International
Focus
Euro FX Dominates. Crude Surges. GE Shocks.
The View from Above
What I see is that the NASDAQ 100 and S&P 500 are in a macro downtrend. Recently, they attempted to rally, supported by the U.S Federal Reserve, but were contained by the upper limit of their 6-month linear regression channel. Semiconductors are struggling to move higher. Regional banks and retail seem locked together and are indecisive. Basic materials and oil services are strong, supported by a strong Euro (weak U.S. dollar) and strong crude oil prices. Gold buyers and sellers seem torn between weak equities and a strong Euro / strong crude oil.
The U.S. Federal Reserve is willing to support the U.S equity markets, even to the point of making surprising, radical moves. The U.S. housing market is in a downtrend. With less money willing to chase housing prices higher, housing prices are falling. Lenders are holding depreciating collateral.
The U.S dollar is in a “forced” macro downtrend. As long as the Fed cuts rates, or holds out the prospect of cutting, there is little incentive to bid the U.S. dollar aggressively. Higher crude oil prices are running their own course, supported by a weaker U.S. dollar. Crude oil is defying the impact of a U.S. recession.
Hindsight: U.S. Treasuries are strong. The Euro is strong. Gold is relatively strong. Crude oil is strong. The basic materials and oil services equity sectors are strong. The major U.S equity indices, on a macro level, are weak. The regional bank and retail equity sectors are weak.
When Bear Stearns collapsed, touching the $2.00 level, I was amazed. Then, their collapse seemed “normal”. They are risk takers. They blew it. When General Electric moved from 38.00 to 32.00 in a blink, I was shocked. General Electric, despite its prolonged downtrend along with the regional bank sector, is supposed to be “squeaky clean”. Not so. GE, the “light bulb” people, is rowing in the same financial services boat as Bear Sterns.
Foresight: The major markets are churning. Short-term traders will be presented with the opportunities brought on by volatility. Long-term, long-side traders should look at U.S Treasuries, the Euro and crude oil. These markets are trending higher. Interest-rate policy is guiding these uptrends. As long as the U.S. cuts rates and the European Union holds rates, these macro uptrends should hold, especially in Treasuries and the Euro.
 1) 6-month chart NASDAQ 100 (QQQQ: ETF) |
 2) 6-month chart S&P 500 (SPY: ETF) |
 3) 6-month chart Semiconductor Sector (SMH: ETF) |
 4) 6-month chart Regional Bank Sector (RKH: ETF) |
 5) 6-month chart Retail Sector (RTH: ETF) |
 6) 6-month chart Basic Materials Sector (IYM: ETF) |
 7) 6-month chart Oil Services Sector (OIH: ETF) |
 8) 6-month chart Long-term rates (TLT: ETF) |
 9) 6-month chart Euro FX (FXE: ETF) |
 10) 6-month chart Gold (GLD: ETF) |
 11) 6-month chart Crude Oil (USO: ETF) |
GE Shocks
GE, as events have reinforced, is a financial services stock. On April 11, 2008, GE announced disappointing results. The CEO of GE “blamed” Bear Stearns and not himself. GE rallied into the announcement, eased off its 6-month sell-line at 38.00. Then, on April 11, it collapsed to 32.00. Compared against RKH, the regional bank exchange-traded fund, GE was yanked back into alignment with RKH.
GE is connected to RKH. RKH can drive SPY, the S&P 500 exchange-traded fund. The S&P 500 can drive the NASDAQ 100. Subsequently, I show linear regression channels for GE, RKH, SPY and QQQQ, the NASDAQ 100 exchange-traded fund. I also show the 6-month chart, intraday 11-day chart and 1-day chart for QQQQ from April 11. On April 11, GE drove the NASDAQ 100.
Markets and stocks are connected. eSignal provides you with a remarkable tool (automated linear regression channels) to track these connections.
 12) 6-month chart General Electric (GE) |
 13) 6-month chart Regional Bank Sector (RKH: ETF) |
 14) 6-month chart S&P 500 (SPY: ETF) |
 15) 6-month chart NASDAQ 100 (QQQQ: ETF) |
 16) 11-day chart 180-minute bars NASDAQ 100 (QQQQ: ETF) |
 17) 1-day chart 10-minute bars NASDAQ 100 (QQQQ: ETF) |
Currently, short-term equity traders are at an advantage. They can work the ups and downs that will play out in the weeks to come. Long-term equity investors should wait until “shocks”, such as GE play out. The day that equity markets begin a sustainable rally will likely be a day when a “GE-like” shock is taken in stride.
Richard L. Muehlberg can be contacted at: www.DayTradingWithLinesInTheSky.com
