Expert technical analysis of financial markets by JC Parets
I think we covered some pretty important topics today. Something that stands out to me is how much better Small-caps and Mid-caps look when compared to the Mega-cap Dow Jones Industrial Average. Also, the Euro is approaching significant resistance that brought out the sellers earlier this year. And with the amount of pessimism in the US Dollar, this makes perfect sense to me.
I hope you enjoy!
Tags: $EURUSD $DJIA $MDY $IWM $DX_F $UUP
It doesn’t get uglier than the infamous black candlestick. This is especially the case at or around important resistance. And we’re seeing them showing up in the S&P500, Russell2000, MidCap400, and even in the MSCI Emerging Markets. To make matters worse, the Nasdaq100 tried to put in a big black candlestick, but failed to stay positive putting in a long red one instead. Nasty….
For some of you newcomers, we like to use Japanese Candlestick charts because each individual candle tells a story. In the case of this evil black one, it indicates exhaustion, followed by some selling pressure. You see, after a nice advance (as has been the case in equities), a black candle like this can foreshadow a reversal or key turning point. Here’s what these guys look like: 
The Japanese tell us that the longer the black candlestick, the worse the implications are for the security in question. So let’s think about the psychology for a minute. Forget today’s news, let’s just focus on price. The market gaps higher at the open, gets everyone excited, but then fizzles as the day goes on to close at or near the lows. After a nice advance, the market is just tired. The bulls saw their chance to sell and jumped all over it. Those who didn’t are caught holding the bag. And that’s why a candlestick like this appears at or near turning points. Think of it like an omen of sorts.
Last time I wrote a blog post about something like this was last summer. We started to see the black candlesticks showing up in both US Dollars and US Treasuries. At the time, it seemed like the entire world was bearish equities and using these “safe” assets as a hiding place. Well, as it turned out, the black candles did indeed provide us with a heads up that something was changing. Those black candles marked highs in both the US Dollar Index and US Treasury Bonds that we haven’t seen ever since.
Ignore the black candles if you want. But when they show up, I pay attention….
So how does this get worse? and How does this get better? These are the questions we should all be asking ourselves.
In my opinion, a gap lower Tuesday in these averages leaving this one black candle standing alone is probably the worst case scenario. This would create an island reversal of sorts, another bearish pattern, which would confirm Monday’s action and would probably lead to a fast and violent sell-off. How do we invalidate the black candle? I think if we have an inside day Tuesday and kind of chill out for a few days before eventually taking out Monday’s highs, that would be really constructive.
Careful out there….
Tags: $SPY $IWM $MDY $EEM $QQQ $UUP $DX_F $TLT
Here is the video in full:
Source:
Business Day: Technical Tuesdays (BNN)
Tags: $CRB $DX_F $SPY $SPX $UUP $GC_F $GLD $TLT $TNX $ZB_F
To quote the legendary Staten Island based philosophers, “Dolla Dolla Bill Y’all” indeed. This statement could not be more relevant than right now. Want to know where commodities are headed, and therefore emerging markets, and probably stocks as an asset class? Look no further than the US Dollar bill.
Here’s what I see. Commodities and US Dollars have some of the most consistent and reliable negative correlations in the intermarket world. The chart below shows how strong this trend has been for a while, during both bull and bear markets for stocks. The correlations between the US Dollar Index and CRB Index have been extremely negative, there’s no denying it:
So where are commodities headed? Well if August marked the bottom for dollars, I would say commodities are heading much lower. And if that’s the case, I would imagine that Emerging markets follow. Go run the numbers and you’ll find very high positive correlations between both assets. And if EM continues to get crushed, will US stocks be able to ignore that? Doubt it.
I think Dollars are the key here guys. This is a weekly chart of the US Dollar Index going back a few years. We’re right back down to this key uptrend line. I would say that a break below that trendline support (80.60-ish) and all bets are off on this dollar. That change of events would be bullish for commodities and emerging markets. And I have to believe US Stocks would benefit from that.
But the trend right now is pointing towards higher US Dollar prices. So that’s the direction in which we’re leaning.
Tags: $DX_F $UUP $USDX $CRB $DJP
Is this market fun or what?
Dr. Phil and I did a short video where we discussed S&P levels, Treasuries, Emerging Markets, Copper, Brazil and China. Check it out:
Tags: $FXI $TLT $ZB_F $DX_F $EEM $HG_F $IYR XLU $EWZ
Nowhere to hide this week as all of the above are getting sold relentlessly. The selling in stocks all over the world continues and has now finally hit the states. Uptrend lines are broken across the board. Bonds continue to get smoked as 10-yr yields are back to levels not seen since 2011. And metals keep getting destroyed as they lead the commodities sell-off.
So where is this money going? Not the yen like I had guessed they would. Nope – the good old US Dollar is the only bright spot around the globe. Check out this monster since Uncle Ben started his moonwalk on Wednesday:
There aren’t many places to hide in these intermarkets. They haven’t bought the Yen and Treasury bonds like they did during the 2008 crash. They’re only buying US Dollars.
It will be interesting to see who among the 3 bounces first, and how long that bounce lasts. My guess is they buy bonds before the other two, but that’s just my educated guess, we don’t have a position on. We’re continuing to stay as market neutral as possible. Low/zero correlation pairs are still what’s working best for us. If it ain’t broke don’t fix it right? So we’re going to stick with that theme for now. I like this Long Discretionary / Short Staples spread ($XLY $XLP) as it closes at multi-year highs. As long as these fresh highs hold, it seems like they want to take them higher. I was impressed today seeing the relative strength in this particular pair in the face of a global meltdown.
So overall I think this market selling off is a good thing. I’m happy to see it. Too many people have been making too much money far too easily. Reminds me a lot of the conversations that I would have with $AAPL shareholders before last September. The lazy shareholders that never sold and didn’t use stops got destroyed. And it may sound like I’m being mean, but they deserved every penny the lost. Same goes with market participants who aren’t disciplined these days in taking losses when their wrong. The gold bugs are a great recent example of that. And we’ll have more of these examples in the future, I can promise you that…
Discipline. I think that’s what important. It’s not always easy, but it’s necessary.
Tags: $SPY $UUP $DJP $CRB $TLT $TNX $DX_F $GLD $GDX
This is something we’re noticing that isn’t getting talked about much. Why are so many speculators piling on to the long US Dollars trade? And why is this breakout in the Euro happening so quietly? Last week we saw the highest levels in $EURUSD since February. I bet if it was the other way around and Euro was hitting 4-month lows we would certainly be hearing about it. But it’s the US Dollar hitting fresh lows. And this is all while small speculators have their largest net long positions in a decade.
Here is the US Dollar running into resistance last month up near last year’s highs. We’re noticing similar characteristics in both dollars and euro that we saw last summer (see here and here). As the dollar index made new highs in May, momentum was already rolling over and making lower highs:
And this is all coming while the commitment of traders report is showing that speculators have big bullish expectations. Not a good combination if you ask me. Let’s see what happens.
Tags: $EURUSD $FXE $UUP $DX_F
Before this goes any further, let me just reiterate that I am not calling for the end of Quantitative Easing, I am not fighting the Fed, and I don’t care what Ben Bernanke says or doesn’t say. I’m only looking at price. That’s the only thing that matters to me.
Now, with that said, I think this is one of the more fascinating developments happening in this market. Let me explain.
All in theory, the end of QE is positive for yields right? Because if the Fed stops trying to lower rates, it is step 1 to higher rates – which is therefore bearish for US Government Bonds. This would also then be positive for US Dollars. Meanwhile, if rates are heading higher there is less of a rush towards dividend paying stocks. Bond investors can go back to buying bonds again. Wouldn’t that be something?
So here is what’s happening right now:
And the biggest question this whole time has been how stocks would react to this “end of QE”. I see two schools of thought: 1) no more QE is bad for stocks because the juice is gone and supposedly the only reason stocks are up is because of the easy money. 2) The end of QE could only come if the economy is so good and stocks are stable enough to handle that, which in theory is good for stocks isn’t it?
Regardless of all the reasoning, the question still stands – is the end of QE good or bad for stocks? Well I’m not sure if this is the end of QE or not. I’m just calling it like I see it and the above mentioned assets are trading as if it is, which to me is the only thing that matters. And the market has spoken, or is speaking. Although we’ve seen some added volatility over the past week, you still need to give stocks a pat on the back. The S&P500 is sitting half a percent from all-time closing highs.
I’m not saying there is a trade to be had here. But I think it’s worth pointing out how this market is behaving and what it could possibly be trying to price in. I’m probably most surprised by how well stocks have held up in this environment. Let’s see if this continues. Interesting no?
What do you guys think?
Tags: $SPY $UUP
