Thursday, May 17, 2012

The slide continues

I normally don't post this much during the week but the special nature of today's price action gave me pause for concern so I thought my readers should know what those concerns are.

The market weakened throughout the day and selling pressure in the final hour was relentless.  Normally, traders will come in during that time and pick up what they see as short term bargains if for no other reason to capitalize on a quick "pop" in the morning.  Not today!

I've posted charts in my previous three posts that show the deterioration in stocks and it continues.  After the market closed Moody's downgraded 16 Spanish banks and there's rumors that there's the beginning of a run on Spanish banks.  The Spanish government quickly denied the story (what else could they do).  Things are getting dire in the Euro Zone periphery as highlighted in this Reuters news story (http://www.reuters.com/article/2012/05/17/spain-idUSL5E8GHH1220120517?feedType=RSS&feedName=bondsNews

Facebook's IPO (Initial Public Offering) is scheduled to go off at 11 AM EST tomorrow and some are pinning their hopes that the anticipated well received IPO may change the mood of the market.  I'm not sure.  Facebook may have it's own party tomorrow but I'm skeptical that it will pull this market higher.  Another possible catalyst for a bounce is the upcoming G-8 meeting this weekend where one could make the  "reasonable" assumption that something concrete would come out of the meeting that might bolster the market.  But nothing reasonable has come out of the Euro Zone for the past few years.  Certainly nothing reasonable has been coming out of the mouth of Greece's Tsipras or Germany's Merkel!

With all that said, the market is oversold although that doesn't mean it couldn't get more oversold.  My gut tells me we have a better than even chance this market may have a hard sell off going into the weekend.

Finally, look what "perked" up:

(click on chart for larger image)
This chart is courtesy of Arthur Hill of Stockcharts.com and can be accessed by subscribers of that service.  It's a 15 minute chart of the iShares Barclays 20+ Year Bond ETF with the SPDR Gold ETF (GLD) superimposed on it.  As I've written many times before, US Treasuries are a "safe haven" trade and the long end of the yield curve made all time highs today as money fled equities and rushed into the bond market.  But Gold had a significant bounce today and right off the Fibonacci retracement level and support line I outlined in Tuesday's blog post.  Both ETFs rocketed higher in tandem.  Is the "fear trade" finally impacting Gold?  I think so. 

Gold staged what's looking like a key reversal today wiping out the last 2.5 days of losses (red arrow) at the expense of the US Dollar which barely budged today:


I'll have more on the US Dollar in future blog posts but, all in all, the move into Treasuries and Gold do not bode well for the short term future of equities.  We'll see what tomorrow brings ...