Just a little correction – so far.
It's not the 50 dma that should be concerning us – we've tested that plenty of times during this rally – it's the 200 dma at 2,045 (where the box is on Dave's chart) that is going to be the big point of contention – if we fal that far on the first place. We haven't tested the 200 dma since January and, before that, it was October's huge drop.
The first order of bullish business for our indexes is to take back those 50-day moving averages at Dow 18,018, S&P 2,051, Nasdaq 5,005 (hasn't failed yet), NYSE 11,095 and Russell 1,250, which is also holding so far. Still, 3 of 5 below their 50 dmas is a lot of downward pressure on our indexes and we won't be adding any new bulliush bets until we see at least one of those lines taken back.
Asia was mixed this morning or atually all down except the Shanghai, which popped 2% and the Hang Seng, which scratched out a 0.2% gain. All the rest was red but not too much. Europe is down actoss the board by 0.5-1% – so that does not bode well for the US open but we are, of course, well-positioned for a sell-off – as it's the one I've been warning you about for a month.
Not that we weren't able to make money while we waited – 75% of our June Top Trade Review picks are winners already – including our TZA hedge (ultra-short on the Russell) that's on track for a full $10,500 profit if the Russell finishes any lower than 1,250 – that's a nice hedge!
This is a pretty slow data week so it's all about the technicals for now. Wednesday is Retail Sales and Import/Export data pre-market and Thursday is PPI but the real damage is being done in Europe where Greece is spiraling out of control (told you it would) and the DAX is now at 11,085 – down more 10% from the high at 12,390 in April, which is offically considered bearish on the World's 2nd most important National Index.
DAX broke their 50 dma in late May at 11,920 and it has since drifted down to 11,750 while it's 200 dma is way down at 10,500 – another 5% down from here. Per our 5% Rule™ (and when is it ever wrong?), 11,000 is the real line to watch on the DAX as 10,000 is the Must Hold and 12,000 was, of course the 20% line that is undergoing a 50% retrace. In the bigger picture – there's no proper support in a panic all the way down to 9,500 due to the low-volume, BS way we climbed to 12,000 (boosted by a weak Euro, not a strong market).
As the DAX (and the rest of Europe) rose 20% on Draghi Fever (not even counting the October spike down), the Euro, quite simply, lost 20% of it's value, falling from $1.225 in November all the way down to $1.03 at the March low and now it's back around $1.12 – so of course the rally has pulled back the 10% the currency rose – this isn't difficult to understand – the EU markets (and EU corporate earnings) are priced in Euros and it's the currency move driving the markets – not the "health" of the economy.
Here's where the problem is: Because analysts are idiots, and Economorons are, well, morons, they tend to attribute positive market movement in Europe to signs of a recovery and then market gains are misinterpreted as economic gains (or sustainable ones) and then market speculators in other parts of the World begin thinking the rising P/E Ratios in Europe mean it's OK to overpay for stocks in the US or Asia.
That's based on the VERY FAULTY LOGIC that Europe is recovering and that recovery will spill over to the US and Asia but Europe isn't actually recovering at all – it's dead flat when you adjust out the declining currency because NOTHING has actually improved at all. This not only leads to poor investing decisions but poor policy decisions – like the illusion that Europe is so strong they can let Greece fail and they'll be fine.
We saw this coming a mile away and we've been warning you since November, when we began moving to a more "Cashy and Cautious" approach to the markets and, of course, we took the March top as a signal to cash out most of our Long-Term Portfolio specifically because the markets were topping on currency fluctuations that had nothing to do with the underlying health of our equities.
As noted in our Top Trade Review – we didn't fail to participate in the market rally, we simply did it with extreme caution and that let us quickly pivot to the more bearish position we currently hold in our Member Portfolios. Now that we're getting the correction we expected, we no longer have expectations and we'll be watching the technicals to see what holds up.
As you can see from the NYMO, we're nothing like oversold yet so it's likely we test lower than this and notice the MACD is indicating that it's time for a strong sell-off as well.
Our own Dollar is at 95.83 today, which is still low considering Fed tightening is on the table and the Euro is at $1.12 so possibly overshooting the 10% line would bode well for a German bounce off their 10% line but the rising Dollar on the falling Euro (back to $1.10 and probably 97.50 on the Dollar) could send us down to 2,060 on the S&P before we find proper support (assuming this is a minor retrace).
Then we'll be watching our bounce lines but, at the moment, it's Monday – and nothing that happens on Monday matters!
