Money Flow for December Week 2

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

• 6 Major Indices
• 9 Major Sectors
• Germany, France, and the PIIGS Indices
• Emerging Markets ETF (EEM), the BRIC Indices, and the BRIC ETF (BKF)
• Canada, Japan, Britain, Australia, and World Market Indices
• Commodity and Agriculture ETFs (DBC and DBA), Gold, Oil, Copper, and Silver
• 7 Major Currencies
• Ratio Charts comparing the SPX to other Major World Indices

Like last week, you won't see any commentary for individual groups, as I simply wanted to show, at a glance, three things:

1. where current price is relative to support/resistance levels
2. which groups money was flowing into and out of this past week
3. current relative strength/weakness of the SPX to other Major World Indices

in order to asses whether there was a common theme(s) going on here. In this regard, I've provided:

1. 6-Month thumbnail charts of each group
2. 1-Week percentage gained/lost graphs for each group
3. 2-Year ratio charts comparing the SPX to other Major World Indices

You can see from the 6-Month charts where current price is relative to resistance/support levels. Most of the U.S. Major Indices and Major Sectors experienced a pullback this past week, while most Major World Indices, essentially, based at/near their highs and are at either downtrend, horizontal, or moving average resistance. One notable exception is China's Shanghai Index with Friday's large rally...it is, however, trading at a new horizontal resistance level. Gold, Silver, and Agriculture continued down, while there was a slight uptick in Oil and Copper. Money flowed out of the U.S. $ and the Japanese Yen. This is the first common theme, at the moment.

The above is confirmed on the percentage gained/lost graphs. In the U.S. markets, the general theme was selling, except in the Dow Transports Index and the Materials Sector. This is the second common theme, at the moment.

The above is also confirmed on the 2-Year ratio charts comparing the SPX to other Major World Indices. You can see that the SPX has been trending downward, generally, from the middle of this year and is either 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. This is the third common theme, at the moment.

Summary

To summarize, sentiment is negative and relative weakness is accelerating in the U.S. Major Market Indices and Sectors compared with other Major World Indices. It's the theme to watch going forward into next week and beyond.

Markets seem to have shrugged off the Fed's latest monetary stimulus announcement from earlier this week and are waiting for a resolution of the "Fiscal Cliff" issue, as its end-of-year deadline approaches. At the moment, and, generally-speaking, there seems to be no confidence in, nor new money being placed in the U.S. markets or the U.S. $...rather, money is coming out as profits are being taken.

Also, you can read more about my three "canaries" that I'm watching over the next weeks/months as a gauge of the effectiveness of the Fed's latest stimulus program in my post of December 12th.

I'm also watching four ratio charts of the SPX:VIX, RUT:RVX, NDX:VXN, and AAPL:NDX over the next few days/weeks, in order to measure relative strength, as detailed in my other post on December 12th.

 

6 Major Indices

9 Major Sectors

Germany, France, and the PIIGS Indices

 

Emerging Markets ETF (EEM), the BRIC Indices, and the BRIC ETF (BKF)

Canada, Japan, Britain, Australia, and World Market Indices

 

Commodity and Agriculture ETFs (DBC and DBA), Gold, Oil, Copper, and Silver

 

7 Major Currencies

 

Ratio Charts comparing the SPX to other Major World Indices

 

Furthermore, we may see further buying on the beaten-down high-beta stocks, as has continued this past week, in some of the Social Media stocks and RIMM, (as shown on the 1-Week percentage gained/lost graph below), as fund managers attempt to top up their yearly portfolio gains before the end of the year. I'll be looking for any parabolic rise and climax on high volumes on stocks such as these as a precursor to a potential major market trend reversal. If this type of stock continues to explode higher in the near-term versus value stocks, I'll also be warned of potential Q4 earnings weakness (markets favouring beta-movers versus actual value).

Conclusions

In conclusion, we may continue to see volatile intraday swings:

1. until the "Fiscal Cliff" issue is settled,
2. during the upcoming Quadruple-Witching OPEX week, and
3. until the end of the year as fund managers re-organize their portfolios for 2012 year-end and Q4.

Enjoy your weekend and good luck next week!

Wireless Technology Humour

Ratio Charts of SPX:VIX, RUT:RVX, NDX:VXN, & AAPL:NDX

Four ratio charts I'm watching over the next few days/weeks are the SPX:VIX, RUT:RVX, NDX:VXN, and AAPL:NDX, in order to measure relative strength, as shown below.

At the moment, they are trading in between resistance and support levels of one form or another. The major support level is represented by the broken horizontal blue line. The first three are trading just above this major support level, while the AAPL:NDX ratio pair is below and trading lower. The Momentum indicator is still below zero on all four, signaling lingering relative weakness of the SPX, RUT, and NDX to their respective Volatility Index and of AAPL to the NDX.

Unless we see a stabilizing of the AAPL:NDX ratio pair, we may see any further decline in AAPL produce a drag and, possibly, a decline in the SPX, RUT, and NDX indices.

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.

 



12/12/12 FOMC Rate Announcement

Here is the link for today's (Wednesday's) FOMC press release regarding their interest rate and asset purchase decisions following their two-day meeting:
http://www.federalreserve.gov/newsevents/press/monetary/20121212a.htm

This excerpt explains their current timeline and parameters relative to the continued implementation of this low interest rate:

     "In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored."

The Federal Funds Rate will be maintained at 0.25%, as shown on the graph below.

Equity markets rallied after this news, and, on the Major Indices, the SPX and RUT are currently trading above their major uptrend line from the October 2011 lows, the DJI is backtesting its trendline, and the NDX is still trading well below its trendline, as shown on the Weekly charts below.

Bulls should be looking for the DJI to break and hold above this trendline and for the NDX to follow suit (as well as for the SPX and RUT to hold above their trendlines). Otherwise, we may see another break and possible test of this year's lows, or lower.

 

Meanwhile, data released, subsequently, shows that the Federal Budget Balance deficit has increased, as shown on the graph below...and the "Fiscal Cliff" issue remains unresolved.

 



The Pope's First Tweet: 12/12/12

The Pope's First Tweet occurred on 12/12/12.

 

***We won't see this date for another 100 years until 2112 and we'll never see this (Twitter) event again...

 

 

Today's Rare Double Convergence of Twelves

 

***We'll see one more convergence this afternoon when:

 

 

From Wikipedia ~ December 12: "December 12 is the 346th day of the year (347th in leap years) in the Gregorian calendar. There are 19 days remaining until the end of the year."

 

It will be 2112 before we see this occur again...I think I will have retired from Blogging by then...but, hey, who knows!

 

***Some interesting facts about the number TWELVE: http://en.wikipedia.org/wiki/Twelve

 

Time Out for a "Slice of Life" Moment

"Landfill Harmonic"...a brilliant demonstration of innovation and talent!

The Hazards of Holidays

This infographic was sent to me courtesy of www.mastersinhealthcare.com and is worth noting (stay safe and have a Happy Holiday season!)...here's the link should you wish to embed the graphic into your Blog: http://www.mastersinhealthcare.com/blog/2012/holiday-hazards/

Please Include Attribution to MastersInHealthcare.com With This Graphic

Yin and Yang - Canadian and U.S. Trade Balance

Data released today (Tuesday) shows that Canada's Trade Balance deficit shrank, while it increased for the U.S., as shown on the graphs below.

U.S. index futures are up in pre-market trading as I write this...we'll see whether they can hang onto their overnight gains and whether this bullish sentiment can continue to produce higher prices during market hours, in spite of this latest trade data, or whether we see a reversal here. Markets have been shrugging off poor economic data these past couple of months...how long can it continue? No doubt, they're expecting a positive outcome of the FOMC meeting that begins today and wraps up tomorrow. We may not see any reversal (if at all) until we know those results...and, possibly, the results of the "Fiscal Cliff" negotiations.

Meanwhile, the Weekly chart of the USD/CAD forex pair shows that the U.S. $ has been trading below parity (solid yellow line) since August of this year, and failed to regain a foothold above in mid-November. It  hasn't spent a lot of time below parity during the past five years...time will tell whether this will shift or not. At the moment, it's trading in deeply bearish territory in the lower half of a triangle formation, below the 60% Fibonacci retracement level, and below falling 20, 50, and 200 smas.

I've noticed that price action on the USD/CAD over the past 5 years resembles that of the VIX, as shown on the Weekly chart below. At the moment, price is sitting on a downtrend line from the August 2011 highs. It would appear that the price level of 20.00 would need to be reclaimed and held in order to confirm any reversal in both the USD/CAD and equities, in general. A sudden, severe drop below this downtrend line may signal that equities have climaxed and such a reversal is imminent.

A Lump of Coal for Christmas?

It looks like Santa may be stocking up on coal for Christmas this year.

Fire up those factories, China! We'll see if the Shanghai Index can stabilize and hold above a short-term support level of 2000, as it looks like the timing of the dip-buying (beginning from the August lows) on coal also coincided with the dip-buying on the index below.

 

Who's been naughty?