Thursday, October 13, 2011

Morning Market

Let's start by looking at the 5-minute, SPY chart of the last 7 days.  This is a good looking rally.  Prices are clearly in an uptrend.  Along the way, we've seen advances and some pullbacks.  But, overall, there's been a very nice overall rhythm to the advance.

The daily chart shows some strong bars which have advanced through all the shorter EMAs.  Also note the 10 and 20 day EMA are now moving higher, with the 10 day crossing over the 20.  But since moving through the 50 day EMA, the rally has stalled on increasingly diminishing volume.  And yesterday's bar printed  a very long upper shadow indicating prices had advanced but couldn't hold the gains.  My guess is we're seeing a consolidation at these levels, as traders take some profits and rethink the advance.  While they probably moved into the market thinking it was oversold, now there are questions about how far it can realistically advance given the underlying fundamentals.

However, treasury prices are now below the 50 day EMA, and have been there for three trading days.  The shorter EMAs have both turned lower and the 50 day EMA is now moving sideways.  In short -- there is increasing evidence the Treasury rally is ending, as evidenced by the following TLT chart which shows prices at the long end of the curve have also broken trends:

The dollar has dropped from its recent rally, and has hit the 200 day EMA price area.  The shorter EMAs have also moved lower and the 50 day EMA has decreased its rate of ascent.  My guess is dollar traders are going to wait and see how the EU agreement plays out before continuing to bid the dollar higher at this point.