The Markets React to Dubai's Debt Issues

Thanksgiving proved to be a turkey for global equity markets on debt problems at Dubai World. Mixed Messages from the US Capital Markets - US Treasury yields, Commodities, Currencies and the totem pole of major equity averages

US Treasury yields and commodities declined as the dollar stabilized and global equities markets took it on the chin as Dubai World asks creditors for a postponement of debt repayments on about $60 billion worth of debt until May 2010. This surprise led to fears of potential defaults around the global financial system, particularly in emerging markets. This could be the catalyst to end the Bear Market Rally that began back in March.

The yield on the 10-Year Treasury plummeted below its 200-day simple moving average at 3.30.

This yield had been above its 200-day since May 18th. Global uncertainty with regard to Dubai World debt led to a flight to quality into US Treasuries trumping increasing supply. Risk aversion pushed the yield on the 10-Year to 3.15 with the October 2nd low yield at 3.10. Charts courtesy of Thomson / Reuters

Comex gold reached a new all time high at $1195, as the Dollar Index slipped below uptrend support. This morning gold is between quarterly and weekly pivots at $1170 and $1135.

Comex copper reached a new high for the move at 318.50 then failed to hold my weekly pivot at 315.90. The 200-week simple moving average is support at 295.50. There are reports of global stockpiling.

Nymex crude oil has avoided the positives of the dollar carry trade with lower highs in each of the past six weeks after peaking at $82 on October 21st. Today crude oil traded as low as $72.39, and a close today below its 200-week simple moving average at $75.57 and its five-week modified moving average at $75.16 shifts the weekly chart profile to negative. This would mean that reduced demand resulting from “The Great Credit Crunch” has trumped the Dollar Carry Trade.

The Dollar Index tested $74.21, which is below the uptrend connecting the lows of April and July of 2008. This morning the dollar is back above the uptrend level at $74.55. With the dollar oversold, a weekly close above the five-week modified moving average at $76.09 is required to shift the weekly chart to positive.

The Euro traded to a new high for the year at 1.5143, but returned to my weekly pivot at 1.4972. A close today below the five-week modified moving average at 1.48 shifts the weekly chart to negative, and identifies a weekly key reversal.

The dollar versus Japanese yen broke below its December 20, 2008 low of 87.15 to as low as 84.92, which is above my quarterly support at 82.72.

The SOX is the low index on the totem pole being well below a double-top at 337, which was a failed test of my semiannual resistance on September 26th and October 17th. The SOX lead off the bottom with a low of 167.55 back on November 22, 2008. Other indices did not bottom until March. A close today below the five-week modified moving average at 311.29 keeps the weekly chart negative.

The Russell 2000 has a double top at 624 / 625 set on September 26th and October 24th. The Transports have failed several tests between annual resistances at 4037 and 4199 since Sept. 19th. The NASDAQ has stayed below its 200-week simple moving average at 2211, and now has a negative divergence in weekly MOJO. The S&P 500 needs to close Friday above 1115 to break the multi-year bear market down trend that goes back to October 2007. This trend drops to 1111 (snake eyes) next week. The March bottom was the devilish 666.

The Dow is at the top of the totem pole with overbought MOJO. Ascending Wedge resistance is 10,520 with down trend resistance back to October 2007 at 10,612. These trends converge next week around 10,600 give or take twenty points or so. My weekly pivot is 10,327 with last week’s close at 10,318.

Disclosure: I hold no positions in the stocks I cover.