Friday, February 17, 2012

Morning Market Analysis

For the entire week, I've been concerned about the strength of the market rally (see here, here, here and here).  There have bee several reasons for this concern: weak daily candle patterns, indexes caught between two price levels unable to escape, lack of upward movement in industrial metals and a lack of a treasury sell-off.  However, I also added, "In order for that position to change, I'd need to see some strong upside moves in the equity markets" on Wednesday and "The above charts add to my concern about the markets and indicate a correction is more likely.  Again, to counter this argument, I'd need to see strong advances through resistance on good volume" on Thursday.  Let's take a look at yesterday's rally to see if it assuages my concerns.

The 5- minute chart is very strong.  Prices rallied for the better part of the morning, using the 10 -minute EMA as technical support, before consolidating gains in the afternoon.  We also see a good volume influx in the last 5 minutes of trading.

The SPYshave a better daily candle profile yesterday and we've seen a decent volume upswing in the last three trading sessions.  However, the MACD is still a bit weak.

On the 60-minute chart, we see that prices have moved through resistance at the 135.5 level -- a positive development.

While the IWMs also had a good day, they are still in a trading range between 81.5 and 83.  Ideally, I'd like to see this average move higher, through its resistance levels as well, largely because this index represents the risk based capital part of the market.

The IWM daily chart still has a narrow trading range in it's daily chart and a negative MACD crossover.  

The 60 minute QQQ chart shows that prices are still below a recent high established earlier this week, but bounced off a trend line started the 10th of February. 

The QQQ daily chart is the strongest of the lot.  The volume indicators show money moving into the market and we see a very nice volume spike in the last two days.  The primary uptrend established in late December is still in place.  While the MACD is not very strong right not, it has not given a sell-signal.

Something that hasn't come into my analysis is the transport index, which has clearly broken trend and is moving lower on declining momentum. 

So, the equity markets are OK.  The IWMs are the weakest, as they are still in a trading range.  However, the SPYs have broken out of their range and the QQQs are still in a strong uptrend. However, the transports are a negative factor.

Let's look at some other chart that were concerning me to see if they've changed:

Industrial metals have fallen below the 200 day EMA, and are in a week long decline.  The shorter EMAs are now moving lower and momentum is negative.  This is not a good development for the markets.

The treasury market ETFs are all still in either above a trend line (the IEIs) or are stuck in a trend range and not moving lower (IEFs and TLTs).  Again, this is a net negative as it shows that safe money is still needed for traders.

One of the reasons I look at a variety of markets is it shows a broader range of trading philosophies and concepts -- what moves the equity markets may not move the treasury markets etc...  While yesterday's equity market rally was good, we're not seeing developments in other markets that bolster that sentiment.  Industrial metals are still moving in the wrong direction and treasuries are still in a trading range. Operation twist is responsible for some of the treasury market situation.  However, the IEIs haven't fallen through trend yet either, and their closer to the belly of the curve, away from securities that would catch a bid from the Fed's actions.

While there are no firm rules for when we need to see these two markets (industrial metals and the treasury market) make moves, their lack of confirmation is very concerning.  The transports already turning over also ups the concern level.  As it's Friday, I'm going to punt on the final analysis and look at this over the weekend to see what's there.  However, for now put me in the concerned with the rally's strength camp as well.