The first thing to note about this chart is it isn't following the general market. It turned sideways at the end of september as the general market has climbed to new recent highs. I have heard some arguments that say that the general market should be following a similar trend as the fundamentals are not there to support a rally.
Speaking of fundamentals, what is happening with financial institutions? The main concern right now people are calling robosigning or mortgage gate. There are hundreds of stories out there so I will not talk about the details of this please see google news search for more information
In a nut shell, banks were foreclosing homes they techincally didn't have the right to foreclose as they didn't have the proper documentation leading to some home owners "taking the law into their own hands" by squatting in their previous owned houses. The implications are devastating as foreclosed home sales make up 1/3 of existing homes sales and they have effectively been halted until this mess is cleared up. Also think about it from a buyers perspective, there is a chance that the home you purchase may be subjected to repossession if the bank didn't technically own the house it sold to you.
Any ways that is the fundamentals behind this sideways action on FAS. Now..... Techincals are have just began to scream sell.
ADX has crossed over which is a sell signal.
MACD histogram has turned negative signaling downward momentum. And the likelihood is that the MACD line will break the 0 level by next week reinforcing the fact that momentum is to the downside.
Look at the sell volume the past 2 days, this is what you want to see as confirmation of a trend reversal.
Slow Stochastics have turned down sharply confirming momentum has shifted.
Lastly, the 20 MA was broken and resistance was found at the the 50 MA. However, the candlestick formation is a continuation pattern and with the other technicals pointing south expect the 50 MA to be broken next week as well.
The implications of this may be severe. As the general market heading higher, there is some disconnect that will be corrected. Tech stocks led the charge in the nasdaq namely Google and Apple. In addition to American Financial companies, looking at the FTSE, which tracks Europe financials, the chart pattern appears to be weakening also.
Remember what got the world into this recession, mortgage crisis and banks tanking. So be wary in the general markets. A notable stock that got hammered last week was JP Morgan in 3 days the stock went from $40.50 to $37 dollars. Friday the stock was down 4.29%
Another interesting Chart is the following plotting FAS and S&P 500. Since FAS is 3x bull of the financials it moves much faster than S&P. However look at the broken correlation. The link of the chart is below if you want to check other time frames however FAS and S&P tend to follow similar patterns. The last 2 day the market remained flat and FAS tanked. How will the market correct this correlation?
Oil has been ranging between the Cyan lines. Sometimes breaking above and other times breaking below however the range has been approximately 73- 83 since June. The USD has been getting hammered giving rise to all commodities (gold touched 1390 recently). The USD has been falling because of QE2 expectations. The currency war is being perpetuated by multiple counties and QE2 could solidify this "race to the bottom" as weak currency = stronger export sector. I find it interesting that the US has been calling out China on "currency manipulation" as it has continued to devalue its own currency to prop up its export sector. Anyways it is my belief that QE2 has been overpriced into the markets and when the announcement comes which is expected to be at the FOMC on Novemeber 2nd the market will correct.
My reasoning is simply that just the mention of QE2 has done what the FED wanted. Keep the market from collapsing. By holding back on the amount of QE, it allows for more room to navigate the next downleg in the market.
Anyways back to OIL.
Friday was strong selling a drop of 1.74%. The top of the range was hit around $83. I expect the Dollar to rally and oil to head back down into this range. However, all moving averages have are contained so strong resistance around the 77- 78 level. Breaks of these moving averages especially the 200MA will result in a retest of the lower bound.
An indication of the momentum shift is the MACD histogram which appears like it will turn negative next week. In addition, on the 11th, the Slow stoch broke the 80 line and began to head south, confirming a momentum shift is underway. A strong sell signal will be the DI- crossing the DI+ on the ADX. This appears to still be a few days away if selling continues next week.
Lastly, the purple lines are a triangle that has been formed from the highs / lows in the May flash crash. It will be interesting to see how well the price action respects this triangle going forward.
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