20120831Intermarket Relative Strength Review
Coming into the week all eyes were on Jackson Hole. I can’t tell you how many times I have read that this week…but it had some truth. Maybe a few eyes were on Europe, as they should really be, but how can you resist Big Ben. No matter what he really said the table below suggest the markets believe we are getting more easing sooner rather than later. Commodities remain on top with equities in the middle. Bonds and the Dollar are at the bottom. This structure is more about expecting easing than it is raw strength in the economy, the question is can the former induce the latter.
Equities
$QQQ still the leading RS in the equity space even with the break this week. Unfortunately is moved out of the top 3 leaving all equity indexes squarely in the middle. It is holding well right near the highs, but if it squats here too long it gets more vulnerable.
$IWM was the only one positive on the week holding near its breakout point on multiple levels I showed in Don’t Sweat the Small Stuff yesterday.
$SPY and $DIA seem to be hanging out as well. The low volume week combined with FED watching kept things in check. As people come back in the next couple of weeks we are more likely to get a directional signal. Right now I believe the structure still supports a breakout, but many are worried about a big reversal in September. I am not convinced.
Bonds and Curreny
This area continues to hover near the bottom of the RS list and that is a good thing for a risk on atmosphere. The top performers remain $JNK and $LQD showing there are no overriding worries about the US economy getting a lot worse at this juncture.
$JNK continues to grind higher and with some good volume spikes along the way.
$LQD is right back challenging the highs after a sharp sell off. I have suggested this was likely because vertical trends usually are retested at the least after the initial sell off.
$IEF and $TLT had strong endings to their weeks after Bernanke spoke showing the belief we will see more bond buying by the Fed. It will be interesting to see if they continue to go higher how will equities and commodities continue to outpace them in RS or will they move back up the list. They can go higher, but it would be better if it is muted compared to the others.
$UUP is right on long term support, but it still feels to me like we see more down here.
Commodities
If $UUP does continue down that will provide more support to the commodity complex.
Again this week $SLV takes the top RS spot as it continues to run higher.
$DBA looks ripe for another move higher and is in the second spot followed by $DBC showing most commodity sectors are in play here.
$DBC is following the strong run of $USO due to the heavy weighting there. I will be concentrating more on the latter for direction.
$GLD may be the low man on the totem poll in the space, but the action over the last couple of weeks is impressive. Chart says it has more to go here.
All together this week’s action suggest we are going higher due to the expectation of more QE more so than economic strength. I think we are likely to see both which could certainly help smooth over the normally rough seasonality during this time of year. I likely won’t be in a straight line as the bear are likely to strike when they see an opening, but I am not sure how much success they will have under these circumstances.
Good Luck! It is there for you to make.
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