Saturday, November 27, 2010

Cross Currents

The market is bobbing up and down right now according to 3 pieces of news:  China inflation-taming tactics, Euro-zone credit crisis contagion, and possible intensification of North Korea situation.       The charts also show some ambivalence and we expect the waters to be choppy for a while.   As you'll see in the following charts there are valid arguments to be had for both the bears and bulls. 

The IWM falls in the bull category as it is near its highs and basing under major resistance.  Basing here and running higher into year end is definitely a possibility.

One of the biggest red flags in the market right now is the IYR.   We drew this trend-line 2 weeks ago -- IYR sat on it, broke it, fell down hard, then found support on the 100SMA and rallied to the 50SMA.   Definitely not out of danger here as it could easily reverse back and break the 100SMA.   If you want to short  focus on this sector.

OIH has a weekly resistance level at 136 that we think will ultimately be touched in the intermediate future.  Before that happens though we expect some choppiness, including the possibility of the break of the trend-line and 20SMA.  Technically a close under 126 would be the daily stop for oil and gas swings.   

A test of the 50SMA on the SPY would not be surprising.

On the bullish side of the equation the USD has rallied hard on the escalation of  Europe's credit crisis and is now heading into resistance.  If the USD weakens expect our commodity selections to jump.   Of course if the situation in Spain worsens expect the USD to keep rallying putting pressure on all commodities.
The champion of the bear case is the XLF which is showing horrible price-action.   There is some support at 14.2 -- watch that as tell.  The XLF price-action is a very good argument for keeping long swings small. 
IYT on the other hand shows good health as Trannies are near their highs (we're long UPS).

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