Sunday, November 14, 2010

Yesterday's Market

The first big move last week occurred on Tuesday, when prices moved lower for the entire day (a). Prices rebounded on Wednesday, but hit resistance at previous highs (b), which was followed by a lower opening on Thursday (c) and another all day rally (d). Prices gapped lower at the open on Friday (e), rallied into the EMA area (f). and then fell hard (g). Overall, the tone of the market last week was negative, as we had two rallies that had no follow-through and a big sell-off on Friday.

Prices have now retreated to the 20 day EMA for support.

Looking at the daily picture of the SPYs along with the technical indicators, we get the following picture. Prices have hit previous price levels (a) and retreated. This is a healthy development; price movements are like a good musical line -- there should be tension and release. However, we don't want prices to retreat too far. Right now they are at the 20 day EMA, which is a good level. Also note the orientation of all the EMAs; they are very bullish. The shorter are above the longer and all are moving higher. The technical indicators tell us that we're still seeing a net inflow of cash into the market (c and d) but momentum is getting a bit weary (e). Overall -- and considering the news from Friday (China and Ireland) a further downward move is more likely.

The Treasury market saw three primary moves: a downward trend that lasted until mid-day Wednesday (a), a quick rebound (b) that lasted until the close of Wednesday and a sell-off that lasted the rest of the week (c).

Notice how the 200 minute EMA acted as resistance the entire week.

Last week, the dollar made two primary moves. On Tuesday and into Wednesday prices moved higher (a). For the rest of the week, prices consolidated in a rectangle pattern (b).

On the daily chart, notice that prices still appear to be bottoming (a). Also note the 10 day EMA is about to cross over the 20 day EMA -- a bullish development. Money is flowing into the market (c and d) and there is increased upside momentum (e).