Tuesday, June 5, 2012

Morning Market Analysis

Let's start by looking at a longer view of three large markets: Germany, China and Brazil:

Earlier this year, the German market rallied to just shy of the 61.8% Fib level, but has since fallen.  It found initial support at the 200 week EMA level, but has now moved lower, while breaking  a trend line.  The underlying technicals are weak -- we see a declining MACD, CMF and RSI.  The nest logical price target in at the 17-17.25 level.

Interestingly enough, the Chinese market did not make new highs earlier this year, but came just shy of making that mark.  Like the German market, Chinese shares have been falling for the better par of this year.  Whats most concerning about this chart is the logical price target is about 30 -- about 7.6% below current levels.  That would make this years from (from about 40.5) a total of 25% -- bear market territory.

The Brazilian market has fallen the farthest -- from 70 to 50.49, or a drop of almost 28%.  In addition, the underlying technicals are all bearish -- dropping momentum and volume and increasing volatility.

Each of these three markets are important in their respective geographic areas.  As such, the drops above do not bode well for the future.  More importantly, the further downside room on the German and Chinese markets is very concerning. 

In addition, consider the following yield curves:

The Australian yield curve is slightly inverted form the 3m to 2 year area.  The highest yield we see is 3.2%.

The German yield curve is very low -- the 20-30 year curve is slightly inverted, with the 30 year at 1.70%.

The Japanese yield curve is also very low, with the 30 year showing a rate of just below 1.8%.

The UK yield curve is slightly inverted at the short end of he curve, with a 30 year yield of 2.86%.

Put another way -- there's a tremendous amount of nervousness on the part of traders right now.  Money is flowing out of the stock markets and into bonds, with the safest bond markets (Germany and Japan) at incredibly expensive levels.