas.  The 3-7 year sector (top chart) has moved above the upper resistance line of its consolidation pattern.  In addition, it's moved above the 127.70 price level.  The 7-10 year sector (middle chart) broke its downward sloping resistance line last week and has also moved above key resistance in the 108.5/108.6 area.  The 20+ year end of the market (bottom chart) broke key downside resistance a few weeks ago and has also moved above key levels at the 124 level.  Currently, 127 offers resistance.