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Thursday Technical Review: Mixed Signals

  • Written by Syndicated Publisher 219 Comments219 Comments Comments
    February 10, 2012

    I have a lot of charts for you today so will keep the preamble to a minimum here. The market is displaying a lot of mixed signals right now. Certainly dips are being bought and the appearance of strength and resilience is there.

    At the same time some warning signs are once again appearing and signaling a reversal may be very near. I didn’t post a chart but AAPL put in a very explosive move on very heavy volume. This tech leader is now up 30% in just two months and today really had the look and feel of an exhaustion move.

    It reminds me of gold right before the September selloff. Don’t get me wrong AAPL is a great company and probably deserves this price but I have to believe anyone who wants to own AAPL is long and anyone who has tried to short AAPL is out. Who is left to bid the stock up or who will buy shares from those wishing to get out? If and when AAPL goes the whole market will really be in trouble.

    Mid Cap Futures

    Mid cap futures came right into the same resistance level as Wednesday and reversed very hard in decent volume. This resistance is drawn from the May and July 2011 highs. It did close well off the lows though which could set up another test of this area. The selloff was a telling sign as sellers overwhelmed buyers.

    I also highlighted the volume profile since the October 4, 2011 bottom.  This is why I believe buyer power is simply exhausted here and as Martin Armstrong eloquently says markets rollover not because of some big short seller but simply lack of buying power. It appears we are reaching that point based purely on volume.

    Treasury Futures

    Treasury futures were fairly weak on the session in heavier volume than Wednesday. They have not failed support levels yet but are not showing the strength I would have anticipated after breaking out last week. The entire curve from 2 years through 30 is still within putting in a breakout any day but recent price action has me more on guard than I was a few weeks ago.

    Below is a six month daily of the 10 year futures. It came off the lows of the session but the majority of volume was selling pressure near the open which is not the most bullish sign.

     

    VIX

    I would not declare the VIX officially broken out but it is the first break on a closing base from a six month descending wedge pattern. This pattern looks like it could put in a very explosive move higher if in fact this was a true breakout.

    Certainly something to watch and as an options trader was the basis for me adding to my SPY put position for March. Theory being a breakout in volatility should push stock prices lower but will almost certainly push option prices higher.

    HYG

    High Yield Debt has been an excellent market timer and right now is not confirming the move in equity, specifically SPX. HYG did fool the bears a few weeks ago and could very well be setting up for the same scenario but without HYG breaking out equity should struggle to move much higher.

    What is most telling about HYG was the recent reversal in very heavy volume when price double topped at the October highs. Since that time it has been pulling back. Although today HYG was able to reverse well off the lows.

    Dow Transports

    An old school signal that is not confirming the Dow right here. The transports continue to lag the market and is something that needs to be watched closer.

    EUR/AUD

    A rather odd currency pair that I have to give credit to reader Rob for bringing to my attention. The “risk off” currency is finally showing signs of a reversal here. It is far from a sure thing but has taken back the bear flag pattern and put in higher highs over the past few sessions.

    It inversely correlates with the AUD/USD so if this currency pair is able to reverse it should pressure the “risk on” currency the AUD/USD lower which will pressure equity lower.

    Images: Flickr (licence attribution)

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