Thursday, September 23, 2010

Are We the Only One's on the Planet Blind to the True State of Our Market?

The last couple of weeks have shown daily uncertainty in the US market as the SPY is toying with a key resistance level. Many believe it works through and then heads higher. Others see the run up that has occurred and are waiting for a pullback (i.e. not sell off). The prevailing sentiment is the market goes higher. Here is the SPY chart.


Looks like a rising wedge or maybe an ascending triangle, trying to break out higher. Both are pretty positive short term so why shouldn't the sentiment be positive? Most technical analysts will say that knowing that price action is enough. A few will tell you that it is important look at the inter-market relationships for potential catalysts as well. But it is an even smaller group that will take in the broad market news, economic and monetary policies to gain an edge. When looking at the SPY from that perspective there is a markedly different picture.

Look at the SPY from the perspective of a British investor for example.

SPY priced in Sterling

It has been in a downtrend and is now losing the 100 day Simple Moving Average (SMA) as it crosses down through the 200 day SMA,after breaking the downtrend. But that is just one area of the world, with some issues. What would a Japanese investor think. Here is the SPY priced in Yen.

SPY priced in Yen
For a Japanese investor the SPY is breaking the downtrend but lost support of the 100 day SMA and looks headed lower. Hmmm. Not as positive either. What about others?

SPY priced in Euro
SPY priced in Swiss Francs
SPY priced in Australian Dollars

These are even worse, with clear downtrends. Adding in the rest of the world using Gold as a proxy...

SPY priced in Gold

... and it is a clean sweep. Every place else in the world the SPY looks to be in a downtrend. How can we have one view and the other 5 billion people on the planet another? This is a clear sign that the US stock market is being propped up by the weak dollar and loose fiscal policy. I know you need to trade the market you have and that shows a potential to break higher. But be cognizant that the future is not so bright.

Trade'm well and be careful.

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