Money Flow for November Week Four (by SB)

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Further to my last weekly market update, this week's update will look
at:

  • + 6 Major Indices
  • + 9 Major Sectors
  • + Trendlines on 7 Major Indices
  • + China's Shanghai Index and the European Top 100 Index
  • + 30-Year bonds


6 Major Indices

The three chartgrids below show Monthly,
Weekly, and Daily timeframes
of the six Major Indices, along with the
Stochastics indicator. Inasmuch as today (Friday) closed out the month of
November, I thought I'd show where price is relative to these
timeframes.

Price is pushing up against resistance (either near-term or
major, longer-term) in overbought territory on negative Stochastics divergence
on the Monthly timeframe. The Stochastics indicator is bouncing up off oversold
territory on the Weekly timeframe, and it is in overbought territory on the
Daily timeframe.

They all closed higher
on the week, as shown on the 1-Week percentage gained/lost
graph
below. The Utilities Index made the biggest gains, followed by
the Russell 2000 Index. The Dow 30 Index was, basically, flat on the
week.

9 Major Sectors

The three chartgrids below show Monthly,
Weekly, and Daily timeframes
of the nine Major Sectors, along with the
Stochastics indicator.

As with the Major Indices above, price is also
pushing up against resistance (either near-term or major, longer-term) in
overbought territory on negative Stochastics divergence on the Monthly
timeframe. The Stochastics indicator is bouncing up off oversold territory on
the Weekly timeframe, and it is in overbought territory on the Daily
timeframe.

Seven of the nine
Major Sectors closed higher on the week, as shown on the 1-Week
percentage gained/lost graph
below. The Utilities Sector made the
biggest gains, while losses were made in the Energy and Financials
Sectors…slightly favouring the "Defensive" sectors.

Trendlines on 7 Major Indices

Below are Weekly
charts
of 7 of the Major Indices, with a major trendline shown on each
(discussed in last Friday's weekly market update), which begins from the October
lows of 2011.

This week, the SPX tested both sides of its break back
above its trendline (which it made last week) and closed above it for the second
week in a row. It's important for the SPX to hold above 1400 and this major
trendline in order to continue to support a bull case. The RUT and the OEX
closed on the underside of their respective trendlines today and will need to
cross and hold above to support any further rally on the SPX. The NDX and the
three Dow Indices have yet to backtest their major trendlines.

What may
interfere with a continued rally next week is the overbought reading on the
Stochastics indicator on the Daily timeframes on the Major Indices and Major
Sectors, as I mentioned above.
We may see a bit of a pullback to
relieve such a situation, before they, potentially, continue what is,
traditionally, a Christmas rally.

However, market
participants may be expecting further monetary stimulus measures to be announced
at the next FOMC meeting on December 12th, and a potential resolution of the
"Fiscal Cliff" issue before Congress begins its vacation on December 14th, so we
may not see a pullback until we get closer to Christmas, and possibly the end of
the year.

Intraday volatility has been varying wildly
recently
from large, swift swings to narrow, compressed ranges, with
price moving on news events…making for schizophrenic and unpredictable
moves…not surprising with the Major Indices and Sectors pushing up against
major resistance on Monthly timeframes in overbought territory, as well as the
unresolved "Fiscal Cliff" issue (and looming Debt Ceiling issue), seasonal
factors (Christmas/Boxing Day market closures), upcoming unemployment data on
December 7th, Options Expiration (Quadruple Witching) on December 21st, and end
of Q4 on December 31st. I expect this type of volatility to continue
until the end of the year, and possibly into next year…particularly, until the
Monthly overbought Stochastics cycle has reversed and been resolved on the Major
Indices and Sectors.

 
We may also see a
continuation of unusual buying of beaten-down, high-beta stocks,
as has
been occurring recently in the Social Media stocks and RIMM, as I mentioned in
my post of November 24th, as fund managers attempt to top up
their yearly portfolio gains before the end of the year. I'll be looking for any
parabolic rise and climax on high volumes on stocks such as these as a precursor
to a potential major market trend reversal. If this type of stock continues to
explode higher in the near-term versus value stocks, I'll also be warned of
potential Q4 earnings weakness (markets favouring beta-movers versus actual
value). Here's an updated Daily shot of how they ended this
week…FB is leading the rally in this group.

China's Shanghai Index and the European Top 100 Index

The
Shanghai Index continues to make new lows, while the
European Top 100 Index remains range-bound at major resistance
levels, as shown on the Daily charts below. These are two other
indices I'm following, as further weakness in China, and any further weakening
economic data coming out of Europe could depress any further meaningful advance
on the U.S. markets (unemployment continues to rise unabated in Europe, which
will, no doubt, be exacerbated by further austerity measures that may be imposed
on EU countries). Any further stimulus measures that may be forthcoming from the
ECB would be announced at their upcoming rate announcement and press conference
on December 6th.

30-Year Bonds

Price on the Weekly chart below of
30-Year Bonds closed on Friday just above near-term support, after retesting a
level just below. Failure to hold this support level may induce serious
bond-selling, which could begin on a larger scale if price then failed to hold
at the next support level (around the lower Bollinger Band/50 sma). Any
substantial weakening of Bonds may produce a large-scale rally in equities…one
to watch over the next days/weeks.

Enjoy your weekend
and good luck next week! 

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