Monday, October 11, 2010

Yesterday's Market

Last week, equities sold off on Monday(a), but gapped higher into a strong rally on Tuesday (b). prices consolidated gains for about two days (c) before moving into an upward sloping channel for the remainder of the week (d).

Treasuries were in a narrow range for Monday and Tuesday (a), but gapped higher on Wednesday for another tight, two-day trading range (c). Prices then gapped higher on Friday (d)before a sell-off that lasted until the end of the day (e).

The dollar moved lower for most of the week with four gaps lower (a, b, c, and d).

Commodities gapped higher on Tuesday (a), and then formed a rounding top for Tuesday through Thursday (b). Prices then gapped higher on Friday (c) and moved higher for the remainder of the day (d).

What does all of this tell us?

1.) Stocks are rising in anticipation of a new quantitative easing program from the Fed, with the expectation of more economic growth.

2.) Bonds are also rising in anticipation of the QE program, as it indicates the Fed will be purchasing treasuries and not raising rates anytime soon.

3.) The dollar is falling, largely because of the QE program, as this indicates rates will not be increasing soon and there will be an increase in the raw number of dollars in the overall financial system.

4.) Commodities rallied from a decreasing dollar and a report from the USDA that lowered the overall crop level for the coming harvest.

On the daily chart, the SPYs are now above key resistance (a) and have moved above minor resistance (b) and are also above key Fibonacci levels.

While the IEFs have broken the primary uptrend (a), they continue higher with the secondary uptrend (b).

The commodity market broke through key resistance on Friday (a).

The dollar continues to make new lows (a) after breaking through the neckline of the multi-year head and shoulders formation.