Thursday, April 19, 2012

Stocks weakening

Stocks had a weak day today and in line with the expectations I set in my commentary on Sunday.  The financial press attributed some of the price action to a weakening economy but the issue IS Europe. 

As I stated in the commentary, any concerns about Spain and the Euro Zone would take precedence over better than expected earnings and we're seeing that too.  Never mind that the street grossly underestimated earnings last quarter.  Almost everyone is beating estimates!

Let's go to the charts to see where we're at:

(click on chart for larger image)

This is the S&P500 SPDRs ETF (SPY) that tracks the S&P 500.  Don't be confused by the trend lines.  The key take away here is that the ETF is trading below all three trend lines and the momentum indicators don't offer much hope.

Here's the Russell 2000 ETF (IWM):

This ETF is sporting what we call a Bear Flag which is simply a consolidation formation before a continuation of the decline.

Here's the problem with my bearish thesis:

This is a daily chart of the US Dollar.  It's trading flat!  Unless we see some upside and a breakout of the larger purple triangle then equities have a better than even chance of resuming their rally.

And what about commodities?  Here's Copper which is still clearly in a downtrend but seems to be experiencing a short term consolidation:

And look at Brent Crude Oil!

I believe we're seeing the unwinding of the Iran crisis premium in the price.  Inventories are also high because of slackening global demand.  Both Copper and Brent are approaching their respective Fibonacci retracement levels.  Look for a bounce off of these levels or it will be speaking to greater global economic weakness.