Friday, December 4, 2009

Intra-Day Observations: Anecdotal And Otherwise

Some intra day observations are noteworthy.

At first blush, it would seem we are in a new paradigm - all of a sudden. The Dollar Index is up. Equities are up but former high fliers - the metals and gold and emerging markets - are taking a beating. Treasury yields are rocketing higher as though the recovery is around the corner. All of a sudden the economy no longer needs the support of the federal government?

Furthermore, my email box has the usual communiques from the usual individuals who have predicted it all from the very beginning. These are the same clowns who only write me on days the market is up. One individual wrote to remind me that it was just "another day of trend following". Ooops! What is that? The market just sold off 1.5% in 90 minutes. Ahhh well....I guess it is time to get a new crystal ball.

The first chart is the PowerShares DB US Dollar Bear (symbol: UDN). The indicator in the lower panel measures the number of negative divergences occurring over the past 13 weeks. 3 divergences is significant; 4 generally implies a market top.

Figure 1. UDN/ weekly

Watch where the QQQQ closes; above 43.76 would imply higher prices. My guess and it is only a guess, the QQQQ won't do it. The strength in the Dollar is the tell.

Figure 2. QQQQ/ weekly

The same goes for emerging markets. See figure 3 a weekly chart of the i-Shares MSCI Emerging Market Index Fund (symbol: EEM). A weekly close over 41.43 would be a positive.

Figure 3. EEM/ weekly

10 year Treasury yields are spiking in response to improving employment picture (I guess), but until we get a monthly close over the pivot point at 3.437%, I am not ready to see yields heading towards 5%. See figure 4 a weekly chart.

Figure 4. $TNX.X/ weekly

I will have more over the weekend. Stay calm.


D-man said...

I am calm.

I noticed the change all of a sudden; maybe it's only one day in the end.

"Watch where the QQQQ closes; above 43.76 would imply higher prices"

I do; but only a close below 41 or so (the low of that divergence bar I see in the QQQQ chart) will imply a trend change.

Wait for your analysis with great patience; let's see how this day ends.

The employment report is much better than expected. As you know already, tops are made on very good news. The question is: what's next?

thanks Guy

Guy M. Lerner said...

Hi Damien

Well we closed above 43.76 on the QQQQ; I guess we go higher? DIA now has 3 divergences and technically a headwind....

Several cross currents as always....

1) Spiking treasury yields is not good for equity prices and with trends in gold (strong despite today's drubbing) and crude oil (moderate trend), this is a serious headwind. Our modified Faber model (weekly version) is back on a sell signal.

2) Can equities go on their own without the Dollar? Can the economy go on its own with the Federal Gov.?

3) Best performers today were KRE, Telecom, but utilities; high yield stuff...what does this tell you? bu the way, 2 out 3 I have highlighted in past couple of weeks

4) not sure why small caps outperformed today?

The best I can say is expect the worst (use a stop) and pray for the best ( a spike in prices) but in general, I think you would agree that this is not the environment take you from here to there?

Onlooker said...

4) not sure why small caps outperformed today?

Short squeeze. The recently lagging sectors were squeezed today. That's all.