Monday, October 31, 2011

Morning Market

This week I wanted to start with copper.  Over the last month it has formed a double bottom on strong volume and has now reversed from that into a counter-rally.  Prices are now above the 50 day EMA and have ample space to run.  This is a very encouraging chart, especially considering copper's overall economic importance.

On the 5-minute chart, notice the SPYs price action can be broken down into several sub areas, with the first one between 119 and 123, the second between 122.5 and 125.5 and the third between 126.5 and 129.5.  This is a good, healthy development as it allows prices to advance and then "catch their breath."

On the daily chart we see prices are still in a strong upswing.  Prices are above the 200 day EMA and all the shorter EMAs are moving higher.  The 10 day EMA has crossed over the 200 and the 20 day EMA has crossed over the 50.  As noted in the preceding chart, prices are advancing and then halting their upward move.  Ideally, we'd like to see prices move a bit lower right now, finding support at the 10 day EMA.  This would allow some traders to take some profits and allow others to get in a at a solid entrance point.

On the flip side of the risk spectrum are Treasuries, which are in a clear sell-off.  The long-end of the market is now below the 50 day EMA, with the 10 and 20 day EMAs moving lower.  Ideally, we'd like to see a small rally to force a small amount of short covering and let other shorts enter the market.

I would expect this week to be composed of "breathers," with equities moving a bit lower and Treasuries moving a bit higher.  But both of these moves would be considered counter-rallies to the overall general trend, which is definitely risk on.