Technical stock condition aligns with Europe turmoil

Another week, same old sentiment just a different country. The scene shifted to Italy which at first blush we were told is too big fail but too big to save. By Friday they were singing a different tune. Word is Italy isn’t going to fail, all that will happen because they are in a much better situation compared to Greece with a surplus is they’ll have the credit severely restricted. That’s not good but could be why we only had a one day shake out. But this one ruffled a lot of feathers because it seemingly came out of the blue. It didn’t come out of the blue. PIIGS means they’ve been anticipating for a long time. There’s no surprises here which is likely why we didn’t have a Lehman moment.

For our part, we didn’t necessarily know what news event will turn the chart but what we did know is a storm was brewing with a great reading on the Greenback and the near term emotional low on the long bond did dictate the rest of the week, much as we said in Tuesday night’s STU.

What has changed is the fact we had an excellent dynamic square of 9 reading on the Greenback which accelerated the chart and it pulled back to support where it appeared polarity was about to flip the pattern sky high but somehow the 77.68 level that needed to hold did not and now Tuesday’s low is once again being tested. If the general area of 76.67 does not hold this would be very bullish for stocks, good news likely comes out of Europe and the risk trade will be back full steam ahead.

Speak of the risk on trade here we go again. Most noteworthy to the week was the lack of downside participation in the energy complex. The sentiment there has not changed and is one of supply concerns as opposed to the demand destruction we see during bear phases in the stock market. That could be the market ‘tell.’ Whatever the case, oil is pushing at $100 and if we were really going back down, oil likely would have been part of it.

Another major issue is Apple computer which finally broke down last week. That’s 12% of tech and even as such the NQ/NDX complex had a great Friday. In fact, it was excellent since Thursday evening. Either AAPL starts recovering or tech is going to have difficulty going further. But oil stocks are absolutely picking up the slack here. Without AAPL, I doubt the market could even advance without oil stocks.

This is a crazy market to be sure but the leading pattern at this point overall is the pending triangle in the SPX which is materializing NORTH of the congestion zone that is protecting the bottom. If in fact the SPX is in the latter stages of a triangle we could be in for a rough, choppy ride to start the week but conditions could improve later on. We are now entering a window of an important time window and given the seasonal factor and proximity to Thanksgiving the next 10 days would be the usual time for the start of the Santa Claus rally.

Next page: Will Santa come this season?

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