Monday, October 10, 2011

Morning Market

I wanted to start by looking at the dollar chart, because it belies the underlying fundamentals.  In an ideal trading world, a currency's value should rise when interest rates increase (because traders will park their trades in the home country's interest bearing accounts to some degree) and/or the economy is growing (because a strong economy attracts investment dollars).  The US has neither, which means it is benefiting from being the only relatively safe haven currency in the storm.  Remember that Europe is experiencing the Greek problem, making the euro a less than attractive investment and the Swiss National Bank has stated it would intervene in the currency markets franc's rise.  That basically leaves the dollar by default.

The good news is this is a strong, bullish chart.  We see money flowing into the dollar as the rally starts; prices are now over the 200 day EMA, all the shorter EMAs are rising and the 10 and 20 day EMAs are above the 200 day EMA.

The volume indicators show that money is moving into the market, but the MACD has given a sell-signal.  However, in looking at this chart, remember that I place the most emphasis on the candles, the second amount of the EMAs and the third amount on the lower indicators.

Finally, note the above that is overall commodity negative but inflation positive.

In the charts above, notice that prices have either advanced through key resistance or are about to.  Also of importance is that prices have moved through at least the 10 and 20 day EMA and in some cases have hit the 50 day day EMA for resistance.  The significance of these developments is that prices now have a bit of breathing room, especially considering the technically precarious position in which they started last week.  However, remember the averages are below their respective 200 day EMAs and in two cases (the SPYs and IWMs), the longer EMAs are both moving lower.  In short, last week was a respite; there are still deep concerns about the macro economy which will probably prevent a strong rally.

Although still in a rally, the 7-10 year part of the Treasure curve has moved below important support, although it is still about the 50 day EMA, which it is using for support.   The TLTs are right at crucial support.  Both markets are still in a bull market, but the trend break by the IEFs could be an important development, as it might signal that the inflation bite might finally be taking its toll.