Observe the Power of the Dollar on the Stock Market

It looks like yesterday's late day sell off was just profit taking and protective posturing for the jobs number that came out today because the major indices rallied to new highs and the Nasdaq confirmed the Dow and S&P's highs from yesterday, which eliminates the short term bearish non-confirmation. The longer term divergences remain in solid place.

Today's better than expected jobs numbers has everyone doing cartwheels on TV about the economy and the stock market. However the dollar has rallied sharply this morning as you can see from the AUD/USD and EUR/USD charts attached which move opposite the dollar. The stock market rallied huge this morning but so did the dollar. The stock market's rally could not fight the huge headwinds that a dollar rally brings, mainly because most of the rally from the March 2009 bottom was due to dollar weakness to begin with. It was just an inflationary rally in prices, not a fundamental underpinning of strength in the market. So the Dow went from a strong triple digit gain this morning to negative territory where it sits today.

I, and many others, have been saying for a long time that the key to the stock market's rally and decline is the dollar. A dollar rally will result in a stock market decline, and vice-versa. If today's reversal holds, we'll see if it has legs and runs next week. But the fact that people sold good news and the dollar rallied on a great jobs report is definitely bearish, especially because the past several months have brought rallying on jobs report day. A change in recent trends are another sign of a top, and today we have another piece of evidence supporting that.


PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.

Markets Fractured and Sloppy, on Many Levels, Among Various Indices/Sectors

I have a lot of charts and comparisons to go over and I'll try to do my best conveying my message with out it getting all "spaghettied" and confusing. The bottom line is that the markets are very fractured in the larger timeframes (daily), and now they are showing a fractured structure on the smaller timeframes too. The market is not healthy, and the underlying fracturing is weakening the market, despite the window dressing new highs in the Dow and S&P lately.

First, let's look at the top chart which shows an updated 2 hour chart of the Australian dollar vs. the US dollar (AUD/USD). Today's rally carried to the 100% retracement level of the start of wave 1 exactly at 0.9321. This is the absolute maximum retracement for a wave 2. So the count posted yesterday and today remains valid. The reason this is of importance is because this pair moves fairly inverse to the US dollar, and is sporting a clearer EWP structure and wave count that other pairs that better follow the dollar, like the USD/CHF and the EUR/USD. When the AUD/USD and EUR/USD top, the stock market should top as well. The pair cannot rally above today's high, and should be in for a wave 3 of (3), which means it should collapse very soon in a fast and ferocious manner for the count to be correct.

Second, look at the financials ETF (XLF) daily chart. You can see the financials topped in mid-October, even though the Dow and S&P have kept charging higher to new highs since then. The XLF is lagging drastically, along with the Russell 2000, showing the inter-market divergence and strucutural weakness in the overall market I've been discussing for the past few weeks. You can also see that the XLF made a nice clean 5 wave decline from the high, then rallied in a 3 wave a-b-c structure I labeled wave (2). After some consolidation, most likely a series of small 1 and 2 waves, we got a big 2% sell off today. That fits well into the wave count which calls for a wave 3 at various degress to occur soon, which basically means an almost straight line down. So this count too remains on track, and very short term bearish, along with the Russell 2000.

Third, look at the daily chart comparisons of the Nasdaq 100 (left) and the S&P 500 (right). Click on the charts to enlarge. You can see that the Nasdaq 100, and the Composite (not shown), failed to confirm the new high the S&P and Dow (not shown) made on a daily basis. this is just more fracturing now occuring on various levels with various indices. This evidence, combined with a strong selloff today is very bearish.

Fourth, this last illustration is a good example of how bearish a non-confirmation can be when other markets, indices, or sectors do not confirm new highs. They are 15 minute charts of the Dow (left) and S&P (right). Click on the bottom charts to enlarge. The S&P shot to a new daily high while the Dow failed to confirm it. The result was a sharp sell off into the close today. Now this is just an intraday divergence among two indices. Just imagine how much stronger a decline will be when several indices and sectors on the daily charts are diverging, just like what is occuring now, and decide to finally sell off. Big decline ahead.

Today's action is encouraging for the bears as it is evident the market is looking for a reason to extend an overextended market higher and is having trouble finding it as it's been having trouble making any significant gains the past several weeks. However the bears have not been able to gain control of the market on downturns either. Until the bears arise in strength, which will be illustrated with a high volume day and consecutive selloffs, the market probably won't be able to tank in wave 3 or C. I suspect that people were selling today to reduce their exposure to stocks ahead of the big jobs number being reported early tomorrow morning. Lately, people have bought the dips when the jobs numbers were reported, so a break of that trend would be a good start for the bears. A big down day tomorrow may be very telling and would be encouraging for the hungry bears looking for a major top to gobble up.

So I remain short term neutral at this time with a slight bearish bias heading into tomorrows session. A big sell off tomorrow on big volume and weak internals will be a big sign that the prior trend of market action is breaking, and that perhaps a major top is in. Tomorrow's action should be very telling.


PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.

Market at Crossroads

The S&P cash index broke above 1114 into 1116 so that makes me short term neutral the stock market. The market has been consolidating the past couple weeks, moving sideways and getting nowhere. This usually leads to breakouts. With the market holding up and eeking out new highs, despite the evidence suggesting a top, it hints to me that it wants to move higher. Points of possible resistance are the 1121, 1150, and 1200 levels. I'm not sure we'll get that far in anything other than a wild erratic blowoff top, if any rally at all, but those levels are worth watching.

Looking at the Australian dollar vs. the US dollar (AUD/USD) it only has made 3 waves down from the 0.9410 high, which is a correction as it stands right now. It could be a series of 1s and 2s like I labeled it, but it needs to stay beneath 0.9321 to keep that count as a strong possibility, and of course 0.9410 is ultimately crucial to the bearish case. Remember, a bearish AUD/USD is a bullish US dollar essentially. A bullish dollar means that the stock market should decline. So since 1114 fell in the S&P, let's turn to the dollar again for clues on the stock market's future movement. So an AUD/USD break above 0.9321 would hint a stock market rally phase is underway, and an AUD/USD break above 0.9410 would confirm it.

Nothing really stellar to report on the stock market other than breaking 1114 in the S&P and the the fact that the high risk small cap and tech stocks are rallying much stronger today than the Dow and S&P, which is concerning for the bears. I'll be back when something of interest develops. And as always, I welcome all your thoughts and analysis as well.


PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.

Market Divergences Remains the Key Theme

The embedded video is of technical analyst, Carter Worth, who makes routine appearances on CNBC. He was very good in projecting the meat of the October 2008 collapse so I tend to follow him to supplement the other bits of data I compile. Today he was on Fast Money talking about basically what I've been talking about recently in that higher risk markets are starting to break away from the bigger blue chip indices; and he illustrated this with Japan's Nikkei 225 index. It's worth watching because it's in line with what I've been pounding the table about the past few weeks, and it's always nice to see other reputable analysts who use different technicals and disciplines come up with similar findings and conclusions.

The market action today was fairly bullish in the sense that the market didn't selloff more, despite the strong short term technical evidence suggesting it would. But at the same time, the market didn't break the 1114 S&P level I've said was key either, and the money managers' buying spree on Mondays had little impact until the very end of the day, so the bearish case remains intact. The dollar bottom and rally still remains a possibility as seen with the lack of new highs in the AUD/USD and EUR/USD which move opposite to the US dollar. We can watch those pairs through the Asian and European sessions tonight to see if any big moves are on the horizon Tuesday (both pairs should move in the same direction as the stock market). It's possible that today's late day buying surge was the fund managers coming in and buying up stock; probably after they saw there wasn't going to be a meltdown today after the Dubai stuff fully sunk in after the holiday (click here to read the CNBC article regarding money managers buying up the market on Mondays the past several weeks).

As for the EWP count, the market has only fallen in 3 waves so far. So as of right now, it looks like a correction, but that can change with subdivisions lower in the coming days. Also, you can see how the market has formed a support shelf at the 1085 S&P cash level with the market making long candlestick wicks in that area. When the market breaks beneath that level strongly, and closely well beneath it, it should lead to acceleration of selling. So for now, we have to be patient and wait to see how the market unfolds in the near future here.

Not much of anything signficant really occurred today that's worth spending a lot of time on so I think I'll end it there and let the market action unfold so we can get a better idea of where it's headed in the coming weeks. Until then, I remain short term bearish as long as the S&P trades beneath 1114.


PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.