Sunday, May 16, 2010

Yesterday's Market

Let's start with the dollar, as it is at the center of recent market moves.

Note that prices have moved in a standard up/down/up pattern that fits nicely into the "measured move" category.

Notice that in the down portion of the move prices have fallen between the Fibonacci levels.

Notice the strength of the momentum in the lower part of the chart.

The MACD is rising and the A/D line indicates money is flowing into the security.

The EMA picture is also incredibly strong: the shorter EMAs are above the longer EMAs, all the EMAs are moving higher and prices are above all the EMAs.

Finally, notice how far the dollar has rallied:

In addition to the dollar, notice the Treasury market -- especially the longer part of the curve -- is catching a very strong bid.

In both the above chart, prices are in a rally with strong volume.

The primary reason for this move is the situation in Europe, which is best expressed through a chart of the euro:

The euro has been in s clear downtrend for the last six months (a). Prices have moved through key areas of support (b) and are currently trading at heightened volume levels (c). It could be argued that recent activity is a selling climax, which is typified by heavy, above average volumes that occur at price extremes. However, we won't be able to make that statement until we see prices rebound from current levels.

On the technical side, the EMA picture is extremely bearish: the shorter EMAs are moving lower, the shorter EMAs are below the longer EMAs and prices are below the EMAs. Momentum has dropped (b) and people are moving out of the security in a big way.

What is apparent is the market does not like the current European situation. It's also very interesting that they EUs bail-out package announced last week is not have the calming effect intended.