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Tuesday, November 29, 2011

The Curve of the 50's

Standard & Poor's cut its credit rating on 37 of the biggest bank in the world today, as reported in this Reuters' article: http://www.reuters.com/article/2011/11/29/us-sp-ratings-idUSTRE7AS2R420111129

Below is a Daily chartgrid of the 4 E-mini Futures Indices, the Financials ETF (XLF), 5 bank stocks, and 2 credit card stocks. The credit card stocks, V and MA, have been outperforming the financials, and the markets, in general, as I noted in my earlier post today...they are trading above their rising 50 sma (red), while the financials remain below their declining 50 sma. The 50 sma and the 200 sma (pink) are beginning to move together on the financials and credit card stocks, as well as on the 4 E-minis...in fact, they almost touched on the NQ last week...a result of a contraction in trending momentum in all of these markets from August of this year...the curve of the 50 sma and its relationship to the 200 sma is something that I'll follow over the next days/weeks...at the moment, the financials and the E-minis are under the pressures of a bearish moving average Death Cross formation, while the credit card stocks are subject to the influences of a bullish moving average Golden Cross formation.

Below is a Year-to-date percentage comparison chart of the XLF with V, MA and the Dow 30 Index. The slowing of the uptrend (and the resultant contraction) is very evident on the credit card stocks from August on this chart...it will be interesting to follow these over the next days/weeks to see whether this contraction continues, or whether they resume their uptrend, in earnest...or whether a reversal comes in...of course, any trending that resumes on the XLF and Dow 30 should also make its appearance on this chart...something I'll check on from time to time.

Below is a Daily (one year timeframe) chartgrid of the YM, ES, NQ & TF. At the right edge of each chart is a Volume Profile for the one year time period [the highest volume (POC) for the year is depicted by the red horizontal line]. At the moment, price is consolidating around a secondary high-volume level, which happens to correspond to the 50 sma on the YM, ES & TF, and it is attempting to form a base from which to advance upwards (possibly towards the 200 sma and even the POC). A break and hold below this level could very well send price back down (and possibly below) their range-bound lows. It may take a large news event to move these markets in one direction or the other from this important level...whether or not tomorrow's Beige Book report will contain sufficient bullish/bearish data to make much of an impact remains to be seen...time will tell where they go from here.

Looking at a slightly smaller timeframe, we see that the YM, ES, NQ & TF are all trading around their 50 sma on their 4-Hour charts, as shown below...a move upward and hold above their 200 sma could resolve the impasse on the Daily chart and send them up to the levels noted above.

However, because they are still under the pressure of the Death Cross formation on both the Daily and this timeframe, they are subject to large and uncertain volatility...so an advance may not be so cut and dried.

Also, whether or not liquidity issues surface from the banks in response to the above credit rating downgrade and the latest round of stress testing announced by the Fed on November 22nd is something I'll watch for: http://www.nytimes.com/2011/11/23/business/number-of-at-risk-banks-declines.html