Good morning, it looks like the fight is on between the bulls and the bears. Overnight the bears have put in an offensive and as I write this the ES futures are down 8 points. That has the effect of controlling the morning business shows as conversations will move from bullish host after bullish host to why are we falling apart here.
Let's see how the markets around the world are doing...
Asia
The Asian markets were mixed with Japan still in rally mode and China showing just a little weakness. In China the Hang Seng opened weak had a nice mid day rally and closed just off from its highs. In Japan the market action was also a weak open with a flat morning and then afternoon rally to end on the highs of the day.
Europe
The action is fast in Europe. I have had to retake this screen grab three times now as the markets are actively selling off. Across the board there is a 1% sell-off in process. The selling is a continuation of the selling from a top that was put in place on European Monday morning opening . The slide continued into today right from the open and a bottom is not in place yet as I write. It appears to be pure technical selling from a top and the market is now looking and searching for support.
Homeland
In the homeland the futures across the board are down between .6% and .7%. They had been down as high as .8% but have found support as of 7:30 here. Unlike other pullbacks this is not a dollar rally situation as the dollar has barely moved overnight. Oil is having a decent sell-off.
There is very little economic news this AM. At 8:30 we get a trade balance number. If this number comes in higher than expected we could get a dollar rally which might add to the sell-off. If the trade number is too low we could get more dollar weakness . It is worth watching the DXH10 and the markets at 8:30am to see how they handle the data.
At 10am we get the IBD Economic Optimism number so be careful in that time slot.
Breadth Charts
Going to the breadth charts I can tell you that yesterday ,despite some weakness, the opening gap was so strong that the charts spiked bullish breadth everywhere.
10 day high - low:
The NYSE continues to be strength and is the index to watch today, particularly on this gap down. If the NYSE is not able to climb and keep up with the other indices than relative weakness is settling in which would be positive for the bears. The NYSE scored a perfect +2 yesterday while the NAZ and R2K put in a neutral showing with higher 10 day highs than the previous day but not higher than the 5th day prior. Today's hurdle bars are going to loom large with this gap down. Unless we get an unbelievable rally to new-highs today, which is possible, we will be seeing a bearish score on this chart tomorrow morning.
40 day % Index
This chart as well scores a +2 because of the strength of the NYSE which has both a positive pointing direction in the index and is above the 20 day moving average. The NAZ and R2K are also above their 20 DMA but heading in the wrong direction which puts in a neutral score. The R2K is starting to squeeze down onto its 20 DMA and a crossing with a weak opening today is possible. I will alert intraday if a crossing is taking place. A crossing of the 20 DMA is a sell event where the odds increase with a 2nd day below the 20 DMA.
52 Week New Highs:
I only have the 52 week new highs for the NYSE to show today. Yesterday we put in 543 new 52 week new highs for the NYSE. That surpassed the 476 record set on October 16th. All three charts scored perfect +2's on making higher new high bars (not record bars like the NYSE however) and maintaining the momentum of 52 week new highs.
For today the hurdle bar for the NYSE is around 400 so we would like to see 200 at the opening 30 minutes. A large gap down like the one developing will make that difficult. We could get a -6 on this chart on the close today which would put us bearish, but for now it scores a perfect +6.
Conclusion:
Adding the charts together gets us a +10, a bullish reading that must be respected. Today's gap down should do great damage to the bullish score but the bulls are out there with cash and will not roll easily.
We have enjoyed one of the best Santa Claus rallies ever. This 120 minute chart shows the trend-line channel established from the 12/20 lift-off. On 12/29 - 12/30 overnight we had a very similar sell-off as the one now in progress from the top of the channel to the bottom. The 6:30am ES bar marked the low (same as today so far) and the 12/30 trading day rallied up only to fall back to the bottom of the channel the next day.
I have templated the same behavior for today and tomorrow and show a high of 1146 today if we were to follow the same path. The template for tomorrow would be a low of 1130.75. Something to think about if we do rally from the open today.
My box today is:
Above 1139 early AM watch that 1146 area, Breaking 1132 watch for resistance at the 1130.75 area to hold below that we are in bear territory and the Santa Claus rally will be over. I would expect to stay confined in this 1131 to 1139 range today with a close in the middle of around 1136. Above 1136, give the bulls a point, below 1136 will show weakness is creeping in.
Hope to see you in the trading room, if not see you in the markets..
Marlin aka RedlionTrader
