Declaration of Independence

Market Summary

While the weekly performance shows all markets except natural gas in the green it is rather deceptive as the markets actually sold off substantially from the highs for the week. The markets were not able to break above the prior weeks highs and closed near the lows for the week. And while gasoline, oil, and the emerging markets did make impressive gains to the upside the major indices were essentially flat for the week. This gives support to the bearish camp and the markets could sell off substantially in the near future. Uptrend lines have been broken and the smart money which usually trades in the last hour of the day showed heavy selling pressure especially on Friday before the long weekend. Next week being a short week could show continued selling pressure. Click on table to enlarge.

The sector performance continues to improve compared with last week. Basic Materials made impressive gains and Financials are nearly flat for the year to date period. Click on graph to enlarge.

There were several significant news events this last week not the least of which was the downgrade of the UK sovereign debt by Standard & Poor’s from stable to negative citing an increasing debt-to-GDP ratio. In turn, this spurred a sharp decline in the dollar and Treasuries on concern that the US may also face a negative outlook on its AAA rating. For the week, the dollar fell 3.6% and is down over 11% against a basket of other currencies since early March. The drop in the dollar gave commodities a boost with crude prices surging and the CRB index gaining 3.3%. Next week the US Treasury is selling 100 billion dollars in bonds: $40bn of two-year notes on Tuesday, $35bn of five-year bonds on Wednesday, and $25bn of seven-year debt on Thursday. Traders are watching closely to see what percent is being purchased by the US government itself in the effort to monetise its debt.

The chart below is a 3 month daily chart of the S&P 500 with a proprietary indicator I recently developed showing when prices cross the 20 period Simple Moving Average. As can be seen where the chart background color turns light green on March 12 it remained above the 20 SMA until Thursday May 21st when prices broke down below the moving average and the background again turned the pink color. This is an indication of price weakness. How far down we go we will just have to wait and see. Click on chart to enlarge.

Market Summary

Not a good week in the markets overall. The table below shows only gold was up for the week slightly by 1.77% and all the other markets followed were in the red. And as gold is a defensive play it makes sense that as money is leaving equities it is finding safe haven in gold. Click on table to enlarge.

The year to date sector performance shows we lost two sectors this past week to the red side. Both Industrial Goods and Financials jumped back over to the red side after only jumping on board the green side just the week before. Basic Materials, which the week before was up 17.3% is still leading the pack at 10.7%. Click on graph to enlarge.

The S&P 500 daily chart below shows we broke a long term trend line this week to the downside. How far down we will go remains to be seen. This is likely to be the long awaited pull back that creates the buying opportunity many have been waiting for. While it may be that we are having a bear market rally off of the March lows the momentum still appears to be to the upside thus we are likely to see a continuation of the current rally upon completion of this pull back. We will just have to wait and see. Click on chart to enlarge.

Market Summary

It was a very good week for the markets which were completely in the green for all the markets followed in the table below. What is interesting about the order of weekly performance gains is that gasoline topped the list per the UGA followed by oil per the USO while the NASDAQ Composite was the laggard. Oil prices are in a technical rally and are decoupled from the fundamentals. We have a global slowdown in the demand for oil and an all time high in inventories. Natural gas is in similar situation. UNG is rallying even though inventories of natural gas keep going up. Markets trade on sentiment which is influenced by the technicals but you cannot ignore the fundamentals. Not listed in the list below was the natural gas ETF UNG which was up a whopping 23% for the week. Clearly it was a strong week for commodities which can be seen as defensive while the more risk prone technology heavy NASDAQ Composite was nearly flat for the week. We could be seeing some sector rotation here in preparation for a market reversal. Click on table to enlarge.

The sector performance graph below shows that we have doubled the sector in the green from last weeks three sectors to this week having six sectors in the green. This week we added Financials, Industrial goods, and Consumer goods to the list of sectors in the green for the year. The S&P 500 is only down marginally for the year to date therefore we would expect this performance to be reflected in the performance of the sectors. The laggards are Conglomerates, Utilities, and Healthcare. Click on graph to enlarge.

As I said in last weeks market summary a break above last weeks high of 888.70 and the target would be the January 2009 high in the area of 943. We got up to 930.17 and closed at 929.23 up from last weeks close of 877.52. The 200 day moving average stands at 954.58 and we really are not that far away. The trend line that formed the support line for the rising wedge formation has now become the resistance line as the market has traveled up the channel formed by the original break of the rising wedge on April 20th. I continue to expect a pull back in this market soon as the S&P 500 is setting up to complete an inverted head and shoulders formation. I will keep a close eye on that lower trendline of the channel for prices to break below and signal the start of the pullback. The completion of that pullback should be a fantastic buying opportunity. Click on chart to enlarge.

The NASDAQ has been the leader in the markets move upward but has stalled as the S&P 500 and Dow play catch up to their respective 200 day moving averages. The fundamentals in the economy do not justify the rally at this point and the momentum has been based on technical strength in the markets and not fundamental strength in the economy. This is know as decoupling and is unlikely to continue for very much longer. As can be seen in the NASDAQ chart below we have a hanging man formation which was confirmed by Thursday’s break below the 200 day moving average which stands at 1741.97. Friday was an inside day and therefore a continuation pattern for the prior move which was to the downside with a close at 1739.00. Which way the markets go we will have to wait and see. Happy Mother’s Day to all the mothers. Click on chart to enlarge.

Market Summary

It was another good week in the market with green in the weekly column for all the followed markets. Gasoline and the emerging market ETF EEM topped the list as best price performers and the S&P 500 and the NASDAQ were the laggards but still in positive territory. The only loser was the GLD down about half of last weeks gains. The markets are continuing to show signs of strength and another week of gains as we chew away at key resistance levels. Click on table to enlarge.

Comparing the sector performance graph with the one from last week shows 2%+ increases in Technology, Basic Materials, and Services which remain the strongest sectors. Utilities made an impressive gain of 4% moving into the 6th place from the 8th place position last week and passing up Financials which made a modest gain of 0.4% for the week. Click on graph to enlarge.

The daily chart of the S&P 500 below shows that while we did break down from the rising wedge chart pattern two weeks ago with that large red candle there was no follow through to the down side and we formed a rising channel with no significant movement down on the MACD. We have essentially been going sideways in what may be called a consolidation pattern. And as we did close above the February high of 875.01 we now have a shot of going for the January 06, 2009 high of 943.85. Will we go straight there or will we have a pull back first is the big question. I thought we were going to get more down side movement with the break of the rising wedge formation but that did not happen. A break above last weeks high of 888.70 and we are more likely to see continued movement to the upside. A break below last weeks low of 847.12 and we could see further sell off to the down side. The NASDAQ is at the level of its falling 200 day moving average and so this is a logical place for the markets to back off from. Which way we go we will just have to wait and see. Click on chart to enlarge.

Market Summary

This last week painted a mixed picture or so called “fractured market” in the financial markets. In a trending market the major indices tend to travel together in the same direction all going up or down together. When they become disjointed with some going up and some going down on the weekly price performance numbers it can be a sign of consolidation or an impending market reversal. For the week gold per the GLD did the best up 5.28% and gasoline per the UGA did the worst down 4.30%. Click on table to enlarge.

The sector graph below shows the same number of green and red sectors as last week however what is notable is the improved performance of the Industrial goods sector compared to last week and the worsening of the Financial sector from last week. Could it be that a report by the Commerce Department that US Durable Goods fell less than expected produced the uptick in Industrial goods? It is funny how once the bad news is out that the markets will rally. As for the big banks many of them came out with earnings this last week. And while they reported better than expected earnings the question remains why then do they need a federal bailout? I am keeping an eye on the financial sector as it has been the leader in this market both to the downside and upside. Click on graph to enlarge.

As I mentioned last week we have a rising wedge formation as a chart pattern on the S&P 500 which broke through the support line on Monday. And while the market did not continue going down after the break of the support line on Monday it was not able to get back up to the prior weeks high of 875.63 or this weeks high of 868.27. A break above 875 and the next level of resistance is the 930 area. However, a break below last weeks low of 826.83 and next target is in the area of 800 and then 750. The weekly chart candlestick pattern is that of a hanging man which is bearish. The daily chart of the S&P 500 below shows the break in the rising wedge and the cross of the MACD indicator (blue line) below its moving average signal line (red line) which is also bearish. My feeling is that we have more to go to the downside however which way the markets go we will just have to wait and see. Click on chart to enlarge.

Market Summary

Another good week in the markets, but we are fairly overextended. This has been six weeks in a row now the markets have been up and we are due for a pull back. We have had the best rally in 76 years comparatively speaking off the March 9 lows. The S&P500 is up 30% and the Dow is up 25%, the NASDAQ is up 32%, and the Emerging Markets are up 40% off the lows. Since the markets move together they form similar chart patterns and now we have a rising wedge formation which is bearish and indicates a move to the down side in the markets once the bottom support line has been broken. While I can not say for sure, that move to the down side could occur next week.

The Russell 2000 small cap index was the best performer last week up 2.39%. The worst performers were the commodities with oil down 4% and gold down 1.26%. If we have a big move to the down side in the other markets gold could rally. GLD is currently resting on top of its 200 day moving average. Click on table to enlarge.

We have added another sector to the upside from last week and now have 3 sectors in the green. Click on graph to enlarge.

As I mentioned we have a rising wedge formation chart pattern which portends of a correction to the downside in the market. We are at a critical place in the market at the apex of a triangle where it will either have to break out to the upside if the rally is to continue or break down. A breakout above 885 and the next target would be in the area of 943. The more likely scenario would be a break down to the downside. A break below 850 or lower and the next target would be the 790 area, then 775, and 750. Click on chart to enlarge.

Note that since markets move together we can get feedback from the other markets as well. When the generals are starting to roll over the market is likely going to follow them down. Remember, markets go up three steps and come back two steps. A break in the Dow below 7960 and the next target in the Dow would be the 7500 area. Many of the markets are up against their 200 day moving averages which is overhead resistance and a place from where they are likely to bounce off of. Other markets up against or near their 200 day moving averages I am following include $HGX, $NDX, $SOX, $TYX, $XAL, $XAU, $XBD, AAPL, EEM, EWH, EWZ, FSAGX, FXJ, GLD, GS, INTC, NEM, PTR, QQQQ, RTH, RYL, S, XLK, XLY, and XRT.