Ask me what I am bullish about. The XEG.TO got a little life and moved back above the 40 week DMA. As a sign of encouragement, Crude oil broke out of it's trading range. That is helpful as a major commodity. In the USA you can look at XLE for the ~equivalent~ of the XEG.TO. See John Murphy's article today on the energy sector.
Stocks move in cycles. For a bull market, usually the bond market starts to soften, the equity market starts rolling, and then the commodities get going. That is typical. This inter-market relationship has been in place for many years. It must be viewed on the weekly charts.
Bonds:
Well, the Fed is borrowing short maturities and loaning long maturities currently. If you watched the latest Santelli rant, you'll understand the concern. With the Fed controlling how the bond market is behaving, we really have trouble using it as an indicator. The 3 month $IRX has been sensitive and currently has relaxed so that is good. The $FVX (which shows yield) is trying to break out to the upside. This means the price has to fall in order for more buyers to get interested. This is good for the equity markets.
Equities:
The equity markets in the US are up over 25% off the October lows, supported by the Operation Twist. The Canadian markets are up 16% ( $TSX )without Central Bank programs that are so obvious. We may have some going on, but they are not as ‘public.'
The Loonie..
What concerns me is how the $TSX, The $CDW and the $SPTEN are all stuck at the 200 daily ma or 40 week ma. (about the same thing). This is historically a bull/bear dividing line.
Commodities and $COPPER
Now comes the real bull market. We need to see the commodities start to move here.$Copper has to move higher. If it can not, this rally will be the highly suspect.
When you start to feel sick, you have little choice but to wait it out. You hope it does not become pneumonia or a serious condition. Copper is the equivalent of taking your body temperature in the global market. When $Copper is healthy, its ok to be optimistic. Dr. Copper had the flu last week. It fell about 7% from last weeks high. The $USD moved higher. That hurts commodities priced in $USD.
Now one week doesn't make a trend. But the $SPX, $INDU and $COMPQ all made higher highs. So it was down even when the general drift was higher. That is hard to do.
Here's the $USD. It reversed the downtrend and started heading higher. Check it out on a daily for more clarity. This is the weekly below.
Lets broaden it out. $COPPER had a bad week. Even gold and silver had trouble last week. The industrial metals charts had a bad week.
Here's the weekly on the $GYX just to be consistent.
I posted an article on the Dow Theory last week and talked about how the railways fit in. The railways had a bad week. This correlation is important. The Dow made news highs on Friday. Transports made lower lows as did industrial metals.
It isn't over till it's over, but here is my Dow theory (Daily) chart. Again, the stress is that you want the transports to confirm the Dow Industrials move higher. You also want the 'demand' for industrial metals to be rising. This divergence is not measured daily, but you can see the Dow went up without the others this week for sure. I moved the blue vertical line to the Dow's new high. $Copper being down 7% from the highs of last week is harsh. Pay attention, get the popcorn. Either the fireworks start now with all commodities surging higher and soon, or the tides will continue this negative directional trend. The farther they get apart, the more likely the termination of the equities move higher.
I'll continue tomorrow. I'm going to get $COPPER some flu medication and really hope he has a better week. Maybe copper and the industrials, pull back, give us a hard reversal to the upside and watch the commodities run. Focus on the $USD, $CDW, JJC (intraday copper ETN), transports and $GYX.
Not sure if you are heading off to Chartcon in Seattle in August. I will be there. I hope to catch you there too. To my knowledge all of the stockcharts.com chartwatcher newsletter writers as well as myself are planning to attend. If you like charting and stockcharts, it can't get any better than this.
Good Trading,
Greg Schnell, CMT
