Revisiting the S&P500 and VIX charts in Monday's article showing how the S&P500 / VIX ratio is unable to break above the 65 resistance. 65 = the ratio. A higher ratio corresponds to higher S&P relative to VIX, hence bullish for markets and vice versa. Today, the S&P500 / VIX Ratio is at 60, down 5 points from Monday, which supports my anticipation for underperformance in S&P500 relative to the VIX. My forecast for a Chinese rate hike tomorrow (see previous note) and possible disappointment in US retail sales could well drag down the ratio further down. Note how that 65 level also coincided with the 200-weel moving average. http://bit.ly/b3SlDwRead more…
By Nicholas Santiago on March 11th, 2010 12:45pm Eastern Time
Where has the volume gone in the stock market? Since the March 2009 bottom the stock market rallies have been on very light volume. However, the few and rare pullbacks in the major indexes have been on very heavy volume since that bottom. Here we are in the month of March. It has always been a very pivotal and heavy volume time frame for the markets. However, this March is looking is looking more like the summer doldrums.
Light volume is not normal nor is it healthy in the month of March. As I have stated many times before, healthy markets rally on strong volume and decline on light volume. This current market does the complete opposite. It advances higher on light volume and declines on heavy volume. Historically, this type of action is not a healthy bull market from the lows and is reminiscent of 2007.
Thank goodness for the government controlled stocks. Fannie Mae (NYSE:FNM), Freddie Mac (NYSE:FRE), American International group (NYSE:AIG), and Citigroup Inc (NYSE:C) are just a few. If we did not have these stocks trading the volume in the market would be even lighter. Where are the participants? Last year at this time the SPDR S&P 500 ETF (NYSE:SPY) was trading nearly a half billion shares a day and one year later it is averaging just 150 million a day. Last year the market was in the eye of the storm and volume was at unprecedented levels. However, it is now at unprecedented light levels.
It's a good thing that Citigroup (NYSE:C) has traded over a billion shares a day lately or this market would almost be non existent in trading volume. As long as the volume is light it is easy for the institutional money to keep this market up. Hence the old market adage, "never short a dull market." This is a dull market especially for the month of March.
Markets are increasingly tying last nights stronger than expected China inflation to rising chances of a tightening decision from the PBOC tomorrow (higher reserves requirements, rate hikes or more cutback in bank lending). Any further tightening action from China would crimp the risk trade to the benefit of the US dollar. This may help explain golds retreat towards 1100 despite the fact that the metal began falling in NY Wed afternoon trade. Readers of this website were warned 1 day before the Feb 12 increase in reserve requirements by the PBOC when the media was abuzz with Greece. Our rationale for alerting the RR hike was based on stronger than expected Jan banking loans data (and not on CPI which was softer than expected). Today, the media is more mature in these matters, expanding its coverage of a possible tightening as early as tomorrow (40% possible). GBPUSD fails at 1.5048, eyeing 1.4930, CAD broadens losses , eyeing 1.0345 and 87.20 in USDCAD and CADJPY respectively.
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By Trader X on March 11th, 2010 10:16am Eastern Time
The Dow Jones industrial Average was trading lower by more than 50 points at around 10:00 am EST. Once the dollar dropped sharply the major indexes all caught a significant bounce higher. Currently the dollar remains the most important chart when it comes to the market moves. Often when the stock market is weak and close to breaking major technical level the dollar usually falls sharply and saves the day. Keep a dollar chart up at all times and see it for yourselves.
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NZD weakness extends in European trading after the RBNZ decision to hold rates unchanged was accompanied by a dovish statement (no rate hike until before summer). NZDUSD hovers around 0.70, capped at 0.7050, with prelim downside target at 0.6930. NZDJPY consolidates at 63.30s territory, but 64.70 resistance holding since Feb 3. Chinas faster than expected CPI was accompanied with relatively cool Feb banking loan data (CNY 700 bln vs, exp CNY 675 bln). Remarks from Chinas stats bureau foreseeing mild inflation do will not prevent further tightening measures; especially as the Chinas Banking Regulatory Commission reiterated its calls for banks to limit credit expansion. This MAY help explain golds drifting near 1110 despite euros recent advances following JC Trcihets tacit approval for the EMF. EURUSD med term trend line resistance from Fen 9 high at $1.3670, a break of which calls up $1.3730.
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By Nicholas Santiago on March 10th, 2010 3:28pm Eastern Time
As we all know the NASDAQ Composite index has soared with most of the major indexes since the February 5th pivot low in the markets. The Power Shares QQQ Trust, Series 1 ETF (NASDAQ:QQQQ) has made a new high for 2010. This is certainly bullish action whenever an index can make a new high. However, there is something troubling about this move higher and it is the lagging semi's.
Most traders know when an index is showing powerful strength the major component or industry group in the index should confirm by making a new high as well. If you look at the Semiconductors Holders Trust ETF (NYSE:SMH) you will see that it is below the January high. While it has rallied off the February 5th low it is not at a new high for the year. The semiconductors have historically lead the NASDAQ Composite and this time the sector is lagging the index.
Many of the leading stocks such as Intel Corp (NASDAQ:INTC), and Texas Instruments Inc (NYSE:TXN) have lagged the NASDAQ 100, and the NASDAQ Composite. These are two market leaders that are below there January highs.
The technically strong stocks in the semiconductor sector have been Sandisk Corp (NASDAQ:SNDK), and Cree Inc (NASDAQ:CREE). These two stocks are at new highs for the year and leading the industry group higher. They are both above their daily 50 and 200 moving averages.
There are some strong stocks and there are some weak stocks in the semiconductor industry group. However, the overall group is below the January high. This could be a red flag as the semiconductors have usually lead the NASDAQ Composite higher. It is important to keep this sector on watch at all times as this could be one of the signals if the market declines.
By Nicholas Santiago on March 10th, 2010 1:00pm Eastern Time
Oil made a short term bottom on February 5th, 2010 after hitting an intra-day low price of 69.50. Since that time oil has rallied over 10 points to a high of 82.50 on March 9th, 2010. The continuous gasoline contract on the NYMEX was 1.87 on February 5th and it hit a recent high on March 9th at 2.29. These short term rallies for oil and gasoline have been powerful and very sharp. Can the U.S. consumer absorb this prices should they remain at these high levels?
In July of 2008 oil rallied to a high of 147 a barrel. At that time the NYMEX gasoline contract was around 3.40 and the price at the pump it was around 4.00 a gallon depending on your location in the country. A case can be made that this was the straw that broke the camels back and sent oil and the stock market into a virtual free fall.
Today most of talking heads and government figures talk about the so called economic recovery that is taking place in the United States. Meanwhile, unemployment in the U.S. is 9.7 percent according to government standards and nearly 20 percent according to others. The country is still facing a huge foreclosure problem with countless homes in default as we speak. All of this takes place as major global bank stocks continue to surge as the new accounting standards allow them to hide their bad or toxic assets.
The X-factor that many of the economists are overlooking is the high energy prices that plagued the market in 2008 and may certainly do it again in 2010. As many families scramble to keep their head above water the high energy prices will simply act as an automatic tax on the consumer. Regardless if this economy is in a deflationary spiral or an inflationary environment the price of necessary goods are going higher and will hurt consumers.
Oil and gasoline can be traded by using futures contracts or by trading the U.S. Oil Fund LP ETF (NYSE:USO), and for gasoline it can be traded by using the U.S. Gasoline Fund LP ETF (NYSE:UGA).
Nicholas Santiago
Chief Market Strategist
InTheMoneyStocks.com
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By InTheMoneyStocks.com on March 10th, 2010 11:46am Eastern Time
Financial and technology stocks jumped today as continued optimism on the global economy and a massive rebound regain their power. Stocks like Goldman Sachs Group, Inc. (NYSE:GS), JPMorgan Chase & Co. (NYSE:JPM), Morgan Stanley (NYSE:MS) and even pathetic excuses for financial companies like American International Group, Inc. (NYSE:AIG) are soaring.
In addition to the financial powerhouse today, technology is also gaining a significant amount today. The semiconductor sector is jumping. The Semiconductor HOLDRs (NYSE:SMH) are spiking over 2%. Other technology stocks doing well today are Google Inc. (NASDAQ:GOOG), Apple Inc. (NASDAQ:AAPL) and Amazon.com, Inc. (NASDAQ:AMZN).
Now let's discuss the hardcore market on a base level. Let's break it down. The markets have inched up on the charts much like yesterday. Yesterday we saw a rise all morning long, slow, steady. The same thing has happened today with the markets taking out the highs from yesterday at $114.99 and then even taking out the 52 week highs from January at $115.14. Some would say, including myself that the markets were destined to take the stops out at the 52 week highs. This gets some more bulls to pile on and the bears to either stop out or turn bullish themselves.
Oil has spiked higher today nearing a massive resistance line on the United States Oil Fund LP (NYSE:USO). This line is at approximately $40.50. Oil inventories were released at 10:30am ET and came in shy of estimates. This punched oil higher. In addition, the decline intra day of the dollar.
Watch where this market closes today. Does it close below the previous 52 week high or above? Do we see another drop late in the day as institutions sell like yesterday? This will all be key data in understanding the next move in the market.
Gareth Soloway
Chief Market Strategist
InTheMoneyStocks.com
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By InTheMoneyStocks.com on March 10th, 2010 11:59am Eastern Time
The fact that gold has been crushed today with the dollar lower and the markets higher tells me a top is near. Why? Simply put, gold dropping tells me the average person, believes they can make far more money by going into riskier assets like stocks. Why does that signal a top? When the masses fully believe a rally is at hand, the rally has already happened and is over. Sadistic? Yes! Funny? not really!
The dollar opened flat to slightly higher today. Gold also opened higher. The dollar has fallen but gold has tanked sharply as well. Generally, when the dollar falls gold spikes higher. Much like we are seeing with oil today. So why is gold dropping? Just like I said before, gold is collapsing as the amateurs look to make more money in other assets. Thus a perfect indicator of a top in the markets and stocks.
The gold indicator is truly a great one seen today. Understand it and utilize it well. In addition, join the Research Center to get all the long and short swing trades on the market, stocks, commodities and dollar. Get it all so you can make money! I will see you all there!
Gareth Soloway
Chief Market Strategist
InTheMoneyStocks.com
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