The ultimate measure of a man is not where he stands in moments of comfort and convenience, but where he stands at times of challenge and controversy. - Martin Luther King Jr.
The markets are in struggle mode here and my signals are swinging daily from Bullish to Bearish. Friday reset the breadth charts back to Bear mode as the markets took an early morning sell-off an never really regained. There was the usual 3pm rally but it failed to instill confidence that the bulls still controlled the field.
First lets take a look at how the world traded while we reflected on real change brought forth by a great man Martin Luther King Jr.
Asia
Both China and Japan had down days on Monday. China opened weak, rallied and then closed off the lows of the day closing down close to 1%. That makes 4 days in a row of lower closes for the Hang Sang.
Japan had a weak open and recovered from the lows of the day.
Europe
Europe had a different script and put in a decent day up about .7% for the majors. This was a weak rally from the Friday slide. Tuesday morning has some important economic news and could stir a rally so check the early morning Euro report. I will not send out an email tomorrow morning.
Homeland
We were not open today so we get to play catch-up tomorrow.
Here in Massachusetts we are in a political rally like none I have ever experienced. I have so far today received six get out the votes calls from the two candidates. Driving down from Maine to my Massachusetts office listening to the radio this afternoon almost every single ad spot was filled with pro and anti candidate ads and the televisions ads are non stop for this senate race. It will be good to get it over tomorrow.
The outcome of the Massachusetts election will most likely have a market impact on Wednesday so keep that in mind. The vote here is being cast as a referendum on the Barack health care plan and the individual candidates are almost second and forgotten. Truly amazing as out of state money, interests and campaigners are flooding into the state. If the health care plan is voted down (read the Republican Scott Brown wins) expect a rally in health care on Wednesday and maybe an overall rally as grid-lock will return to Washington. A pro healthcare vote (read Democrat Martha Coakley wins) could dampen the markets. I don't think there will be results until after the markets close tomorrow.
Economic News for Tuesday:
We are light on economic news tomorrow. The TIC numbers at 9am could effect the direction of the dollar and interest rates so watch for reaction there. The 1pm housing market survey has been on a 3 month slide and the housing positive housing numbers put in a couple of months ago are evaporating over the last few weeks as housing continues to show weakness here.
Earnings.
The season is getting into full swing now.
We have two major tomorrow before the bell, Citigroup and Fastenal. Both of these companies could set a morning direction depending on the strength of their announcements.
The Breadth Charts:
40 DMA % Index
We see some real weakness crawling in here from Friday. The RUT (the magenta line) is back below its 20 DMA. This is the sell territory and a second day below would confirm. The NYSE is on the brink of moving down below. We are either going to confirm or if the Bulls still have some energy here we could be in a decent buy area. The chart scores a -2. Ignore the yellow line spike on the NAZ, that is a data issue with the closed markets today. The NAZ is also close to falling below its 20 DMA.
10 Day High - Low
This chart moved from +6 to -6 in a single session. We have the weakest reading since December 17th (which marked the bottom of a little correction). So again the short term market behavior (Since Nov 30th) has been to have these shallow one or two day corrections. The Tuesday action will help define a trend here.
52 Week New Highs
The 52 Week new highs scores a -6 which is bearish. All the momentum indicators failed to set up and the new highs on all three indices set lower new day bars. Note how the Rut's new highs peaked on December 28th. The NYSE new highs were bolstered by the bank rally and now that the financials are starting to report we are beginning to see a drift downward. Citigroup tomorrow should have an impact on the current momentum
Conclusion
The breadth charts score a -14 which is bearish. This is one day after they reported a bullish signal the day before. We are chopping around in here and short term history (last two months) tells us we should rally from here. Intermediate history would foreshadow more selling and at least a 3% correction is in store over the next few days. We need to find out which play book to use.
This is the SPX chart. You can see from my left-over annotations on Friday mornings report I drew the less than 1140 area as a key target area for the bears. They did accomplish that but failed to penetrate down into that 1131.25 area. For Tuesday then the bears objective is to keep the market below a high of 1148.25, close below 1142.50 and a touchdown would be prices printing below that 1131.25 area.
The Bulls will want to regain that trend line with a close above the 1142.50 area and a touchdown would be prices printed above the 1148.25 area without serious selling in response.
Translating those number to the ESH10 Charts:
A key area for the Bears is to break the 1127.75 floor. A close below 1140.50 for the bears is needed and above that for the bulls to take over again. The bulls will want to make a higher high so no sustained prints above 1146 is the mission of the bears and a hold-without- fold above 1146 for the bulls.
Other support and resistance areas will reveal themselves during trading tomorrow in the room
I hope to see you there or in the markets.
Marlin aka: RedlionTrader
