Fed Stimulus "Canaries" About to Croak?

I last wrote about the Fed Monetary Stimulus "Canaries" in my post of December 16, 2014. As a reminder, I chose six of them (ETFs) in order to determine their relative strength/weakness against their respective Stock Market Index, since they may have held clues for further accumulation in riskier assets due to respective Central Bank stimulus programs.

So that we can compare their current relative strength/weakness, I've provided the following 5-Year Daily ratio charts for each "Canary."

OBSERVATIONS

XLF:SPX -- U.S. Financials ETF (XLF) has, basically, traded lock-step with the SPX. A recent breakout has failed and brought price back below major resistance. We'll need to see price retake the 0.0121 level, first, then 0.0122, if XLF is going to resume an outperformance of the SPX...however, the RSI failed to make a higher swing high relative to the higher swing price high, so I'm doubtful that we'll see the XLF move higher before it, potentially, retests the 200 MA.

EUFN:STOX50 -- European Financials ETF (EUFN) was underperforming the European Index (STOX50) until mid-March of this year, but has rallied and has consolidated in between the 50 and 200 MAs. Price action is still under the bearish influences of a moving average Death Cross formation, so it is subject to reversal if it fails to break out and hold above major resistance at 0.0073 and a bullish moving average Golden Cross forms.

GXC:SSEC -- Chinese Financials ETF (GXC) has drastically underperformed the Shanghai Index (SSEC) since July of 2014. The shockwave that I warned against in my above-noted post did occur in this ETF, but had the opposite effect on the Index, once the major support level of 0.025 was broken...however, once the last support level of 0.022 was broken, we started to see the Index weaken and, ultimately, implode. A strong Index is only as good as its financials to support it, in the long run, so we'd need to see price reclaim (and hold above) 0.025 and higher; otherwise, I'd look for considerable weakness ahead in the Index, as I warned here.

XHB:SPX -- Homebuilders ETF has, essentially, traded sideways (along with the SPX) since January of this year. We'll need to see a solid breakout and hold above 0.0180 to convince bulls that this ETF was going to outperform for the remainder of this year...we may see a brief pop until such time as the Fed raises interest rates.

RTH:SPX -- Retail ETF has outperformed the SPX since mid-June of this year, after retreating from its highs in March. So far, price has retested and failed to break out and hold above those highs, which it will need to do in order to regain its leadership...otherwise, it's in danger of falling back to its 200 MA, or lower (to erase all of its gains for 2015).

EEM:SPX -- Emerging Markets ETF has continued to underperform the SPX and has, in fact, broken below this year's major support level. Once again, we see price under the bearish influences of a moving average Death Cross formation...price would need to reclaim (and hold above) 0.022 and a bullish moving average Golden Cross form; otherwise, we could very well see an acceleration of downside pressure occur on EEM.

SUMMARY

• Chinese and European Financials are very weak and do not support their respective Indices
• U.S. Financial ETF is at a crossroads and looks like it's in for some weakness
• Homebuilders ETF is up against considerable resistance and could be in for some weakness
• Retail ETF is pushing on a string at these all-time highs and overbought levels
• Emerging Markets ETF is falling off a cliff

CONCLUSIONS

It would appear that these six "Canaries" are about to fall (further, in some cases) off their perch...charts worth monitoring to see where the cracks begin or widen to suggest that the effectiveness of these Central Banks' policies has run its course.

Update on Fed Monetary Stimulus "Canaries"

I last wrote about the Fed Monetary Stimulus Program "Canaries" in my post of February 6, 2013. As a reminder, I chose six of of them (ETFs) in order to determine their relative strength/weakness against their respective Stock Market Index, since they may have held clues for further accumulation of riskier assets due to respective Central Bank stimulus programs.

So that we can compare their current relative strength/weakness, I've provided the following 3-Year Daily ratio charts for each "Canary."

XLF:SPX ~ U.S. Financials ETF has, basically, traded lock-step with the SPX since my last post. A recent breakout has brought price back to re-test this breakout level. We'll need to see 0.0120 held if XLF is going to resume an outperformance of the SPX.

EUFN:STOX50 ~ European Financials ETF has, after outperforming the European Index until March of this year, dramatically underperformed and has fallen back to the same levels that were made at the time of my last post. We'll need to see price reclaim and hold above the falling 200 moving average, currently at 0.0081. Price action is under the bearish influences of a moving average Death Cross formation, so we may see an increase in volatility on any re-test of the 200 moving average and either a decisive trend reversal or trend continuation established.

GXC:SSEC ~ Chinese Financials ETF has experienced a roller-coaster ride against the Shanghai Index and has drastically underperformed since the highs in July of this year. Price is approaching a 3-year support level...a drop and hold below 0.025 could send a shockwave through China's banking sector.

XHB:SPX ~ Homebuilders ETF has underperformed the SPX since May of 2013, but has bounced since its lows in October of this year to re-test the 200 moving average. Price is still under the bearish influence of a moving average Death Cross formation...any sustainable reversal of this formation will need to be confirmed by a Golden Cross formation...a break and hold above 0.0170 will be necessary in this regard.

RTH:SPX ~ Retail ETF has outperformed the SPX since August of this year. A drop and hold below near-term support of 0.0340 could see a reversal of this trend, or a re-test of the 50 moving average.

EEM:SPX ~ Emerging Markets ETF has drastically underperformed the SPX, essentially since January of 2013. EEM may be monitored more closely against the USD, as more fully explained in my last post at this link, in addition to monitoring the ratio below. Once again, we see another bearish moving average Death Cross formation on this chart...price would need to reclaim and hold above the major resistance level of 0.023 in order to, potentially, claim a sustainable outperformance of the SPX.

CONCLUSIONS

China's Financial ETF and the Emerging Markets ETF are drastic underperformers, while the Retail ETF has been a major outperformer, as compared with their respective Indices. U.S. Homebuilders, and European Financials have been slack, and U.S. Financials will need to hold above major support to demonstrate sustainable strength. In fact, China's Banking Sector could be sent plunging if its current price level is not held, as I mentioned above.

"Canaries" Look Tired & Riskier Assets Appear to be Overvalued

I last wrote about what I call the Fed Monetary Stimulus Program "Canaries" in my post of January 11th. I have six of them...namely ETFs compared (by ratio) with their respective Stock Market Index. I chose these in order to determine relative strength/weakness, which may hold clues for further accumulation of riskier assets. At that time, five of the six were poised for a breakout above major resistance levels, and the sixth (European Financials ETF) was picking up steam and outperforming its Index.

Since then, my last post gave a very general/broad characterization of where I thought the Four E-mini Futures Indices (YM, ES, NQ & TF) were headed this year. However, I thought it would be prudent to review where my "Canaries" are trading at the moment, on a shorter time frame to either support or add caution to what I concluded in this last post.

So that we can compare current action with that of where they were in early January, I've, once again, provided Weekly ratio charts for each "Canary," as follows.

XLF:SPX ~ U.S. Financials ETF has continued to base at its resistance level...all indicators are in overbought territory.

EUFN:STOX50 ~ European Financials ETF began to rally against its European Index, but has been basing at its resistance level...all indicators are in overbought territory.

GXC:SSEC ~ Chinese Financials ETF has declined against the Shanghai Index and is sitting on a level of support...all indicators are still trending down, but are approaching oversold levels.

XHB:SPX ~ Homebuilders ETF has basically resumed its high-basing after attempting to break above resistance...all indicators have recently turned down at their overbought levels.

RTH:SPX ~ Retail ETF has been basing in a range from mid-2012...all indicators are trending down, but at a slower pace and are in the neutral zone.

EEM:SPX ~ Emerging Markets ETF has declined against the SPX and sits just below near-term support...all indicators are still trending down and are not yet in oversold territory.

Conclusion

From this data, I would conclude that European Financials is the riskier bet (on a breakout and sustainable rally) at the moment, followed by U.S. Financials and Homebuilders. Retail could go either way, but a break and hold below its 50 sma (blue) would signal further weakness to come. Chinese Financials may be poised for a bounce, but would need confirmation of any reversal on its indicators (and I don't see any positive divergences yet). Emerging Markets is poised for further weakness. 

It appears that riskier assets are overvalued at the moment. Market Makers may be "pushing on a string" at these levels...a pullback of some kind may be ahead in the near term to make entries into these sectors more attractive and sustainable in the long run.

Money Flow for January Week 2

Further to my last weekly market update, this week's update will look at:

• 6 Major Indices
• 9 Major Sectors
• Ratio Charts comparing the SPX to other Major World Indices
• Fed Monetary Stimulus Program "Canaries"
• Social Media Stocks and RIMM
• U.S. $
• 30-Year Bonds

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***PLEASE NOTE that in the interest of conserving space on this post, I've provided links only to my charts and graphs again this week.

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6 Major Indices

As shown on the 1-Year Daily thumbnail charts below, you can see that price is either pushing up to new highs (TRAN & RUT) or up towards last year's highs (SPX & INDU). UTIL & NDX are lagging at the moment. I'll be watching for signs of weakness in the leaders or strength in the laggards in the coming week(s).

• http://screencast.com/t/3Yyr61RJS

As shown on the 1-Week percentage gained/lost graph below, the NDX made the largest gains on the week, while the UTIL made losses. We'll see if the NDX continues to play catch-up to the other Indices now.

• http://screencast.com/t/MkgfbCw6XdS4

9 Major Sectors

As shown on the 1-Year Daily thumbnail charts below, most Sectors are continuing to push to new highs. Technology, Energy, and Utilities are lagging -- confirming the above Indices. We'll see if the markets continue to add risk next week(s), and if they begin to buy into XLK, XLE & XLU.

• http://screencast.com/t/N9ydWsyEzJyG

As shown on the 1-Week percentage gained/lost graph below, the largest gains were made in Healthcare, followed by Materials. Utilities made losses. 

• http://screencast.com/t/VE0Luq2h6

Ratio Charts comparing the SPX to other Major World Indices

I last wrote about these in my post of December 14, 2012.  I mentioned that the SPX was weaker than other Major World Indices and had been trending down from mid-2012. It was at/near some form of horizontal, downtrend, or moving average support level, but on accelerating bearish downward RSI below the 50.00 bull/bear level, and was the theme to watch going forward. 

As shown on the 3-Year Weekly ratio charts below, the SPX began to bounce last week, and it either continued modestly higher or retraced somewhat this week.

I'll be monitoring these ratio charts over the next week(s) to see if the buying in the SPX continues to outperform other Major World Indices -- the RSI, MACD, and Stochastics indicators are turning up (and the RSI is above 50.00 in some cases) to signal that this may continue -- and whether the U.S. is, in fact, the "best place to invest for 2013," as some analysts/fund managers have been claiming lately on (U.S.) national television.

• http://screencast.com/t/mtJONhIwY2
• http://screencast.com/t/T7hLZQ6E8
• http://screencast.com/t/ppH1R6kaEO
• http://screencast.com/t/N7iwNr6c7
• http://screencast.com/t/XwCLLbP9EQB
• http://screencast.com/t/sIR9xEj9r1y
• http://screencast.com/t/uccSEe3gLOWK
• http://screencast.com/t/CQw8P27M
• http://screencast.com/t/wJiAzBJgu
• http://screencast.com/t/nwPgZLjYoxSg
• http://screencast.com/t/IWFPgjKFlM
• http://screencast.com/t/SVcDAaayt

Fed Monetary Stimulus Program "Canaries"

I last wrote about these in my post of December 28, 2012. They had been losing steam as measured against either the SPX, or in the case of the European and Chinese Financials, against their country's Index.

As shown on the 3-Year Weekly charts below, the only one that has been picking up steam and outperforming its Index is the European Financial Sector. However, the others are poised for a breakout above major resistance levels and may hold clues for further accumulation of riskier assets -- ones to also watch over the coming week(s).

• http://screencast.com/t/gaieaLoM
• http://screencast.com/t/uiPtTbpS
• http://screencast.com/t/JrO2qd43
• http://screencast.com/t/Wmf3sIeWh
• http://screencast.com/t/ykNdq1iiyCK4
• http://screencast.com/t/Ibq0cOsI8DT

Social Media Stocks and RIMM

I last wrote about these stocks on December 14, 2012. We'd seen some buying on these beaten-down high beta stocks -- signalling an interest in riskier assets.

As shown on the 2-Year Weekly charts below, this past week was no exception -- also ones to watch going forward.

• http://screencast.com/t/KzgXqMy5MqZ

U.S. $

Please see my comments in my earlier post today (Friday) with reference to the U.S. $, Canadian $, the Homebuilders ETF, Lumber, Oil, and widening Trade Balance Deficits for the U.S. and Canada.

30-Year Bonds

As shown on the 5-Year Weekly chart below of 30-Year Bonds, price closed back above major support on the week on higher volumes than the prior holiday week. I'd watch for a break and hold below last week's low on accelerating volumes, before I'd conclude that selling has begun in earnest.

• http://screencast.com/t/7vEpUss4

Summary

In summary, we'll see whether: 

• risk-buying continues, particularly in U.S. markets as compared with other World markets, 
• AAPL stabilizes and bounces, or breaks down below major support around 500.00, as I discussed in my post of January 5th,
• money continues to flow out of the U.S. $, and 
• 30-Year Bonds stage a rally or drop and hold below major support.

I'd look for confirming volumes on any breakout/breakdown of these markets.

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Enjoy your weekend, and good luck next week!

Money Flow for December Week 4

Further to my last weekly market update, this week's update will look at:

• 6 Major Indices
• 9 Major Sectors
• Index/Volatility Ratio Charts
• 30-Year Bonds
• U.S. $
• EUR/USD
• Fed Monetary Stimulus Program "Canaries"

Last week I said:
"In summary, we may continue to see volatile intraday/overnight swings with little follow-through on lower volumes, until the "Fiscal Cliff" issue is settled and until the end of the year, as fund managers re-organize their portfolios for the 2012 year-end and Q4. At the moment, equity markets still appear to be hedged in Bonds and the U.S. $ as they trade near major resistance levels...this will likely continue until a convincing and sustained breakout occurs in equities. As well, I continue to watch the Fed monetary stimulus program "canaries" and the 1.3250ish resistance level on the EUR/USD forex pair as possible indicators of equity weakness that may become a cause for concern by bulls...at the moment, they are signalling caution, as I discussed in those two articles this week."

This past week, volatility increased and there was profit-taking in all of the above, with the exception of the U.S. $, Euro, and 30-Year Bonds, as will be shown on the following charts and graphs...there will be no commentary, as they are self-explanatory.

6 Major Indices

9 Major Sectors

Index/Volatility Ratio Charts

 

30-Year Bonds

 

U.S. $

EUR/USD

 

Fed Monetary Stimulus Program "Canaries"

In summary, we may continue to see a repeat of last week's increase in volatility, profit-taking in equities, and hedging in the U.S. $ and Bonds, until some sort of resolution of the "Fiscal Cliff" and the Debt Ceiling Limit issues are reached that satisfies the markets. We'll have to wait and see what comes from discussions and any votes held by politicians over the weekend (or beyond).

I intend to publish another article after Monday's close that summarizes the market action for Q4 and for 2012.

Happy New Year and good luck next week!

"Canaries" About To Fall Off Their Perch?

My three Fed Stimulus Program "Canaries" are beginning to lose steam after today's (Wednesday's) gap up and fade on negatively diverging RSI, as shown on the Daily ratio charts below.

Such is also the case on the European and Chinese Financials ETFs (compared with their respective country's Major Index), as shown on the following Daily ratio charts.

Perhaps the noxious gases from the "Fiscal Cliff" discussions are beginning to have an effect, as traders take profits, before the U.S., potentially, goes over the cliff at the end of this month. Both political parties seem as far apart as ever, with no resolution in sight.

 

Meanwhile, the SPX:VIX ratio closed below major support (broken blue horizontal line) today, as volatility increased. Momentum has hooked down and is below zero again, so I'd look for increasing volatility, with the heightened probability of further downside on the SPX.

 



The Fed Stimulus Program "Canaries-in-the-Coal-Mine"

The Fed's new monetary stimulus program announced today (Wednesday) is geared towards shoring up the housing/mortgage market which, they hope, will, in turn, stimulate consumer/corporate/investor confidence and job growth. This has been their intent since they began a variety of monetary stimulus programs in 2008.

In this regard, it may be prudent to monitor the relationship between the financial markets and the SPX, and the housing markets and the SPX, in order to (generally) gauge the strength of market faith in the viability of such an outcome as we go forward over the next year. No doubt, these markets may produce short-term volatile reactions to various economic data points as they are released during this period. What will be of interest is whether any one particular release affects the general trend in such a way as to produce a reversal.

As such, I present the following two Daily ratio charts of the XLF:SPX (Financials ETF) and the XHB:SPX (Homebuilders ETF). At the moment, both the XLF and XHB Sectors are trading weaker compared to the SPX. The RSI Indicator has been in decline since September of this year. The XHB is relatively weaker compared to the SPX than is the XLF. In the near term, a drop and hold below current support on XHB:SPX, together with a failure to regain and hold above current resistance on XLF:SPX, may lead to a pull back in both of these Sectors. Furthermore, a drop and hold below the 50 sma (which serves as a support level on the general uptrend) may signal a trend reversal for both Sectors, which could send price down to the 200 sma...ones to watch over the next weeks and months.

***N.B. See UPDATE below...

 

***UPDATE Dec. 13/12: I've added a third ratio chart of the Retail Sector compared with the SPX (RTH:SPX). There has been comparative weakness in the Retail sector during December. Whether this continues through to the end of the month and into next year remains to be seen, but is worth keeping an eye on, along with the other two mentioned above.