Monday, January 7, 2013

Morning Market Analysis; Potential Bull Market Charts Developing

The above three charts show the IWM (Russell 2000, top), QQQs (NASDAQ, middle), and SPYs (S&P 500, bottom) in a daily (6 month) format.  I think it's best to think of all three averages as a coherent system rather than separating each market out individually.  While the IWMs are now at 6 month highs, the QQQs and SPYs are not.  Perhaps most disappointing is the SPYs stalled at resistance after such a strong jump higher at the opening on Wednesday.  Also note the declining volume as the week progressed, which is also a negative. 

It is still possible for follow through to occur.  The markets have not meaningfully sold-off and the underlying technicals are still good for the averages (rising MACD and positive CMF).  However, the lack of follow-through last week is troubling for the bulls.

Let's now look at the entire US treasury market.

Above are the weekly charts of all the major treasury ETFs, from shortest maturity to longest maturity.  There are a few key points to make:

1.) The longer ETFs have clearly declining MACDs.  The shorter ETFs do not have rising MACDs.

2.) All the ETFs have weakening CMFs

3.) The longer ETFs are at or near important, long-term resistance levels.

4.) The intermediate ETFs are approaching important, long-term resistance levels.

Also note there now appears to be some dissent within the Federal Reserve's ranks about the the timing of the end of QE.  Assuming the Fed signals the program will end at the end of this year, I would expect a sell-off of some magnitude in the treasury market.

However, also remember that certain yields on government bonds will naturally attract buyers looking for (or perhaps needing) the safety associated with government debt.  With inflation running at very cool levels, buy points will be low.