ETF Trends: U.S. Dollar Attracts Flight to Safety Capital

Regarding momentum, a simple law of physics states that what goes up must come down. In Wednesday’s trading, professional and layman "sheeple" alike began to reconsider that perhaps the stock market rally is disproportionately ahead of the anticipated shapeless economic recovery.

Bearish events impacting Wednesday’s market were:

1. a worse than expected durable goods order report (although ex-autos and transportation, durable goods showed a marked improvement);
2. persistent economic weakness suggested from the Fed’s Beige Book report;
3. a large increase in crude oil stocks reflective of economic weakness;
4. rising interest rates due to tepid reception of a record $39bn treasury auction of 5 year notes; and
5. a -5% drop in China’s (the world’s third largest and still expanding economy) Shanghai Composite Index.
   

By now there should be no lingering doubts as to whether the U.S. equity markets are overbought. Hillbent.com’s industry group analysis shows that 94% of 209 industries are overbought. As the neighborhood goes, so goes its individual houses or stocks. Drilling down into the Russell 3000 reveals that about 70% of components are also overbought.

The recent institutional apathy towards buying stocks is being confirmed by the declining % of stocks trading above Hillbent’s elastic volume weighted moving average price indicator (EVWAP), which is currently at 42%. Wednesday’s market momentum monitor (see below) also indicates that the market might be at a pivot as the percentage of stocks trading above key moving averages is decreasing.

In terms of weekly price volume analysis, stock prices have steadily increased on gradually shrinking volume. This trading pattern typically indicates distribution in a primary trend bear market. There has been a lot of attention lately on high frequency computerized program trading, but in the big picture the market does what it will do and even Wall Street’s analysts and program trading hamsters can only spin (no pun intended) for so long without taking a break.

Although there were no changes to any of the trends for major equity indices, commodities and currencies saw quite a few downgrades in either their short or intermediate timeframes. Those commodity and forex exchange traded funds still managing to maintain their uptrends are hanging on by a thread and only degrees away from reversing downward.

In previous reports, I have commented on the oversold state of the U.S. dollar. It has now been upgraded to a short-term lateral trend along with the Japanese Yen. Both of these currencies tend to attract flight to safety capital during global equity market corrections. Right now, it is still a bit early to determine if a stock market correction is firmly in place, but if such an event does occur, these are safe ports in a storm.

Until tomorrow, remain Hillbent for The Market Direction…

Support & Resistance Levels for U.S. Equity Indexes (for 07-30-2009)

Index ETF	Ticker	S3	S2	S1	Pivot	R1	R2	R3
DJ-30	DIA	89.02	89.81	90.24	90.60	91.03	91.39	92.18
SP-500	SPY	95.40	96.51	97.15	97.62	98.26	98.73	99.84
NASDAQ-100	QQQQ	38.39	38.82	39.08	39.25	39.51	39.68	40.11
R2K	IWM	53.66	54.25	54.54	54.84	55.13	55.43	56.02
VIX ETF	VXX	59.31	61.19	62.20	63.07	64.08	64.95	66.83

ETF Trend Monitor (07-29-2009)

U.S. Equity ETFs	Short-term	Intermediate	Primary
DIA (DJ Industrials)	up	up	lateral
SPY (S&P 500)	up	up	lateral
QQQQ (Nasdaq 100)	up	up	up
IWM (Russell 2000)	up	up	up
VXX (S&P 500 VIX Futures)	down	down	down
Sector ETFs	Short-term	Intermediate	Primary
XLY (Consumer Discrtn)	up	up	up
XLP (Consumer Staples)	up	up	up
XLE (Energy)	lateral	up	down
XLF (Financials)	up	up	down
XLV (Health Care)	up	up	up
XLI (Industrials)	up	up	down
XLB (Materials)	up	up	up
XLK (Technology)	up	up	up
IYZ (Telecom)	up	up	down
XLU (Utilities)	up	up	down
Key Industry ETFs	Short-term	Intermediate	Primary
ITA (Aerospace & Defense)	up	up	n/a
MOO (Agribusiness)	up	up	n/a
BBH (Biotech)	up	up	up
SEA (Global Shipping)	up	lateral	n/a
XME (Metals & Mining)	down	up	n/a
OIH (Oil Services)	down	up	down
PPH (Pharmaceuticals)	up	up	up
RKH (Regional Banks)	up	up	down
RTH (Retail)	up	up	up
SMH (Semiconductors)	up	up	up
SWH (Software)	up	up	up
IYT (Transportation)	up	up	lateral
PHO (Water Resources)	up	up	n/a
Commodities	Short-term	Intermediate	Primary
GLD (Gold)	down	lateral	lateral
SLV (Silver)	down	down	down
DBB (Base Metals)	up	up	up
JJC (Copper)	up	up	up
USO (Oil)	down	down	down
UNG (Natural Gas)	down	down	down
UGA (Gasoline)	lateral	up	up
DBC (Commodities)	down	lateral	lateral
DBA (Agriculture)	down	down	down
Forex	Short-term	Intermediate	Primary
UUP (U.S. Dollar)	lateral	down	down
FXE (Euro)	down	up	up
FXY (Japanese Yen)	lateral	up	up
FXB (British Pound)	lateral	up	up
FXC (Canadian Dollar)	up	up	up
FXA (Australian Dollar)	up	up	up
FXM (Mexican Peso)	up	up	lateral
BZF (Brazilian Real)	up	up	up
CYB (Chinese Yuan)	lateral	lateral	lateral
ICN (Indian Rupee)	lateral	lateral	n/a
XRU (Russian Ruble)	down	lateral	n/a
CEW (Emerging Currency)	down	up	n/a
Bonds	Short-term	Intermediate	Primary
SHY (1-3 Yr Tsy)	lateral	lateral	lateral
IEF (7-10 Yr Tsy)	lateral	down	down
TLT (20 Yr+ Tsy)	lateral	down	down
TIP (Tsy Inflation Protect)	lateral	lateral	down
AGG (Investment Grade)	lateral	up	up
JNK (Hi Yld Bonds)	up	up	up
HYG (Hi Yld Corp)	up	up	up
MUB (Nat’l Muni Bond)	lateral	lateral	lateral
Real Estate	Short-term	Intermediate	Primary
IYR (DJ US Real Estate)	up	up	down
XHB (Homebuilders)	up	up	lateral
ITB (Home Construction)	up	up	lateral
FIO (Industrial Office)	up	up	lateral
REM (Mortgage Reits)	up	up	lateral
REZ (Residential Index)	up	up	lateral
RTL (Retail Index)	up	up	lateral

Market Momentum Monitor (07-29-2009)

Market Momentum	20-Day MA	50-Day MA	200-Day MA
Today	85.71%	81.82%	85.80%
Yesterday	88.73%	84.92%	86.43%
Last Week	83.19%	78.83%	83.17%
Last Month	48.16%	68.35%	74.31%

Disclosures: Hillbent.com, Inc. or its affiliates may own positions in the equities mentioned in our reports. We do not receive any compensation from any of the companies covered in our reports.

Comments

[Puerto:]

It would be interesting to hear how your views correlate with the latests results of State Street's Investor Confidence Index uk.reuters.com/article...
which reports increasing confidence of US institutional investors as well as Asian and European investors.

There is also the generally very positive report on uk.reuters.com/article... of the results of surveys of 49 major investment houses in the United States, Japan, continental Europe and Britain.

Are things really so bleak as you report?

Jul 30 10:37 AM

[J Clinton Hill:]

i do not necessarily see things as being bleak, but regard the market as a little frothy... i also detect a shift in sentiment reaction towards bearish events...

at the end of the day, i stick with the trends but also regularly quantify the strength of their momentum... when i see changes developing, i think it is wise to be cautious...

only sharing my observations with the best of intentions... i will not dispute that bulls are in control of the market.... however, a pullback would be healthy for a higher long-term support level...

thanks for the comments & reuters links....


On Jul 30 10:37 AM Puerto wrote:

> It would be interesting to hear how your views correlate with the
> latests results of State Street's Investor Confidence Index uk.reuters.com/article...;feedName=stocksAndSha...
>
> which reports increasing confidence of US institutional investors
> as well as Asian and European investors.
>
> There is also the generally very positive report on uk.reuters.com/article...
> of the results of surveys of 49 major investment houses in the United
> States, Japan, continental Europe and Britain.
>
> Are things really so bleak as you report?

Jul 30 12:48 PM

[johnbee:]

Money has to go somewhere. Banks deposits are only guaranteed to very small amounts. US $ Treasuries are a safe haven only until interest rates rise or inflation creeps in as they surely will. Equities can be a hedge against inflation and currency depreciation but only if you cherry pick.
The rise in equity prices has little to do with reality. If some earnings are up its because of low interest rates, sacking of staff, temporary withdrawal of advertising, low inventory charges etc.
Funny that the lucky ones this last few months have been the gamblers and the uninformed unless you have been a banker in the Fed elite. It should have been obvious with hindsight that they had to be the first to be saved or we were all done for, but thats not a slam dunk just yet, and most equities have long uphill climb to go.

Jul 30 01:09 PM

[sunbakd1:]

Overbought again and climbing. 150 points up on the dow so far today. Looks like momentum, at least in the short term is positive. It is all a house of cards that will eventually come down once reality sets in. As we all have heard over and over again, 70% of the GDP is the US is based on consumer spending. The consumer is spent out. There is no more home equity to tap, consumer debt is bloating, credit card defaults will rise dramatically, next wave of forclosures hit in 2011, 2012.

2012 may be really, really bad. Double dip recession on the way folks.

Jul 30 03:11 PM

[HATEFEEBAY:]

Hi-Ho Silver away! I am out of the US dollar, and into silver, gold is decent even at this level, but silver is going to go up up up! I say $22 before the end of the year, but mark my words $70 an ounce within 10 years easily.

Jul 30 10:28 PM