Monday, February 20, 2012

Morning Market Analysis, Part II: The Equity Markets

Let's start our look at the equity markets by focusing on the daily SPYs chart.  In general, we have  good, upward sloping chart.  There are, however, two problems.  First, for the last two weeks prices have been printing very small candles (this is a problem I've expressed with this rally before).  In addition, the MACD indicates momentum is stalling -- a sentiment which is not confirmed by the volume indicators.

The 60 minute chart highlights the latest price action.  What we see are prices consolidating between 134 and roughly 135.5.  However, over the last two trading sessions, we've seen price move though resistance.

The QQQs have the best chart of the equity market; prices are moving higher, the candles are a bit bigger and volume is flowing into the market.  However, the MACD is stalling at current levels.

Of all the equity charts, the daily IWM gives me the most pause, largely because of the negative MACD crossover.  Ideally, this market should be leading the markets; small caps are supposed to move aggressively higher as the economy starts to pick-up.  Yet, instead we're seeing  negative momentum reading.

The 60 minute IWM chart shows that prices are still caught in a trading range.

The transportation average is now moving lower after having crossed below  the trend line started last October.

Let's look at the above charts from this standpoint.

1.) The most important thing on the charts is price and the price pattern
2.) The next most important are the technical details on the chart -- EMAs, and volume.
3.) The third most important thing on the charts is the technical information outside the charts (MACD, A/D and CMF).

On that basis, I'm still a bull, albeit reluctantly.  The SPY and QQQ charts are still moving higher.  The IWMs, while stalled, are not negative.  It would be nice of the transports were confirming, but the fact they are the only major index showing a correction is not fatal to the equities markets in general -- at least at this point.

Let me add, the lack of confirmation from non-equity markets is still a big cause of concern.  When I mention I'm  reluctant bull, this is what I'm referring to.  Remember -- all the markets represent an integrated system of risk and safety, couched against a fundamental backdrop.  If traders were truly  convinced of the strength of the economic situation, we'd be seeing a more integrated series of movements.  The fact we're not is cause for warranted concern.