After a surge in prices yesterday, the RUT (IWM) is trading in the resistance zone I mentioned earlier. Reasonable risk reward for a short here. IF we break much higher in the major indices (over 1100 SPX, for example) then we are likely headed to new intermediate term highs.
In the resistance zone
In the resistance zone
See the definition below and make your own conclusions…. 
Weekly cross confirmed.
New trend? Or extended period of consolidation?
The two charts above depict the 13 and 34 Exponential moving averages. On the $RUT, the averages finished the week with a bearish cross. Judging by the close of Friday, I would expect this index to test 600-635 area early next week. This would be another pivotal area to consider a short position with minimal risk.
The SPX chart above demonstrates how the initial cross can indicate the begining of a period of consolidation. The SPX close Friday was not as positiove, but still indicates to me that we could test the 1100 area with little difficulty early next week.
From www.carlfutia.blogspot.com
The chart above was printed Wednesday and shows the potential for an Inverted Head and Shoulders pattern developing in the SPX. The challenge on this pattern is 1130. A solid break above this level sends stocks to 1250 (which has been Carl Futia’s target for a while now.)
Net, net: I would be slightly bullish up to the levels described above, and prepared for more weakness once they are reached. A breach of 1130 on SPX means new near term highs are likely.
10-year Treasury Yields
Ten year treasury yields as represented by the index $TNX (above) are falling off a cliff. The Treasury market is much larger in size than the stock market and is typically first to present signs of trouble in the markets. Yields hit extreme lows in December of 2008, and even though the stock market made new lows in March of 2009, yields did not. When you compare where we are in yields today and where the stock market is in relation, it seems as though bonds think stocks should go lower.
The 'real' Death Cross
Above is a weekly chart of the Russell Index. The 13 and 34 period Exponential moving averages are about to cross. They have already crossed in the daily.
The 'real' Death Cross
Same with the SPX (above). Weekly EMAs are crossing.
Below you will find the links to a few episodes of The Pittsburgh Business Report. This is an independent program started by me and my business partner, Al Marschke. Have a look and tell us what you think!
Personal Finances: A lifetime of Investing
http://www.youtube.com/watch?v=Qso96cIK_n8
Tax law changes coming soon:
http://www.youtube.com/watch?v=IkdIH4rGxF8&feature=related
Local grower, Soergel Orchards: Future of Family Farming:
http://www.youtube.com/watch?v=G30Nk-QR_Tg
Managed Futures with Pat Lafferty of CTG:
Part One:
http://www.youtube.com/watch?v=HSMYE4AoIYY&feature=pyv&ad=5153405870&kw=futures
Part Two:
SPX trading around the 200-day MA
Several days of range trading SPY
A break below 640 today?
The July Employment report was released today. Although the headline number was negative, (a loss of 131,000 jobs), the private sector portion showed a gain of 71,000. This number was lower than most analysts anticipated, but it is the second month of gains in private sector employment. (June added 31,000 private sector jobs.) The overall feeling about this data is that we are showing moderate gains in employment in a low interest rate environment. This fact keeps the Fed on hold, and keeps money flowing toward stocks.
Right now, support for the SPX is at 1115, the 200-day moving average.
If you recall from my last post, the $RUT is an important index to watch as it consists largely of smaller financial institutions. With interest rates as low as they are, the economic environment becomes increasingly more challenging to a smaller banks’ bottom line. Over the past few days, the 50-day and 200-day moving averages have crossed to the downside. There is strong support at the 640 level as a result of their convergence, and cross.
I would consider the stock market bullish at this stage with 1115 SPX and 640 RUT to be important pivotal areas.
The major indices are threatening a breakout higher. Currently, the SPX is trading right at it’s 200-day Moving Average. I expect some selling here (20 points or so) then perhaps a run to new near term highs.
1100 area is resistance for now
2 year yields hit all time low
There is still a nice slope to the yield curve, even as 2 year yields hit a new record low. CPI report released Friday declined by 0.1%. This is the third straight month of declining overall CPI. While the core CPI increased by 0.1% for June, the Y-oY rate held at 0.9% for the third month in a row:
Core CPI declining - not negative
More fodder on the report:
Source CPI data:
http://www.clevelandfed.org/Research/data/US-Inflation/mcpi.cfm?DCS.nav=Local
Source CPI chart:
http://www.clevelandfed.org/research/data/US-Inflation/chartsdata/printchart.cfm
The above data was the kickoff to a down market on Friday. The media attributed most of the decline to the Michigan Consumer Sentiment report. The June number came in at 66.5, down from 76 in June, and lower than the median estimate of 74.
SPX down 2.88% Friday
The Markets were down overall, with most averages still trading below their 200-day moving average AND their 50-day moving average. The index I am paying the most attention to is the Russell 2000:
Still no 'death cross'
This is a small cap index, with a heavy weight in small financial services companies. When I look at the yield curve, and I see 2-year rates at 0.6% or so, I begin to worry about the health of these smaller institutions. The primary reason being their cost of funding, which is higher than that of larger banks’.
An explanation from economist Warren Mosler:
“Small banks, already penalized with a higher cost of funds than the large banks (http://www.huffingtonpost.com/warren-mosler/response-to-president-oba_b_413292.html) have more recently been forced to contract due to ‘wholesale funding’ restrictions being imposed by the regulators.
The stock market has rallied 10 percent off the lows made just a few days ago. Now we are challenging the resistance zone yet again. IF we are headed to new lows (SPX 1000), this is the area to consider selling.
SPX at resistance
SPX (above) There was a nice divergence at the lows July 6th. We will see if the market is strong enough to break through 1100.