Market Conditions: 6/30/11

The S&P move on Thursday was not genuine. The tape’s price action and correlation to leading stocks was off. The market moved at a peculiar time: An hour earlier than usual and with unusually sudden volume at a time when the market is rising on low volume. Fund window dressing has been mentioned and that’s likely the reason.

Parts of the market are at their tipping point:

  • Food prices have gotten attention lately because of their volatility and crop reports. Corn and wheat proved to be good shorts with sugar about to follow suit (/ZC, /ZW, /SB).
  • Crude and NatGas are on the up and up (/CL, /NG). NatGas had a positive EIA report Thursday and crude has faded the increase in supply from the US and IEA last week by gaining $5/barrel over the last three days.
  • Equity primary leaders are failing to retrace to their highs while stocks in secondary sectors extend from their base to all time highs.
  • The Euro is showing volatility (indecision) after the Greek bailout while the USD sits just above it’s inflationary lows ready to break out. The two currencies prove to be on different timelines with the US dollar leading the Euro.

Treasuries (/ZN)

  • (Over)Sold with exuberance on austerity measures vote (raises yield, decreases nominal).
  • June 30, 2011 marks the end of QE2. Today the US gov’t auctioned the last of the treasuries and “QE2.5” is supposedly in the works for another temporary fix.
  • Treasuries are also known as a safe haven for equities i.e. S&P 500 and DJIA [r(/ES) && r(/YM) == -1] = 1.

Crude (/CL)

  • Crude prices normally rise following economic strength because the more money made and spent in an economy means more can be charged for a tank of gas i.e. crude demand increases through a revaluation of buying power vs necessity to determine value, and price/barrel is adjusted on this basis.
  • Crude is a few points above its recent low of 90 a barrel and its recent range goes up to 115 which it will inevitably go back to and above. Look at price data 10, 30, 50, and 100 years previous to see how inflation trends.
  • The U.S. economy is about to enter a state of recession within nine months (Europe has time in the bank for the same reason we did with QE about 3 years).

NatGas (/NG)

Equity
  • Stocks making all time highs include LULU, FOSL, CMG, CAT. Primary leaders like AAPL aren’t reaching previous highs.
  • Broad market indices the last 3 days had the largest percent increase since February.

Currency

  • EUR/USD fluctuating through pips by the hundreds.
  • US Dollar (/DX) hovering above extreme inflationary lows.

SPX 5min Support Levels

There is a clear support level in the S&P 500 at 1262.50.  Will watch for a pullback in the index before taking new entries.  [click on the chart for a higher resolution image]

 

5m SPX – 5 Day Trend Line Resistance (update 4)

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5m SPX – 5 Day Trend Line Resistance (update 3)

The TL resistance turned into support on 11/18.  Today in the S&P we saw a breakdown below support levels lasting an hour.  We entered a few positions during this intraday period of market weakness and anticipate strength through the rest of the day.

Looking for a hedge in the SDS or another good spot to get in the VIX.

 

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5m SPX – 5 Day Trend Line Resistance (update 2)

Support levels in the S&P holding. Bullish signal.

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Thursday Update

  • Metals are up after their pullback due to increased margin requirements.
  • Yields are up causing a drop in Treasury prices across the board.
  • Looking for a possible retracement back to the broken TL on the S&P 5m chart here.

Took some profits on the gap up in the opening, got out of $USD on weakness, started a position in SDS on market strength to protect profits still on the table.  We feel bullish today on a pullback that does not break support levels on the SPX 5m chart posted above.  Will continue to take profits into strength.

5m SPX – 5 Day Trend Line Resistance (update 1)

There is still validity in the upward TL on the 5m chart.

Today ended showing:

  1. Divergence between the stochastic pullback and the tight consolidation of the market.
  2. S&P stochastics ending the day in a falling wedge pattern.
  3. A gap between the S&P and multi-day resistance TL

These are 3 bullish technical indicators.  Looking for 1185 and up this week in the S&P to unwind some positions before further downside, or until this TL is broken.

Divergence involves a pulling back of the stochastic indicator (at the bottom fullK and fullD pulling back to oversold), and the price level on the chart (holding a consolidation, or moving up).  Click here to show divergences drawn on the chart.

It is always necessary to look at other time frames.  Here’s a look at the daily S&P chart.  The 5m chart has the TL extended to a ray on the right which continues on the daily chart.  We expect a convergence to the ray during this week – timing uncertain.

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NOTE: This is only technical analysis.  Reports, news, and other fundamentals should always be considered when making trade decisions.

Wednesday Update

Not looking for new positions today.  Slow market opening and volume could be due to the Vegas trade show.  The pullback yesterday might leave room for a move up so we are looking to take profits.  A couple areas of interest:

1) Gold and Silver had their margin requirements raised causing a drop in price while the market was moving up last week. The CME had a further raise again this week. Looking for an entry in the next couple weeks.

2) Researching the TLT – SPY spread trade.

5m SPX – 5 Day Trend Line Resistance