3 Warning Signals

We will have a nice dosage of charts on this post to illustrate what is taking place with some key markets that I have been watching and find very telling at this juncture. Last evening all the numbers out of China came in at expectations or better, the most important one being the 2nd quarter GDP which came in at 7.5%. The markets digested the testimony given by the Fed chief Janet Yellen and the China data on Wednesday with the Dow Jones closing at a new record high at 17138, up 77 points on the day. Gold traded on both sides of $1300 throughout the NY session and had a closing price of $1299.9 for the day. The US Dollar continued to rally and did close above the important resistance I had mentioned, 8060, finishing at 8062. Here is the first chart and that is of the Euro which is bearing down on a very important band of support. You can see what I am referring to by the lines drawn. The most important level to hold is the lower at around 13480. If that gives way, the ones calling for a much lower Euro may just have their day in the sun. I am of the opinion that this level will hold and if it does there will be plenty of trading opportunities on the long side to finish out the second half of the year. Here is a look, please click the chart

I am not including a chart on the Dollar as I have done so in previous posts and it truly is not much different from yesterday. Let's see if we can stay above 8060 for more than a day and keep rallying. Remember the most important thing for the dollar to go higher is the perception that interest rates are indeed going higher. I believe the jury is still out on that one based on what I heard from Yellen the past two days!

Now on to what I see as warning signs for the Stock markets going forward. First I am going to show you a daily chart on oil. You have seen me write about how OIL has really been taking a beating over the past couple of weeks. We did break below $100 yesterday but quickly rebounded from a low of $99 to $101.50 currently. Nice bounce, however based on the chart below, a bounce is all it may be. Let me explain, first you can see the market is in a down trend based on the line drawn. Until OIL trades through and closes above that trend line the market is locked in a down trend. Based on my line, Oil would need a close somewhere back around the 103 level to get me interested in buying  again.

While Oil has moved back above the $101 level, here is what I can tell you from my experience, with the Chinese data last night and the oil inventories Wednesday morning showing a 7.5 million barrel decline, the price should have been up closer to $3 today. Especially with the gains we had in the stock market and the fact that OIL has fallen almost $9 in the past couple of weeks. I have been saying that OIL may be showing that the demand from the consumer is just not there.

Secondly, I am showing you Copper. Last year I used to use copper in my writing but this is the first time I feel it is worth a mention since I started back with my blog. Copper is known to be used by traders as a barometer of how healthy the economy is doing. Again I am mentioning the good data out of China and a US stock market at record highs today. Normally copper would have had a nice upside day. It did not and actually appears to have possibly put in a double top near $330. Have a look at how copper performed today

The third warning comes from the TEN YEAR NOTE. I have been mentioning this market for the past couple of weeks, it is baffling lots of traders but not me, I really believe it is telling us that things are NOT as good as the stock markets are telling us. Now this chart below is of the hourly time frame, I did it this way so that you can see how it performed on this day that we closed at RECORD highs in the Dow Jones. Concentrate on the far right side of the chart, the price came down in the morning but by the end of the day the price rallied back up. Have a look

Sorry for not having much on Gold today but I figured I could get away with it because of the time spent yesterday and today's price action in Gold really did not do much. I'm sure we will have an eventful day in Gold tomorrow, at least lets hope it gives us some clue on its next big move. As of now, 1280 needs to hold the downside and I will not become interested until we climb back above 1320 and hold there for a couple of days.

So that's what I see, hope I opened new eyes and that you find it helpful in understanding what is going on with the markets. In my opinion, I really do feel that a top is close at hand in the US stock markets and that things may start to get ugly. Let's see what develops in the final 2 days of the week if anything at all.

Thanks for reading
TraderMartin