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Tuesday, December 20, 2011

Markets Sample Christmas Pudding Early...

Looks like the markets skipped pre-Christmas appetizers and headed straight for the pudding today.

After today's big rally, the YM, ES, NQ & TF may be headed towards their upper Bollinger Bands on the Daily chartgrid below. I seem to recall that Goldman Sachs' 2011 year-end target for the ES is 1250...(and that their original target was 1400, which was then reduced to 1350...and so on)...that would take price roughly up to the 200 sma (pink) on the ES. That's certainly a possibility if the upward momentum continues.

Below is a 4-hour chartgrid of the YM, ES, NQ & TF. Price ended roughly in line with the top of a declining channel, after making a new swing high on this timeframe...the TF has made a higher swing low, as well. The ES, NQ & TF are, however, under the influence of a bearish Death Cross formation on this timeframe, with the 50 sma (red) crossed below the 200 sma (pink) once again. My short-term RSI indicator is looking a bit overbought, and price may pull back a bit from here. If price can't rally and hold above today's high and reverse the Death Cross bearishness, I'd say that these e-mini futures indices could very well drop and make new swing lows...and possibly move much lower...at least to their lower Bolling Band on the Daily timeframe, or lower.

The Daily chartgrid below shows where price is on the ES in comparison with a number of other instruments since its drop in July of this year. The ES and ICF are showing relative strength from their September lows...XLF and DBC are running second...GXC and EEM are next...EUFN is next...TNX and TYX are next...and EUR/USD is last, which puts the U.S. $ in first place and ahead of the ES.

As we can see, the U.S. Financials (XLF) have firmed since their September lows, with the Chinese Financials (GXC) next, followed by the European Financials (EUFN)...however, we've not seen the same bounce in the EUR/USD that we've seen in the EUFN.

Any continued rally in the ES would require the continued participation of XLF...as well, I'd also look for a continued rally in GXC, EEM, and EUFN...otherwise, we'd have a separation of financial strength that would be skewed towards the U.S. markets and away from the the European markets (which is already weak) and the Emerging markets. A leading indicator of this scenario would be a weakening of the U.S. $ and a rise in the EUR/USD, TNX, and TYX.

The Daily percentage comparison chart below is taken from August 1st and confirms the above.

The 1-Day 30-minute percentage comparison chart below shows that, today, DBC rose the least from the market open...something I'll watch for over the next days/weeks to see if weakness is developing in the Commodities sector...which could influence equities, as well.

I'll continue to look at such comparisons to try to gauge equity strength in the near-term. Any future bank failure(s) would, of course, have a major impact on these markets.