While the relationship is not perfect, stocks and the Euro still have a pretty good positive correlation. This means both rise and fall together. The clear discrepancy is from 23-Nov to 30-Nov when the Euro fell sharply and SPY held support from its mid November lows. In a sense, stocks showed relative strength by holding up in the face of Euro weakness. More recently, the Euro Currency Trust (FXE) bottomed on 1-Dec and bounced last week. SPY went along for the ride and surged above 123. Well, the Euro is now hitting resistance and interest rates are moving higher. As noted on Monday, rising interest rates are Dollar bullish. In addition, debt concerns are still on the agenda in Europe and Euro bearish. The first chart shows FXE backing off resistance around 134. A break below 132 would signal a continuation of the decline. While the odds favor a move low, I have seen these things surprise us all and break the other way as well. A break above 134 would be Euro bullish. The second chart shows the 10-year Treasury Yield ($TNX) holding its resistance breakout at 29 (2.9%) and moving sharply higher yesterday. Bonds moved sharply lower.
On the daily chart, I noted the narrow range day yesterday and SPY formed a long black candlestick on Tuesday. The narrow range day at potential resistance showed indecision and the black candlestick shows selling pressure. Note that SPY pretty much opened on its high and closed on its low. This means prices moved down after the open, hence the filled candlestick. The candlestick is black because the close was above the prior close. The evidence of a short-term pullback or consolidation continues to build. Broken resistance marks the first support level to watch around 120. The 60-minute chart expands on these short-term findings.
Key Economic Reports:
Wed - Dec 08 - 07:00 - MBA Mortgage Applications
Wed - Dec 08 - 10:30 - Crude Inventories
Wed - Dec 09 - 08:30 – Bank of England Policy Statement
Thu - Dec 09 - 08:30 - Initial Claims
Thu - Dec 09 - 08:30 - Continuing Claims
Thu - Dec 10 - 08:30 - Trade Balance
Fri - Dec 10 - 09:55 - Michigan Sentiment
Charts of Interest: Tuesday and Thursday in separate post.
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This commentary and charts-of-interest are designed to stimulate thinking. This analysis is not a recommendation to buy, sell, hold or sell short any security (stock ETF or otherwise). We all need to think for ourselves when it comes to trading our own accounts. First, it is the only way to really learn. Second, we are the only ones responsible for our decisions. Think of these charts as food for further analysis. Before making a trade, it is important to have a plan. Plan the trade and trade the plan. Among other things, this includes setting a trigger level, a target area and a stop-loss level. It is also important to plan for three possible price movements: advance, decline or sideways. Have a plan for all three scenarios BEFORE making the trade. Consider possible holding times. And finally, look at overall market conditions and sector/industry performance.
