"Compression" Tactics on the TF on 11/21/12

I'll be watching this 5 min (market hours only) chart of the TF going forward. So far, today's (Wednesday's) "compression" tactics (price action within the blue boxes) have held price up, mostly within the upper one-half of this 3-day channel.

To put things into perspective, here's a shot showing last Friday's double-dip and rally, followed by Monday's gap up:

N.B. I'll post an updated chart with further comments after the close today.

Post Market Update: Here's a shot of how the TF closed today:

As you can see, any attempt for a rally to hold within the upper one-quarter of this channel has been met with selling, which has forced price down below the mid-channel level...signs of short-term day-only buying or short-covering. Today, as price nears the 800.00 level, the subsequent selling from this level has been shallower...possibly signs that this E-mini Futures Index is in accumulation mode, and poised to go higher.

Looking at a bigger picture, you can see on the 60 min (market hours only) chart below that price is, once again attempting to break free of a downtrend that began in mid-September. The 800.00 level is roughly in line with a 40% Fibonacci retracement from the September high to last Friday's low. Monday's gap remains unfilled, and, whether this is a breakaway gap and the beginning of a trend reversal remains to be seen. I'd like to see price reclaim and hold above the 800.00 level and begin to make higher highs and higher lows on this timeframe before I'd make such a call. Otherwise, a failure around this level would likely send price down to, potentially, fill the gap and on to a lower low.

As a confirmation of any further (sustainable) rally, I'd also like to see price get (and stay) above 46.00, then 47.50, and, finally, 50.00 on this Daily ratio chart of the Russell 2000 Index compared with its Volatility Index. The Momentum indicator is flowing up and is still above zero. As long as it holds above that level, I'd look to see how price is behaving at/above 800.00 on the TF.

The Russell 2000 Index is still the leader ahead of the Nasdaq 100, S&P 500, and Dow 30 Indices after today's action in terms of percentage gained from last Friday, as shown on the 4-day comparison chart below. In fact, it pulled ahead at a greater pace today...one to watch to see if buying favours the riskier Small-Cap sector over Technology and Large-Cap/Blue-Chip stocks. Alternatively, I'd watch to see if this Index begins to weaken, particularly around the 800.00 level on the TF and on rising volatility, which could lead the other Indices down to fill their respective recent gaps, and lower.

***I'd like to take this opportunity to wish my American neighbours a Happy Thanksgiving...I hope no one goes hungry...please share with someone less fortunate. :-)

Expect Delays

Sit back, relax, and expect delays on all matters within the Eurozone for an indefinite period of time, while leaders contemplate the meaning of "compromise" and try to figure out how to fix an unraveling European Union...that way, you won't be disappointed...there's a reason that Europe is in recession.

In the meantime, you're in control as to whether you want to invest in Europe (or any U.S./foreign business/financial institution involved with Europe) at this time, in the midst of chaos.

The Magic of "Levitation"

This definition of levitation is from Wikipedia:
      "Levitation (from Latin levitas "lightness")^[1] is the process by which an object is suspended by a physical force against gravity, in a stable position without solid physical contact. A number of different techniques have been developed to levitate matter, including the aerodynamic, magnetic, acoustic, electromagnetic, electrostatic, gas film, and optical levitation methods."

When markets gap up on the open, they remind me of something which is levitating...they seem to be suspended/elevated by combined forces which have exerted energy through momentum. As you can see on the Daily charts below of the four Major Indices, after today's (Monday's) opening gap up, they are all still under the influence of negative momentum, albeit two days' worth of decelerating negative momentum.

As shown on the 2-day comparison chart below, the Nasdaq 100 leads in terms of percentage-gained on the two-day bounce, followed by the Russell 2000, the S&P 500, and then the Dow 30 Index. This suggests that the current market appetite favours the riskier sectors over their blue-chip counterparts. Whether buying continues to push and hold momentum above the zero level remains to be seen. It would appear that the high-beta stocks within the NDX and RUT are the ones to watch over the near-term. Buying momentum within all four Major Indices can continue to be monitored by viewing the Momentum indicator, as well as the percentage-gained on a daily basis. Any weakening of these may be a signal that this recent bounce may have run its course, particularly as the Indices approach the underside of their major trendline breaks (which I've written about in recent posts).

Major Indices Have Lost Much of Their 2012 Gains

As you can see from the Year-to-date chart below, much of the 2012 gains have been lost in the Major Indices since September/October. The Dow 30 has been the weakest performer this year, followed by the Russell 2000, the S&P 500, then the Nasdaq 100 Index.

Inasmuch as the Dow 30 is the weakest-performing index at the moment, it's the one to watch for either continued weakness or a buying turnaround with conviction. It's only up 3.03% on the year now versus a little over 11% about one month ago.

Without some major economic improvements occurring in Europe, China, and the U.S. in the near future, as well as strong Q4 earnings (versus weak Q3 earnings), it's likely that these Major Indices will have a difficult time producing a convincing and sustainable rally of much relevance (to actual economic conditions).

Money Flow for November Week 2

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

• 6 Major Indices
• 9 Major Sectors
• Ratio Charts of SPX:VIX, RUT:RVX, and NDX:VXN
• Ratio Chart of AAPL:NDX

6 Major Indices

Last week's losses were extended this week on all six Major Indices, as shown on the Weekly charts and the 1-Week percentage gained/lost graph below.

9 Major Sectors

Last week's losses were also extended this week on all nine Major Sectors, as shown on the Weekly charts and the 1-Week percentage gained/lost graph below. The Defensive Sectors (Consumer Staples, Health Care, and Utilities) lost the least as markets were more in a "Risk Off" mindset.

With the weekly Stochastics cycle nearing the lower end on most of the Major Indices and Sectors, we are left wondering if the decline from the September highs in these markets is winding down in preparation for a reversal and Santa rally to new highs, or if a much bigger decline is waiting at the bottom of Mr./Ms. Market's Christmas stocking, and this is just the beginning. After all, we saw some major trendline breaks on the Major Indices last week, as mentioned here and here, so I wouldn't be surprised to see further weakness at some point.  We may, however, see a bounce and backtest of these major trendline breaks before any further weakness resumes. The Head and Shoulders targets on the E-mini Futures Indices (as I discussed here) were nearly reached today (Friday) on the YM and ES, but the TF remained about 25 points above its target.

As I've mentioned in prior posts, the markets have been subject to some fairly volatile and wide intraday swings, many of which have been news-driven. The most recent of these was today's press statements regarding the Fiscal Cliff discussions, which have now begun between Democrats and Republicans, and which sent the markets up (although nothing concrete was said to indicate that this issue has actually been satisfactorily resolved).

Ratio Charts of SPX:VIX, RUT:RVX, and NDX:VXN

With these things in mind, I'll be monitoring market volatility to try and gauge market strength versus weakness going forward. I prefer to measure the strength of several of the Major Indices against their respective Volatility Indices by looking at the following Daily ratio charts. As you can see on SPX:VIX, RUT:RVX, and NDX:VXN, they have been stuck in a range for the past several weeks and closed just below major resistance (broken horizontal blue line) on Friday. The Momentum indicator has just turned positive above the zero level and may be signalling that more strength is in store for the SPX, RUT, and NDX. A break and hold above these resistance levels will likely produce a rally in these indices.

Ratio Chart of AAPL:NDX

I've also added a Daily ratio chart of AAPL:NDX. You can see that AAPL has declined at a greater rate than the NDX, has been comparatively much weaker, and price on this has also closed just below major resistance (broken horizontal blue line). The Momentum indicator, while still in a downtrend, may be signalling a positive divergence with Friday's bounce into the close...one to watch going forward into next week(s), as any gathering strength (and break and hold above resistance) would likely positively influence the SPX and NDX. Alternatively, a resumption of accelerating weakness, which sends AAPL below its equity price of 500.00 (and lower), would likely negatively impact these Indices (Friday's low on AAPL was 505.75, so this is still a possibility, as noted here).

N.B. Next week will be interrupted by the Thanksgiving Holiday on Thursday (all day) and Friday (afternoon), so whether we'll see any significant movement in either direction in these markets remains to be seen. Also, whether the markets are prepared to buy into the Higher-risk Sectors versus the Defensive Sectors remains to be seen. I'm also mindful of weakness in China, recessionary weakness in Europe, and weak U.S. economic data (which I've written about recently), more of which (along with unexpected global and national news-related announcements) may produce a drag and further intraday volatility on any ensuing bounce in these markets.

Enjoy your weekend and good luck next week!

Foreign Demand for Long-Term Securities Plunges

Data released today (Friday) shows that foreign demand for long-term securities plunged to nearly zero, as shown on the graph below.

The sharp drop in this economic data is one of quite a few that have been surfacing over the past several weeks (which I've written about on my Blog) and may be forecasting much more weakness to come in the overall economy during the upcoming weeks/months.

Industrial Production data also released today also shows this type of sharp drop, as shown on the graph below. The overall trend is down and has been for several years...this can't be blamed on the hurricane.

Weakening demand equals weakening data...if the demand is not there, no amount of Central Bank money printing is going to change economic data...simple math.

Support Break on European Top 100 Index

Today's (Thursday's) price action gapped down and closed below horizontal support on the European Top 100 Index, as shown on the Daily chart below.

The RSI, MACD, and Stochastics indicators are signalling more weakness ahead...one to watch, in view of the comments I made in my post of November 12th. Downside follow-through on this index should also produce further weakness (and probable support breaks) on the DAX, CAC, and PIIGS Indices.

My 2 Cents' Worth on the Fiscal Cliff

My guess is that the Republicans will not do a deal on the Fiscal Cliff until the last hour approaches on the Debt Ceiling (assuming that the ceiling figure of $16.394T is reached before the end of this year)...they will hold that as leverage to try to get President Obama to back down on his resolve to let the tax cuts expire on the 2%'ers. If that's the case, I don't see Santa coming to the markets this year.

The ES Monthly timeframe still has a recent bearish "Death Cross" formation...plus negative divergence on the Stochastics which has crossed down. The selling this month could just be the start of more to come.

Sharp Decline in Philly Fed Manufacturing Index...a Warning

Data released today (Thursday) shows a sharp decline in the Philly Fed Manufacturing Index, as shown on the graph below.

Since "changes in businesses' sentiment can be an early signal of future economic activity such as spending, hiring, and investment,"  it's worth noting this sharp reversal of the small rally of recent months...particularly as it relates to the overall longer-term downtrend from the peak in March of 2011. As you can see, this downtrend is much steeper than the one from 2004 leading to the big decline in 2008/09...this may be forecasting a repeat of such a downturn in manufacturing.

Retail Sales Drop in Spite of Drop in PPI...Inventories Continue to Rise

Data released today (Wednesday) shows that Retail Sales dropped in spite of a decline in the Producer Price Index (PPI) and Core PPI, while Business Inventories continued to rise, as shown on the graphs below. Such data supports that of rising Wholesale Inventories, as mentioned in my post of November 9th. The Major Indices are all down at the time of my writing this post.

Mirror Image: Declining Industrial Production in Europe

Data released today (Wednesday) shows that Industrial Production in Europe continues to decline, with this latest month's data sharply below that presented in July of 2008, as shown on the graph below.

As you can see, after a minor rebound from the lows in 2009, production has been in decline from March of 2010...mirroring the pattern leading up to the deeply depressed lows throughout much of 2009. This is reflective of the unemployment and recessionary conditions currently prevalent in Europe. The LTRO 1 & 2 cash injections by the ECB have not had a (lasting) positive impact in this particular segment of Europe's economy. European markets are currently down at the time of my writing this post.

6-Month Economic Optimism Outlook Declining in Europe and U.S.

Data released today (Tuesday) shows that the 6-month economic optimism outlook is declining in Germany, Europe, and the U.S., as shown on the graphs below.

All are below zero in negative territory, as the view of their (German) institutional investors and analysts and (American) consumers is pessimistic on economic outlook, personal financial outlook, and confidence in federal economic policies.

European Indices ~ Watching for Support Breaks

Below are 6-month Daily charts of the SPX, DAX, CAC, and PIIGS countries. You can see at a glance that the SPX has broken below near-term horizontal support of 1400, while its European counterparts are either trading at or close to (horizontal) support.

The first graph below shows that, by percentage, Greece has gained the most compared to these countries during the past six months. However, the next graph shows that Greece has lost the most (percentage-wise) during the past one-month period, while the last graph shows the accelerated comparative percentage loss in Greece during the past week.

No doubt, Greece's recent losses relate to the, as yet, unsettled Greek aid tranche. Further Troika delay in settling this latest round of Greek bailouts will likely negatively affect, not only the Greek Index, but also the others, to produce breaks below their near-term (horizontal) support levels. Once broken, any confidence that may have existed up to this point in these European markets, will be marred and that much more difficult to be regained.

Decline in China Money Supply and Loan Demand

Data released today (Monday) shows that Money Supply dipped in October in China, as shown on the graph below.

"Early in the economic cycle an increasing supply of money leads to additional spending and investment, and later in the cycle expanding money supply leads to inflation." Since it has been in an early cycle since the beginning of 2012, this latest dip may or may not be a warning of further weakness to come...one to consider monitoring over the next few months.

New Loans also fell for October, as shown on the graph below. "Consumers and businesses tend to seek credit when they are confident in their future financial position and feel comfortable spending money." This data is showing that loan demand has been on the decline since April of this year.

So, although there has been an expansion of money supply this year, loan demand has been declining. Unless loan demand picks up and is sustained, how can there be economic confidence and expansion in China?