Monday, June 7, 2010

Yesterday's Market

Last week the markets were in complete flight to safety mode. The dollar and bonds were the top performing sectors. Internally, we saw consumer staples, health care and utilities in the top five performing industries. Finally, the long-end of the treasury curve outperformed the shorter end, indicating both safety concerns and a need for safety.

In the markets we had the following developments.

The euro's drop -- which started this situation -- continues. Prices broke through the 121.50 area where there was a fair amount of technical support. This ends the double bottom theory for the chart discussed last week.

The technical internals are terrible. The the EMAs are moving lower, indicating a bearish orientation in the short, intermediate and long-term time horizons. The money flow is dropping (b) although the CMF is slightly positive and the MACD is now negative.

On the long-term chart, notice that prices are at the lowest levels in two years.

Conversely we have the dollar, which moves inversely to the euro. Last week I was discussing the possibility of a double top - which is now no longer a possibility a prices have broken through resistance at the 25.50 area. Money is flowing into the market (a) but not strongly (b). While the MACE has given a buy signal (c) the index is already extended. Finally, the EMA picture is still bullish (d) with the short, intermediate and long-term trends increasing.

Turning to industrial metals, is it possible to argue the chart is really a double top? i don't think so. Look closely at the volume of both peaks (a and b). It this were a double top we would see the end of a rally with a buying climax and (a) followed by a lower volume level on (b). Instead, we see the higher volume occur on the sell-offs rather than the peaks.

The being said, prices are currently in a downtrend outlined by lines (a and b). The WEMA picture is bearish -- the shorter trends are moving lower and prices are below the 200 day EMA. The volume indicates (d and e) indicate money is flowing out of the market, which momentum is giving a sell signal (f).

With the Treasury market, the general working theory was we were seeing an island reversal (a). This was confirmed by the decreasing market participation (c and d) and the sell signal from the MACD (e). So far, that theory is still in place but is is weaker due to the euro's drop and dollar's rise. The long-end of the Treasury market is a clear flight to safety benefactor.