Was yesterday the Top? There is still so much strength in place as we are mostly moving sideways in here. We need to monitor the underlying breadth more than ever over these next few days. First lets travel the world and see how we are setup this AM.
Asia
Both China and Japan had a slow selling day, a consolidation day really. Flat with a slow grind down to close each market about .5% down. Nothing dramatic just some profit taking.
Europe
We were trading in the room last night and those futures guys and gals were shorting the DX. [They took a nice profit by the way] We talked about today's open and how the German factory orders would set the stage. The previous industrial new order's from Germany the day before were weak so it was pretty easy to guess that the factory orders would most likely disappoint too and they did. Not as striking as the industrial orders, in fact they came in positive but under expectations, so maybe the next Old World round will begin to show renewed strength. But the current weakness shows up in the European markets this morning and the markets are down pretty much in line with Asia, averaging around the .5% number.
Homeland
In the Homeland, the overnight futures slip slide'd away.
And look, we are at the .5% number too. So the world is in agreement. Our slide came from the dollars strength during the night (those DX shorters timed their trades perfectly in and out). The USr factory orders two days ago came in much stronger than expected so while the US is on an upswing, Europe looks to be caught in a little down-draft. The dollar rallies. The futures fall.
Economic News:
Today we will get the weekly jobless claims. Again we want to stay below that 500K number (if you are bullish) anything below 450K would be ok.
For you UNG traders watch the 10:30am area for Natural Gas Storage.
Breadth Charts
10 Day High - Low:
The 10 Day High - Low scores a -2 today with the NAZD and the RUT2K putting in -2 sell signal each but the NYSE is the outlier putting in a +2 netting us the final -2 score. You can see the 3 day weakening of the Rut and the NADQ, but that NYSE just won't die. It is the banks and materials. Watch the banks for any weakness today and see if the NYSE joins the RUT and NAZD in weakening or if the NAZD and RUT have corrected enough.
40 DMA % Index:
This chart scores a +2. On the bullish side. This bullish score again is because of the strength in the NYSE. The number of stocks above their 40 day moving average increased over the last two days, while the NAZD and the RUT2K showed weakness. I was impressed last night with the size of the two day drop in the RUT2K index. We have moved from 85% down to 73%. If you notice the price action for the RUT2K at the top of the chart you will see little movement. I did a quick study last night and every 10% drop tends to move the RUT down about 10 points on average. That being true, over the last two days with the underlying weakening we should be down about 20 points on the RUT2K!
I did not get time to explore this last night but I suspect that the weighting of the RUT has those financial titans and material stocks gaining in price at a much stronger pace than the weaker components are loosing price. In other words watch the banks and the materials... they determine our next move.
To recap, the 10 Day High- Low scores a -2 and the 40 DMA % Index scores a +2 that puts us at neutral so we go to the 52 week New Highs:
52 Week New Highs:
This chart scores a +2. That NYSE again pulls the two neutral scores for the NAZD and the RUT2K into the bull territory. A decent rally today will easily strengthen this chart into a +6 score. Looking at the 30 minute open numbers; a 230 on the NYSE, 100 on the NQ and 60 on the RUT2k will signal a full steam ahead. Hopefully you are in the trading room and can get the 30 minute update.
Conclusion:
Watch the Banks and Materials today, as they go so goes the market. The NYSE losing steam is the key to any type of correct. The markets in general are weaker than they appear but that can be a dangerous thing. As they consolidate their recent gains they may get ready to rally again just a the financial begin to slow. That could form a perfect storm and really rocket us higher. We need to see the Rut and NQ pull down the NYSE and not the other way around (if you are short like me). So keep on your shorts but be aware.
We did a pretty good job containing the ES in our 10 point window set yesterday. I am going to keep it the same today. We might get a rally up to test that new high set in place, I don't expect it to make it but rather to roll over and finally get down to test that 1124.75 area. The Bank and Materials need to weaken and the RUT needs to see some price action to the downside. There is still much strength in this market (one only need to look at the breadth charts to see that) and bulls don't go down easily, particularly in the lack of any bad news so expect a rally in the morning and hopefully a lack-of-enthusiasm fade in the afternoon.
I am expecting a red close today around the 1128 number parked for tomorrow's Jobless claims.
I hope to see you in the trading room.. if not I hope to see you in the markets.
-Marlin aka RedlionTrader
