Weak Financials/Banks

Without a concerted strengthening in the Financials/Banks, it will be difficult for the Major Indices to continue to garner a meaningful rally, particularly in view of the comments I made in my post of July 19th.

The Daily charts below show market action, so far, as I write this mid-day on Friday...not an impressive or supportive showing in the Financials Sector and Banks.

Intraday volatility is building slightly in the VIX, as well, as the SPX:VIX ratio pair trades under 82.50 at the moment.

SPX:VIX Ratio Pair Headwinds

I've drawn a Fibonacci retracement on the Daily chart below of the SPX:VIX ratio pair and have identified a potential Inverse Head & Shoulders pattern.

The first external Fib level of 127.2% at a price level of 92.30ish happens to lie at a confluence/apex of trendline resistance...just above current price.

If the SPX is to move higher, it will have to capture this level and remain above...in this regard, it will be important that the neckline hold at 82.50ish.

However, as can be seen from the Quarterly chart below, that won't be an easy task, as efforts to move much higher since 2004 have been met with profit-taking and choppiness.

Unless some kind of major liquidity injection is forthcoming into the markets soon (e.g. cash on the sidelines), I expect more of the same (profit-taking and choppiness) at current levels on the SPX. However, that will depend on market participant confidence, which seems to have eroded.

Mid-Day Report on YM, ES, NQ & TF

The Weekly charts below of the YM, ES, NQ & TF show that price has popped above the mid-Bollinger Band as I write this just after noon on Thursday.

At the moment, I'd place general near-term support at this level, which is 12777 for YM, 1354.50 for ES, 2625.50 for NQ, and 792 for TF.

If these levels hold, potential targets are their upper Bollinger Band, or higher...otherwise, I'd look for price to fall, once again, to their lower Bollinger Band/50 sma (red), or lower.

Back to the "Mean"

Where is Oil headed? A clue may lie in the AUD/USD forex pair Weekly chart.

As you can see from the three Weekly charts below of the Commodities ETF (DBC), AUD/USD, and Oil, the Aussie $ closed above 1.03 on Tuesday, and price now sits just above a confluence of its mid-Bollinger Band ("mean"), the 50 sma (red), and a price apex level of 1.0274 (which also happens to sit near the left shoulder of a potential large and unwieldy Head & Shoulders formation). It's important that this confluence level hold as support in order that the Aussie $ may continue upward to, potentially, its upper Bollinger Band or higher.

Price on Oil sits just below a Fibonacci confluence level of 90.18 and just above the bottom of a large uptrending channel. Should the Aussie $ continue to rally, we may see Oil reach its "mean" at 94.89 (which is also a confluence of the 50% Fibonacci retracement level, the mid-Bollinger Band, and the 50 sma) or continue higher to, potentially, its upper Bollinger Band.

Furthermore, it wouldn't hurt to see DBC hold above its mid-Bollinger "mean" and continue its trek up to its confluence level of 27.47 or higher in support of these moves.

A failure to move higher on one of these three could well negatively influence the others...worth watching all of them to see if any weakness develops.

Follow-Through Needed

Further to my posts of July 16th and July 17th, here's how the current 3 days/candle closed today on the Major Indices.

On the 4 equity indices, we need to see further strength enter on the Nasdaq 100 and the Russell 2000 in order to support any further rally on the Dow 30 and S&P 500.

On the 3 Dow indices, we need to see further strength enter on the Dow Transports in order to support any further rally on the Dow 30 and Dow Utilities.

Unless we see further upside continuation on all Major Indices, we'll likely see an ultimate failure of the recent upward sloping channel which begins at the June lows, with a potential move lower than those lows, as these markets are looking tired, laboured, and choppy.

Furthermore, the SPX will need to overcome and hold above 84.00 on this 60 min SPX/VIX raio pair if it is to resume a rally. It's been rejected at this level on the last several attempts, including today's, so far, this month.

Market Action During Bernanke Testimony Tuesday Morning

I have a couple of remarks to make about the morning's action, so far, during Mr. Bernanke's testimony before the Senate Banking Committee.

Further to my post of July 16th, a near-term support level of 483.00 has been re-tested and is holding, so far, on the Utilities Index, as shown on the 15 min chart below...one level that I'm watching relative to weakness/strength on the other Major Indices. Near-term resistance of 485.60-486.00 lies overhead and would need to be overcome in order to push the other markets higher.

The low and high of the recent small "diamond" pattern on the SPX:VIX ratio pair have been re-tested this morning as shown on the 60 min chart below...price now sits at the next resistance level of 83.93...the next hurdle for the SPX to overcome if it is to resume a rally.

Price Action on the Major Indices

Each candle represents 3 days on all of the charts below of the Major Indices...the current candle will close tomorrow.

You can see they're in a tight upward trending channel (which is intact for the moment), with price action swirling around the 50 sma (red) since mid-May. Resistance remains overhead from April/May. The exception to this is the Utilities Index, which is well above its 50 sma, with near-term resistance from mid-June...and one to watch for evidence of any damaging weakness entering that may spill over into the other Major Indices...otherwise, I'd expect this channel to hold.

Money Flow for July Week 2

Further to my last weekly market update, here is my commentary on the long, medium, and short-term trend/risk appetite of the 4 Major Indices and 9 Major Sectors relative to their Monthly, Weekly, and Daily charts, respectively. Please refer to that post for an explanation of how my "BULLISH/BEARISH" and "RISK ON/RISK OFF" labels are derived.

Chartgrid #1 depicts a Monthly timeframe of the 4 Major Indices (Dow 30, S&P 500, Nasdaq 100, and Russell 2000)...my comments refer to the current month's (July's) candle.

• "BULLISH" so far this month for all 4 Indices.
• "RISK OFF" so far this month on the Dow, S&P, and Nasdaq. "RISK ON" on the Russell. Still room for these indices to rally to their upper Bollinger Band if they stay above the "MEAN."
• Long term, the Russell is lagging in strength and is the one to watch, as a drop below its "MEAN" could send it down to the lower Bollinger Band and pull the others down with it. The S&P is in imminent danger of a bearish moving average "Death Cross" formation occurring on this timeframe...one to watch for market reaction. High-wave spinning top candles depict market indecision on this timeframe.

Chartgrid #2 depicts a Weekly timeframe of the 4 Major Indices...my comments refer to this past week's candle.

• "BEARISH" for the Dow, S&P, and Nasdaq. "BULLISH" for the Russell.
• "RISK ON" for the Dow & S&P. "RISK OFF" for the Nasdaq and Russell. 3 are in danger of falling to their lower Bollinger Band if they stay below the "MEAN."
• Medium term, the Russell is leading in strength (barely) and is the one to watch, as a drop below its "MEAN" could drag all of them to their lower Bollinger Band. The blended action of the last 2 candles depicts market indecision on this timeframe.

Chartgrid #3 depicts a Daily timeframe of the 4 Major Indices...my comments refer to Friday's candle.

• "BULLISH" for the Dow, S&P, and Russell. "BEARISH" for the Nasdaq.
• "RISK ON" on Friday on all 4 Indices.
• Short term, the Nasdaq is lagging in strength and is the one to watch as a hold below its "MEAN" could send it and the others down to its lower Bollinger Band, or lower...otherwise, look for more upside movement in all 4 Indices to, potentially, the upper Bollinger Band, or higher.

The 2 graphs below show money flow for the 9 Major Sectors during the current month, so far, as well as the past week...XLY (Consumer Discretionary), XLK (Technology), XLI (Industrials), XLB (Materials), XLE (Energy), XLP (Consumer Staples), XLV (Health Care), XLU (Utilities), and XLF (Financials).

You can see that the markets have begun building an advance in the Energy (XLE) and Financials (XLF) Sectors, as well as the Defensive Sectors (XLP, XLV, and XLU).

Chartgrid #4 depicts a Monthly timeframe of the 9 Major Sectors...my comments refer to the current month's candle.

• "BULLISH" so far this month for XLY, XLK, XLP, XLV, and XLU. "BEARISH" for XLI, XLB, XLE, and XLF.
• "RISK ON" so far this month for XLE, XLP, and XLU. "RISK OFF" for XLY, XLK, XLI, XLB, XLV, and XLF.
• Long term, XLF (Financials Sector) is still the weakest of the 9 Sectors and is the one to watch for either increasing weakness or strength, and is at a crossroads with its steeply downtrending 50 sma. The Defensive Sectors (XLP, XLV, and XLU) are still under the heaviest accumulation from their 2009 lows.

Chartgrid #5 depicts a Weekly timeframe of the 9 Major Sectors...my comments refer to this past week's candle.

• "BULLISH" for XLP, XLV, and XLU. "BEARISH" for XLY, XLK, XLI, XLB, XLE, and XLF.
• "RISK ON" for XLE, XLP, XLV, XLU, and XLF...reflecting the build in the advance as noted in my comments above. "RISK OFF" for XLY, XLK, XLI, and XLB.
• Medium term, XLP (Consumer Staples Sector) is the one to watch to see if it continues to outperform next week...XLF (Financials) is also the one to watch as it's the only one that is under the influence of a bearish moving average "Death Cross" formation on this timeframe. The Defensive Sectors (XLP, XLV, and XLU) are still under the heaviest accumulation from the beginning of this year.

Chartgrid #6 depicts a Daily timeframe of the 9 Major Sectors...my comments refer to Friday's candle.

• "BULLISH" for XLY, XLB, XLE, XLP, XLV, XLU, and XLF. "BEARISH" for XLK and XLI.
• "RISK ON" for all 9 Sectors.
• Short term, XLB (Materials Sector) and XLE (Energy) are ones to watch as they're under the influnce of a bearish moving average "Death Cross" formation on this timeframe...XLI (Industrials) and XLF (Financials) are also worth watching to see if a "Death Cross" forms on these (the crossover on XLI is imminent). The Defensive Sectors (XLP, XLV, and XLU) are still under the heaviest accumulation on the Daily timeframe as they're the furthest above their 50 sma...ones to watch to see if price reverts back to the the 50 sma, or even lower, potentially dragging the other Sectors further down, as well.

Further to my post of July 10th, the 4-Hour chartgrid below of the YM, ES, NQ & TF shows that price closed above the two intersecting 50% Fibonacci fan lines with the horizontal support levels of 12460 for YM, 1327.50 for ES, 2578 for NQ, and 778 for TF. The NQ just squeaked above by 0.25 and is the one to watch next week for either a strengthening advance or the development of weakness at this level.

As I mentioned in that post, if price cannot hold above this support level on these e-mini futures indices, they are in danger of dropping down to or below the June lows.

In summary, this next week hosts a number of important events, namely:

• July 17 - 10:00 am - Ben Bernanke speaks before Senate Banking Committee (semi-annual monetary policy testimony)
• July 18 - 10:00 am - Ben Bernanke speaks before House Financial Services Committee (semi-annual monetary policy testimony)
• July 18 - 2:00 pm - Beige Book Report
• July 20 - OPEX

No doubt, market participants will be listening intently to Mr. Bernanke's remarks for any hint of "QE and monetary stimulus," to which I referred in my post of Friday 13th...we'll see how the markets react.

Enjoy your weekend and good luck next week!

Who Will Foot the World's Bill?

All the talk this year of "QE and monetary stimulus" and yet no action from any of the three major world economies makes me think that each one is waiting for the other to reach into their pocket first and fund what would likely fuel a temporary rally in world markets.

The questions are:

• Is it warranted?
• Can they afford it in the long run?
• What purpose would this serve in the long run?
• Who is willing to pick up the tab?
• How much would they provide?
• For how long would they keep the purse open?
• Who has the most to gain from such action?
• Who cannot afford to sit back and wait?

The three choices are the U.S., Europe (represented by Germany), and China. The Weekly charts below depict market action in each country for the past three years.

Time will provide the answers to these questions. In the meantime, perhaps a clue may come from that country where "QE and monetary stimulus" are most often mentioned as a cure-all for what ails the economy. Care to lay any bets on the table as to who will blink first?

China's Downtrend Continues

Data released Thursday night shows a marked downtrend in place in China from 2010 on GDP, Fixed Asset Investment, Industrial Production, and from 2008 on Retail Sales, as shown on the graphs below. In fact, the numbers for Fixed Asset Investment and Retail Sales are lower than the lows in 2009.

My only conclusion from these is that China has been in, and is still in, a period of contraction...there are no signs that China will lead the world out of a slowdown in growth.

The Daily chart below of the Shanghai Index shows that price is trading in a long-term downtrend near three-year lows and is still trading under the bearish influences of a moving average "Death Cross" formation...a reflection of China's drop in output and consumption during that period.

Gold/Oil/Copper/Silver Conundrum

Below are four Weekly charts of Gold, Oil, Copper, and Silver.

The price action for the past few weeks on each one is presenting as a bear flag, either at, just above, or just below a major support level. Any attempts, so far, to sell off below these support levels have been met with defensive buying/short covering...ones to watch for a potential break and hold below their recent lows as a signal of more weakness in these markets, which will likely have a negative impact on the equity markets...this ties in with the theme mentioned in my last post on the Major Indices and the Major Sectors.

The "50s" on the Major Indices and Major Sectors

Further to my post of June 29th, I'm watching the YM, ES, NQ & TF 4-Hour charts as price drops, once again, toward the two intersecting 50% Fibonacci fan lines with the horizontal support levels of 12460 for YM, 1327.50 for ES, 2578 for NQ, and 778 for TF. Price has already reached and dipped just below this level on the NQ.

If price cannot hold above this level on these e-mini futures indices, they are in danger of dropping down to or below the June lows.

Correlated with these are the Daily charts of the 4 Major Indices, to which I referred in my post of July 6th. Price has come down to a confluence support level of the mid-Bollinger Band and the 50 sma (red) on the Dow 30, S&P 500, and Nasdaq 100, so far.

Weakness below this level can send these indices down to their next confluence support at their lower Bollinger Band and 200 sma (pink), or possibly down to or below their June lows. The (potentially imminent) formation of a bearish moving average "Death Cross" on, firstly, the Russell 2000, then the others would likely send these indices to new lows for the year.

Finally, any attempts by the bulls to push the 9 Major Sectors higher have failed miserably, so far, this week, as shown on the Daily charts below, as many of them are waging a battle around their 50 sma and mid-Bollinger Band...showing across-the-board weakness this week...worth keeping an eye on these, since a break and hold below their prior swing low could send these to new lows for the year.

Market Action So Far This Week...

Money Flow for July Week 1

Further to my last weekly market update, this week's post will take on a different format. This may be a more useful and simple format for me to use on a weekly basis instead of the previous lengthy ones that I've been reporting on since the beginning of this year, in order that I may compare overall market and sector strength/weakness, and to assess appetite for risk during the past week relative to the long, medium, and short terms.

Below are a series of chartgrids of the 4 Major Indices and 9 Major Sectors showing Monthly, Weekly, and Daily timeframes. Each chart contains a set of Bollinger Bands, a 50 sma (red), and a 200 sma (pink). Generally, the mid-Bollinger Band (20 sma) will represent the "MEAN" to which price will revert as markets become overbought or oversold at their upper and lower Bollinger Bands. Price above the mid-Bollinger Band will be considered "BULLISH." Price below the mid-Bollinger Band will be considered "BEARISH." A green candle will depict "RISK ON" and a red one will depict "RISK OFF."

I'll provide commentary on the long, medium, and short-term trend/risk appetite relative to their Monthly, Weekly, and Daily charts, respectively.

Chartgrid #1 depicts a Monthly timeframe of the 4 Major Indices (Dow 30, S&P 500, Nasdaq 100, and Russell 2000)...my comments refer to the current month's (July's) candle.

• "BULLISH" so far this month for all 4 Indices.
• "RISK OFF" so far this month on the Dow, S&P, and Nasdaq. "RISK ON" on the Russell. Still room for these indices to rally to their upper Bollinger Band if they stay above the "MEAN."
• Long-term, the Russell is lagging in strength and is the one to watch, as a drop below its "MEAN" could send it down to the lower Bollinger Band and pull the others down with it. The S&P is in imminent danger of a bearish "Death Cross" moving average formation occuring on this timeframe...one to watch for market reaction.

Chartgrid #2 depicts a Weekly timeframe of the 4 Major Indices...my comments refer to this past week's candle.

• "BEARISH" for the Dow, S&P, and Nasdaq. "BULLISH" for the Russell.
• "RISK OFF" this past week on the Dow, S&P, and Nasdaq. "RISK ON" on the Russell. 3 are in danger of falling to their lower Bollinger Band if they stay below the "MEAN."
• Medium term, the Russell is leading in strength and is the one to watch, as a continued move upward could propel it up to the upper Bollinger Band and pull the others up along with it.

Chartgrid #3 depicts a Daily timeframe of the 4 Major Indices...my comments refer to Friday's candle.

• "BULLISH" for all 4 Indices.
• "RISK OFF" on Friday on all 4 indices...in danger of falling to the "MEAN."
• Short term, the Russell is leading in strength and is the one to watch, especially if it drops all the way back down to its "MEAN," as that could pull the others below their "MEAN" and, potentially, move these indices back down to their lower Bollinger Band.

The graph below shows money flow for the 9 Major Sectors during the current month, so far, as well as the past week...XLY (Consumer Discretionary), XLK (Technology), XLI (Industrials), XLB (Materials), XLE (Energy), XLP (Consumer Staples), XLV (Health Care), XLU (Utilities), and XLF (Financials).

Chartgrid #4 depicts a Monthly timeframe of the 9 Major Sectors...my comments refer to the current month's candle.

• "BULLISH" so far this month for XLY, XLK, XLP, XLV, AND XLU. "BEARISH" for XLI, XLB, XLE, and XLF.
• "RISK ON" so far this month for only XLP (Consumer Staples Sector). "RISK OFF" for the other 8 Sectors.
• Long term, XLF (Financials Sector) is the weakest of the 9 Sectors and is the one to watch for either increasing weakness or strength, and is at a crossroads with its steeply downtrending 50 sma. The Defensive Sectors (XLP, XLV, and XLU) are still under the heaviest accumulation from their 2009 lows.

Chartgrid #5 depicts a Weekly timeframe of the 9 Major Sectors...my comments refer to this past week's candle.

• "BULLISH" for XLP, XLV, and XLU. "BEARISH" for XLY, XLK, XLI, XLB, XLE, and XLF.
• "RISK ON" for only XLP. "RISK OFF" for the other 8 Sectors.
• Medium term, XLP (Consumer Staples Sector) is the one to watch to see if it continues to outperform next week...XLF (Financials) is also one to watch as it's the only one that is under the influence of a bearish "Death Cross" moving average formation. The Defensive Sectors (XLP, XLV, and XLU) are still under the heaviest accumulation from the beginning of this year.

Chartgrid #6 depicts a Daily timeframe of the 9 Major Sectors...my comments refer to Friday's candle.

• "BULLISH" for all 9 Sectors
• "RISK ON" for XLY, XLB, XLE, XLP, XLU, and XLF. "RISK OFF" for XLK, XLI, and XLV.
• Short term, XLB (Materials Sector) and XLE (Energy Sector) are ones to watch as they're struggling under the influence of a bearish "Death Cross" moving average formation on this timeframe...XLI (Industrials Sector) and XLF (Financials Sector) are worth watching to see if a "Death Cross" forms on these sectors. The Defensive Sectors (XLP, XLV, and XLU) are still under the heaviest accumulation on the Daily timeframe as they're the furthest above their 50 sma...ones to watch to see if price reverts back to the 50 sma, or even lower, potentially dragging the other Sectors further down, as well.

In summary, it appears that the way the markets are being played at the moment is "Aggressive on the Defense vs. Light on the Offense."

Enjoy your weekend and good luck next week!