US STOCKS FOLLOW EUROPEAN STOCKS LOWER -- BONDS AND DOLLAR ADVANCE AS STOCKS AND COMMODITIES DECLINE -- GERMAN, FRENCH AND DUTCH INDICES MOVE SHARPLY LOWER -- ITALIAN AND SPANISH STOCK INDICES BREAK SUPPORT - GREEK INDEX HITS NEW LOW
US STOCKS FOLLOW EUROPEAN STOCKS LOWER... Link for todays video. Weakness in Europe spread to the US as stocks opened sharply lower on Monday and remained under selling pressure. Chart 1 shows the Dow Industrials down around 100 points. Despite the May decline, the overall trend remains up as the senior average recorded a new 52-week high less than four weeks ago. The current decline is rather sharp, but still within the confines of a bigger uptrend. Broken resistance levels around 12400 (100) mark a potential support zone near current levels. However, we have yet to see any signs of firming, such as a doji or hammer. Below this level, the next support resides around 12100. Marked by the April low and late November trendline, this support level holds the key to the overall uptrend. Chart 2 shows the Nasdaq with similar characteristics.
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Chart 1
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Chart 2
BONDS AND DOLLAR ADVANCE AS STOCKS AND COMMODITIES DECLINE... The risk-off trade has been in force throughout May and reasserted itself on Monday. Chart 3 shows the month-to-date performance for five intermarket assets. The Dollar and Bonds are up, while gold, stocks and commodities are down. Commodities are being hit by a double whammy. First, the decline in stocks suggests that the economy could slow. Second, a strong Dollar is bearish for commodities priced in Dollars, such as oil.
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Chart 3
Even though commodities are down this month, the Commodity Index Fund ($DBC) is still at support and showing some firmness. Chart 4 shows DBC hitting support with a sharp decline in early May. The ETF bounced off the 28.5 level twice in the last few weeks. However, DBC has yet to follow through on these bounces. Last weeks high marks first resistance just above 29.50.
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Chart 4
Chart 5 shows the 20+ year Bond ETF (TLT) opening with a gap above 95.50 on Monday. The ETF continued above 96 during the day, but fell back and erased the entire post-open surge. A shooting star candlestick is forming so far today. Also notice that TLT filled last weeks gap with a long black candlestick. Even though selling pressure may be picking up, the overall trend remains with a lot of support in the 94-94.50 area. Look for a break below the early May trough to reverse the current upswing.
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Chart 5
GERMAN, FRENCH AND DUTCH INDICES MOVE SHARPLY LOWER... Germany, France and The Netherlands make up part of so-called core Europe. Stock Indices in Germany and France held up quite well this year, but The Netherlands Stock Index started breaking down in April. The next three charts show the Dow Jones country indices in the main chart window and their respective exchange index in the indicator window. For example, chart 6 shows the DJ Germany Index ($DEDOW) and the German DAX Index ($DAX). As you can see from the chart, the Dow Jones Indices track the exchange indices quite well. I am focusing on the Dow Jones country indices because there is timely data available for Greece, Ireland, Italy, Portugal and Spain. First, lets look at core Europe. Chart 6 shows the DJ Germany Index ($DEDOW) hitting a 52-week high on May 2nd and then declining rather sharply the last three weeks. Germany has been the strongest European market over the past year. Even though the big trend remains up, a big double top could be taking shape after this sharp decline. Chart 8 shows the DJ France Index ($FRDOW) and the French CAC Index ($CAC) in the indicator window. The DJ France Index has a large double top working as well with the March low marking key support.
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Chart 6
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Chart 7
Chart 8 shows the DJ Netherlands Index ($NLDOW) in the main window and the Netherlands Amsterdam Index ($AEX) below. Dutch stocks broke down over the last few weeks. After forming lower highs in early April and early May, the DJ Netherlands Index broke below its March low. In contrast to its German and French counter parts, this Dutch index showed relative weakness by failing to reach its February high and breaking below its March low. This breakdown is significant because is shows cracks starting to appear in the major stock indices of core Europe.
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Chart 8
ITALIAN AND SPANISH STOCK INDICES BREAK SUPPORT... The debt problems in Greece, Ireland and Portugal are well known and officials are working on solutions. Their affect on the EU economy is relatively small and manageable. Italy and Spain, however, are much bigger and could pose bigger challenges should problems spread. I am not going to speculate on Italian or Spanish debt issues, but I will be watching their stock markets for clues on overall health. Chart 9 shows the DJ Italy Index ($ITDOW) hitting resistance at 175 twice and breaking below its March low with a sharp decline today. The next support zone resides around 150, which is another 6% lower. Chart 10 shows the DJ Spain Index ($ESDOW) falling short of its February high and breaking below its March low today. Italian and Spanish stocks are showing relative weakness with lower highs in April and support breaks in May. This is not a good sign for the European economy.
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Chart 9
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Chart 10
GREEK INDEX HITS NEW LOW... The next three charts show stock indices for Greece, Ireland and Portugal. Chart 11 shows the DJ Greece Index ($GRDOW) hitting a new 52-week low today. Chart 12 shows the DJ Ireland Index ($IEDOW) holding up rather well in early May, but falling sharply from resistance over the last few weeks. Chart 13 shows the DJ Portugal Index ($PTDOW) with a lower high in February and continued weakness into May. The index recently broke short-term support with a sharp decline today.
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Chart 11
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Chart 12
