Tuesday, September 6, 2011

Morning Market Roundup

Wow -- did I ever need that break.  First, I want to thank NDD and Silver OZ for filling in the gaps on the blog while I got a break. Secondly, I want to announce a change in the way I look at the markets.  Rather than doing one market per day, I'm going to do each market every day -- or, more specifically, each market given it's importance the preceding trading day.  Something the one market per day approach misses is the inter-relationship between the markets -- that is, when market x is up, the money came from market y.  These relationships are incredibly important and help to explain the overall tenor of the markets in general.  So, that being said, let's start with the SPYs:

With the SPYs, notice we have the big sell off on increasing volume, when prices moved through the 200 day EMA along with the other EMAs.  We have since tested the 112 level, providing good technical support.  Prices bounced higher, through the 10 and 20 day EMA, but have hit resistance at the 50 day EMA.  Most importantly, the 200 day EMA is now moving lower, indicating the big, long-term trend is down, rather than up.  This is a huge, fundamental change in the market.

The 10 day, 5 minute chart shows that prices have moved through near-term support at 120.5 and 119.5, and have support at 117 with secondary support at 116.


The long end of the Treasury curve has moved though resistance.  However, neither the IEIs nor IEFs have followed suit.  More importantly, notice the technical underpinnings of the TLTs -- the A/D and CMF show either stagnant or declining inward flowing volume and the MACD is weakening.  My guess is the long end broke out because there is downward real room to run on the yield.  One year inflation is running at 3.6%, meaning the 10 year now has a negative yield of about 1.5% with the 30 year now at -.3%.  The point is real negative rates of return typically sour investors in an asset class, which makes me seriously wonder how much upside potential is left in the Treasury market.

The equity markets are still incredibly weak; the deterioration of the fundamental situation is still a huge concern to traders, so I would not expect any strong moves to the upside.  While I could see a quick spike up in the Treasury market, the fact that we're looking at negative yields is a pretty heavy drawback to additional upside moves.  So -- where will the money flow? 

Expect gold to be the primary recipient of a bullish drive.  Notice the continued upward move over the last year, with a bullish EMA picture.  The A/D and CMFs show continued moves into the security, and the MACD has retreated a bit to allow for further advances.  I would expect GLD to continue moving sideways for the next week at least as it consolidates gains, but I don't see a major sell-off in the current environment.