A very hectic period here - we're in the heart of earnings season, the first real drama has hit the market since July, a concentration of trading activity not seen in many months has hit yesterday, and I'm trying to regurgitate as much as I can in a public outlet in close to real time. Let's just say I slept well last night; but it's a new day.
I thought it would be useful to take a look at a broad array of things I am observing as we try to deconstruct the ever changing puzzle that is the market.
(1) First, let's be clear we have correlations among asset classes like never before. This really started in the middle of 2008 and since then we've been in what I call "student body trading" - either everything is going down, or up. I've said countless times, this is why we obsess with the market direction ... because 80% of your move is based on which way the market is going rather than what stock / ETF you are in. And in the past half year, the added dimension is almost everything is a trade against the US dollar. So what implication does that have? It means individual charts lose some of their meaning as everything is hostage to the US dollar. So let's start there...
(by the way you can enlarge any chart by clicking on it)
As we can see we have a 4 day rally, with 3 of those being "spikey" in nature. This is very overdue since our national peso has been beaten to a pulp for months on end. The question is how sustained will the rally be? The larger (eventual) question will be - when does this inverse dollar correlation ever end? (
The Inverse Correlation Between Stocks and the Dollar in 1 Chart) But we can't think that far ahead - the near term questions are, can this dollar get over $77 and if so, can it make a higher high for the first time in many months over $77.50.
(2) Let's overlay the 2 main indexes - S&P 500 and NASDAQ; similar situations for both, in fact one could argue the NASDAQ ... after being a leader to the upside, has become the leader to the downside.
Both experienced a break of support, the 50 day moving average, yesterday. Not fatal, as in July the S&P 500 for example spent 6 sessions below this support before a furious rally regained the level. But until proven, old support becomes new resistance. And we're looking for new "lower lows" on the S&P 500 that would be a break of 1020 and with the NASDAQ something in the 2030s. Of course this would occur concurrent to (I assume) the dollar index breaking over $77. Remember, it is all just 1 controlled algorithm trade by hundreds upon hundreds of billions of HAL9000 dollars. If those levels break, then the bears appear to be in charge.
(3) Within NASDAQ I want to focus on the semiconductors and I've pulled this back out 1 extra month, to a 4 month chart for a very obvious reason. While technology is a played up financial media sector, it really is just largely a cyclical story with a silicon component...
