FTSE 100 Index Facing Major Headwind Resistance

In my post of July 25th, I pointed out that Britain's FTSE 100 Index was trading around a major price support/resistance level of 5500. It subsequently bounced from there and has risen to the top of the large "Diamond" pattern (which, I mentioned, has been forming from 2009/10...and is, potentially, a topping pattern with a 1300 point range).

The updated Daily chart below shows market action, to date (October 18th's close). Price is facing immediate major headwind resistance from the upper edge of this Diamond pattern, along with negatively-diverging RSI, MACD, and Stochastics Indicators...one to watch for a potential breakdown, as the 1300 point range is substantial.

I'm mindful of the fact that Britain is also facing a 9 billion pound debt incurred from hosting the 2012 Olympic Games, as it struggles with a double-dip recession, severe public spending cuts, and an unemployment rate of 7.9% (as reported here on October 17th and shown on the graph below)...adding, enormously, to the above headwinds.

China's GDP Continues to Decline

Data released on Wednesday shows a continued decline in China's GDP, which began in April 2010, as shown on the graph below. There were only two quarters with lower GDP numbers since January 2009.

In addition, the Fixed Asset Investment, Industrial Production, and Retail Sales data (also released yesterday) showed a small improvement. The numbers, however, remain subdued at 2009 levels. Fixed Asset Investment in 2012 has been the lowest since 2005. Since it's a "leading indicator of economic health and changes in private and public investment levels can be an early signal of future economic activity such as hiring, spending, and earnings," this low level, combined with a still-declining GDP, does not signal a growing economy.

As can be seen from the Daily chart below of the Shanghai Index, price has rallied slightly, but faces resistance at the 2150 level. Not shown on this chart is today's close at 2131.69. So far, this is only indicating a rally and not a bottom yet. Price will have to break and hold above 2150, and we'll have to see a turn-around in declining GDP and continued improving data to be supportive of any such scenario.

EEM ~ Weekly H&S and Daily H&S Patterns

Below are a Weekly chart and Daily chart of the Emerging Markets ETF (EEM).

A very large Head and Shoulders pattern has been building on the Weekly timeframe since September 2009. Price is retesting a zone in the vicinity of the right shoulder and appears poised for another attempt at a break above.

Within the right shoulder is another smaller Head and Shoulders pattern, which has been building since August 2011 on the Daily timeframe. Price is retesting the September 14th "shooting star," the high of which represents the top of the right shoulder (which is still forming) on this timeframe. Furthermore, a bullish moving average "Golden Cross" formed two days ago, and, once again, price closed just above the 50% Fibonacci retracement level today. Volumes have picked up a bit over the past couple of days.

If price breaks and holds above 43.00, the next level of resistance is the top of the Daily "head" and Weekly "right shoulder" at 44.91 (if it can make it above the 60% Fib level at 43.93).

You can see how EEM is performing compared to the BRIC countries, as shown on the 6-Month Daily charts below. If we see India and China weaken, we may see the others, including EEM, follow suit. All five bear a close watch over the next few days, as any weakening, in the near-term, may negatively affect U.S. equities.

The Ever-Growing Technology Bubble...You've Been Warned!

Once again, another bubble grows as the spread between the NDX and S&P 500 and also between these Indices and their respective Volatility Indices continues to widen, bringing with it unresolved volatility repercussions, as shown on the 20-Year Daily percentage comparison chart below. The last two bubbles didn't end well for both Indices, as their collapses were swift and deep, cannibalizing virtually all of the gains that were made within both bubbles.

Technology has risen from the 2009 lows more, in percentage-terms, and faster, than it did from the last bubble lows to highs, thanks to the non-stop money-printing programs that have been enacted by the Fed since 2009. However, the Fed, alone, cannot save a potential collapse of the current bubble, particularly within the confines of the challenges facing the current slowing global economic environment, along with growing domestic and international political/fiscal discord, which were not factors prior to the last bubble collapse.

You've been warned...please don't shoot the messenger!

Barbie

This from Wikipedia:

"Barbie is a fashion doll manufactured by the American toy-company Mattel, Inc. and launched in March 1959. American businesswoman Ruth Handler is credited with the creation of the doll using a German doll called Bild Lilli as her inspiration.
Barbie is the figurehead of a brand of Mattel dolls and accessories, including other family members and collectible dolls. Barbie has been an important part of the toy fashion doll market for fifty years, and has been the subject of numerous controversies and lawsuits, often involving parody of the doll and her lifestyle."

Mattel's Q3 earnings results today beat expectations: http://finance.yahoo.com/news/mattel-3q-results-beat-expectations-142055442.html

This 3-Year Daily chart shows negative divergences on the RSI, MACD, and Stochastics Indicators...expecting a drop after today's gap up.

A New Toy for Water Daredevils!

Comparison of S&P 500, Russell 2000, Gold, and Oil

I thought I'd look at the S&P 500 and Russell 2000 Indices, Gold, and Oil to compare where they are trading on a 1-Year Daily timeframe relative to their 50 sma and on a 3-Year, 1-Year Daily, and 11-Day timeframe relative to each other.

The first chartgrid shows a 1-Year timeframe, with the SPX and RUT trading around their 50 sma, Gold is above its 50 sma, and Oil is below its 50 sma. The second chartgrid shows a 2-Month close-up shot, with today's recovery into the close on the SPX, RUT, and Oil. Gold closed near today's low. While the SPX and RUT have made a new high during the past year (which is serving as near-term resistance, thus far), Gold and Oil have not. The triple top on Gold at 1800 is serving as major price resistance, while the 100.00 level is holding as major price resistance on Oil (with the 50 sma holding as near-term resistance at 93.96).

The 1-Year percentage lost/gained graph below shows that the SPX leads in percentage gained, followed by the RUT, Oil, and Gold.

The 1-Year comparison chart below shows that, on a relative-strength basis and in price-action format, the SPX has gained the most over the past year, followed by the RUT, Oil, and Gold.

However, when we look at a 3-Year comparison chart, we see that Gold is, by far, the leader, followed by the RUT, SPX, and, finally, Oil.

Finally, this last comparison chart shows price action for the month of October, thus far. Gold has seen the most profit-taking, while the SPX, Oil, and RUT have seen the least and have turned up slightly the past two days. Whether this is an indication that traders are taking profits in Gold to fund further buying in equities and, possibly, Oil, remains to be seen. This can be tracked over the next few days/weeks for confirmation of such a scenario.

In any event, the 50 sma is having an impact on price action on the SPX, RUT, and Oil. Should all four instruments break and hold below this moving average, we'll likely see a correction in equities and commodities, in my opinion. I'll be looking for confirmation of this in short-term price action on the OEX, DBC, the U.S. $, and 30-Year Bonds, as mentioned here and here.

Way to go, Felix!!! ~ Historical Skydive From Space 10/14/12

Top-Down View of the S&P 100 Index

The following four charts show a top-down view of the recent breakdown of the S&P 100 Index (OEX). Each candle on the first chart represents a 1-month Options Expiry period, the second chart is a Monthly timeframe, followed by Weekly and Daily charts.

The close-up view on the Daily (fourth) chart shows that, not only has price broken below an intersecting uptrend and downtrend support level, but there are also trend breaks on the Stochastics, MACD, and RSI indicators after negative divergences formed in relation to a triple top on price. What was support has now become resistance. If it holds, we'll see further selling, likely to the lower trendline (which is roughly in line with the 200 sma), or lower. I'll be monitoring these indicators on the Weekly timeframe to see when they reach an oversold status to check where price is relative to the Daily 200 sma and lower trendline, and when any positive divergences begin to form.

The "True" Definition of "Macro Economics" ;-)

Money Flow for October 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 and RUT:RVX
• Commodities ETF (DBC)
• U.S. $ (DX)
• 30-Year Bonds (ZB)

All 6 Major Indices ended the week lower, as shown on the Weekly charts and 1-Week percentage lost/gained graphs below. The largest losses were incurred by the Nasdaq 100, followed by the Dow 30, S&P 500, Russell 2000, Dow Utilities, and Dow Transports.

All 9 Major Sectors ended the week lower in a "risk-off" environment, as shown on the Weekly charts and 1-Week percentage lost/gained graphs below. The largest losses were incurred by the Consumer Discretionary Sector, followed by Technology, Materials, Health Care, Industrials, Energy, Consumer Staples, Financials, and Utilities.

I've added the following Daily charts of the Indices and Sectors, as I would note that, generally, the Stochastics Indicator has reached an oversold condition on most of them, but it has not yet turned up...one to watch in the short term for any signs of stabilization or reversal of this latest pullback...otherwise, look for more selling in the week(s) ahead.

The following Daily ratio chart comparing the SPX to its Volatility Index (VIX) shows that price has, once again, closed below the bottom of its uptrending channel, but is resting on an uptrend line. The Momentum Indicator is just above the zero level, but it made a lower low on the prior price pivot low. A close and hold below the trendline should produce further selling in the SPX.

The following Daily ratio chart comparing the RUT to its Volatility Index (RVX) shows that price has also, once again, closed below the bottom of its uptrending channel, but is resting on horizontal price support. The Momentum Indicator is also just above the zero level, and it made a lower low on the prior price pivot low. A close and hold below its immediate support level should produce further selling in the RUT.

Generally, nothing is indicating that buying in equities will resume next week, although we may see a pause to relieve a bit of an oversold condition on the Daily timeframe. A rise in Volatility will confirm continued bearishness, so it will be an important indicator to monitor.

Of interest is the fact that, although a bearish "Death Cross" has not yet formed on the SPX Monthly timeframe, we have one now on the ES (S&P 500 E-mini Futures Index) Monthly. As such, further selling may be in store for equities.

As shown on the Daily chart below, the Commodity ETF (DBC) has closed at a convergence of its falling mid-Bollinger Band, rising 50 sma (red), and year-to-date Volume Profile POC (horizontal pink). After putting in three bearish "evening star" formations and a tightening of its Bollinger Bands, it is signalling that it may be in for a further pullback. A close and hold below its lower Bollinger Band should produce such a sell-off.

The 80.00 level shown on the Weekly chart of the U.S. $ below represents a high level of interest, as it is currently at a confluence of intersecting Fibonacci fanlines, 50 sma (red), 200 sma (pink), (50 is still above 200 in its bullish "Golden Cross" formation on the Weekly timeframe), and the Volume Profile POC. Price closed on Friday just below this 80.00 level. It will be necessary for the $ bulls to reclaim and hold this level, since a bearish "Death Cross" has just formed on the Daily timeframe.

30-Year Bonds closed out the week above a confluence support level of the mid-Bollinger Band, Fibonacci fanline, and uptrend line on a "Bullish Engulfing" candle, as shown on the Weekly chart below.  There is nothing to indicate that wide-spread selling has begun in this Bond, nor that a shift in trend is about to occur. I do see, however, that a "diamond" pattern is emerging, which may simply represent a continuation pattern rather than a reversal...time will tell which scenario completes.

In summary, if we see a major breakdown in Commodities and a rally in the U.S. $ and 30-Year Bonds, we may see a further pullback in equities, and there will be a rise in Volatility. Since next Friday is Options Expiration, the FOMC meeting is the following Wednesday, and we're now in Q3 Earnings Season, we may see some volatile intraday swings between now and then, particularly as tension builds heading into the U.S. Presidential election on November 6th, along with public and political/economic/fiscal unrest in some Europe countries and rising tensions in the Middle East and between China and Japan. No doubt, the markets will look for defensive measures to protect against such threats to any resumption of a bullish equity bias in the short term, or even just a hedge against further losses on more selling. In any event, it's bound to get interesting.

Enjoy your weekend and good luck next week!

Relative Strength in This Week's Weakness

Due to an across-the-board sell-off that's occurred, so far, this week in equities, I thought I'd take a mid-week look at the 6 Major Indices and 9 Major Sectors to see which ones have been holding up somewhat better than the others.

From the Daily line chart of the Major Indices shown below, the two Indices that haven't reached their lower Bollinger Band by today's (Wednesday's) close are the Dow Transports and Dow Utilities. They are, however, underperforming the other four Indices in terms of performance from July.

The 3-day percentages gained/lost graph confirms this. The biggest losses, so far this week, have been in the Nasdaq 100 Index, followed by the Dow 30, S&P 500, and Russell 2000.

The Daily line chart of the 9 Major Sectors shows that the only ones that haven't yet closed at/near their lower Bollinger Band are Consumer Staples, Health Care, Utilities, and Financials. The only ones that made a higher swing closing high before this latest pullback are Consumer Staples, Health Care, and Utilities (the "Defensive" Sectors).

The 3-day percentages gained/lost graph shows that the largest losses have occurred in the Consumer Discretionary Sector, followed by Industrials, Materials, Health Care, Energy, and Technology. The sectors with the least losses are Utilities, followed by Financials, and Consumer Staples. While Health Care has only pulled back to its mid-Bollinger Band, it is still  in the first group (the "Offensives") which has had the largest percentage losses.

In summary, while there has been a general sell-off in the Large-Cap, Technology, and Small-Cap Indices in a "risk-off" environment by mid-week, the Dow Transports and Utilities have fared somewhat better, on a percentage-lost basis. They are the ones to watch for any signs of serious weakness, which may take them down to their lower Bollinger Band. If that happens, they may drag the other four Indices down further below their lower Bollinger Band, which may (or may not) hold for a day or two as short-term support. Also, since the Nasdaq 100 has lost the most, while the Russell 2000 has lost the least compared with the 4 Major Indices, they also hold the key and bear a close watch over the next couple of days to watch for either signs of an acceleration of weakness or evidence of stabilization or buying/short-covering.

In addition, the Sectors to watch for any signs of serious weakening are the "Defensive" and Financial Sectors. If that happens, they may drag the other Sectors down further below their lower Bollinger Band, which may (or may not) hold for a day or two as short-term support.

Finally, it's my opinion that any further serious sell-off below lower Bollinger Bands in all these Indices and Sectors would likely be accompanied by a general sell-off in commodities and foreign currencies. In this regard, 80.00 seems to be the level that would need to be held by the U.S. $, as shown on the Weekly chart below. Several intersecting Fibonacci fanlines, the 50 sma (red), the 200 sma (pink), the 5-Year Volume Profile POC (point-of-control), and price consolidation ranges all converge at this 80.00 level, so it's an important level to be captured by $ bulls and held as support.

Two Heads Are Better Than One? ;-)

Channel Support - YM, ES, NQ & TF

Very simply, we may see the 4 Major E-mini Futures Indices (YM, ES, NQ & TF) continue their trek down to the bottom of the channel on the Daily charts below. None of the RSI readings are oversold yet, nor are they diverging to signal a bounce. I would, therefore, assume that the recent selling will continue.

As of today's (Tuesday's) close, downside price targets would be:

• YM = 13175 - 13200
• ES = 1400 - 1410
• NQ = 2650
• TF = 800

 

To confirm any further pullback, I'll be watching the two Daily ratio charts below comparing the S&P 500 and Russell 2000 Indices to their respective Volatility Indices.

 

The first is of the SPX:VIX. Price closed today below the bottom of channel support, but is resting on trendline support, which is a bit lower. A break and hold below will spell further weakness for the SPX as volatility rises. A lower Momentum reading is signalling more downside for the SPX, as there is no positive divergence yet.

 

 

The second chart shows the RUT:RVX. Price also closed today below the bottom of channel support, and is resting on horizontal price support. A break and hold below will spell further weakness for the RUT as volatility rises. A lower Momentum reading is signalling more downside for the RUT, as there is no positive divergence yet.