Tuesday, February 14, 2012

Morning Market Analysis: Chips in The Rally's Armor

Before we get to the equity markets, let me explains two sets of concerns I have with the market currently.

The above three charts cover the treasury market, moving out the yield curve (IEI = 5-7 year; IEF =7-10 year and TLT = 20+ year treasury).  None of these have fallen through support yet.  In fact, there is very little technically negative about any of the above charts, with the exception of the slightly declining MACD of the TLTs.  Pulling back the lens, it's important to remember that the equity markets are part of a market system.  Right now, the treasury market is still telling us that the safety trade has a place in the current traders repertoire.  For the equity markets to really take off, they'll need some of the money tied up in the treasury market, but the charts about indicate that isn't about to happen yet.

Industrial metals have been moving sideways for the last few weeks. Now, nothing rises in a straight line, so the latest price action could be nothing more than a sideways consolidation.  However, prices are stuck at the 200 day EMA and are now below that technically important line.  In addition, the 10 day EMA is moving below the 200 day EMA, and the 20 and 50 have yet to cross over.    Technically, these are concerning developments.

The five minute chart of the IWMs shows yesterday's action.  Prices gapped higher, dropped and then rallied, but they couldn't move past initial levels.  This is concerning, especially in light of the above mentioned points.  Ideally, we'd like to see a gap higher followed by a further move higher.

The 60 minute IWM chart shows that yesterday's action really wasn't that impressive in the big scheme of things.  Prices are still slightly above the 82 price level.

Above is the 60 minute QQQ chart.  Notice that the upward sloping trend line is now providing upside resistance.  That is never a good development.

And the SPY's still have upside resistance around the 135.5 level.

The above charts point to a slight weakening of the latest rally.  Nothing is set in stone, and, given the weak nature of the problems, we could easily see a important turnarounds.   However, I'm still thinking that we're look a possible correction nearing.