The Euro Moved Higher On A Likely Topping Out Move, While A Fall In Netlfix Starts A Sell Off in Semiconductors, Discretionary And Retail Shares

Financial Market Report for December 13, 2010

I … The Euro, FXE, moved higher to 133.42 on a likely topping out move as Economists warn that the Euro has a 1 in 5 chance of survival in 5 years.

The Euro, often pops higher at market turns, like it did on November 4, 2010 at 141.50.

The Euro rose to resistance near 134 which caused International European Financials, EUFN, Global Industrial Equities, CRBI, Steel, SLX, International Basic Materials, DBN, International Utilities, IPU, Energy Service, OIH, Nuclear Construction, NLR, to rise higher.  

II … The rise in the Euro stimulated a rise of currencies globally as seen in the optimized currency ETN, ICI, rising to strong resistance at 46.81.

III … Today’s sell off In Netflix, NFLX, induced a sell off in Semiconductors, XSD, Consumer Discretionary, XLYS, and Retail Shares, XRT, as seen in the chart of NFLX, XLYS and XRT.

The sell off in Netflix was so strong that yesterday’s  rise can be called an evening star and a dark cloud cover can be seen in Monday December 6th trading of the Consumer Discretionary Small Cap shares.

IV … The rise in currencies stimulated a rise in copper, JJC,  and copper miners, COPX and Freeport McMoRan Copper and Gold —- FCX.  The blast up higher seen in FCX, with close at 115.53, shows as a harami today, and may turn out, after tomorrow’s trading to be an evening star. This is the type of event those who trade, sell short. Freeport McMoRan Copper and Gold is a component of the Morgan Stanley Cyclical Index, $CYC, which manifested a bearish hammer at the top of an ascending wedge, suggesting that a top may be coming in to the “risk trade”, which is also the economic growth and expansion trade. This seem compatible with an Elliott wave 2 high in the world shares weekly, ACWI,  

V … The rise in currencies caused world shares, ACWI, to rise to 46.51 which was the rally high of November 5, 2010, where it turned lower.

VI … The US Dollar, $USD, fell 0.9% lower today to close at 79.34.

VII … The currency yield cure, RZV:RZG, closed at 0.795 in a massive dark cloud covering candlestick suggesting that the rise in currencies is now complete and that debt deflation, that is currency deflation will be taking shares lower globally.  

VIII… Yen carry trade investment appears to have reached a cycle high.
The World Shares carry trade, ACWI:FXY, definitely looks over bough. The chart shows tension which will result in a soon and quick loss of stock value.

The euro yen carry trade, that is the EUR/JPY, as seen in the chart of  FXE:FXY, has risen to resistance. It is reasonable to expect that there will come an unwinding of carry trade investment this week with the European Shares, VGK, and European Financial Institutions, EUFN, falling lower.  

Here is the list of currencies, that rose with the Euro, and that caused the US Dollar to trade lower.  
Swiss Franc, FXF, 1.3%, Switzerland, EWL, 1.0%
Euro, FXE 1.2, Europe, VGK, 1.0%
New Zealand Dollar, BNZ 1.2%, New Zealand, ENZL 1.4%
Swiss Krona, FXS 1.0 % Switzerland, EWD, 1.2%
Australian Dollar, FXA, 1.0, Australia, EWA, 1.2
Yen, FXY, Japan, EWY 1.3%, Japan Small Cap, JSC, 1.5%

Phillip Aldrick of The Telegraph reports Euro Has ‘One in Five Chance’ of Survival, Warns CEBR. The chances of the euro surviving in its current form have been put at “one-in-five” by one of the UK’s leading economics consultancies

IX … Utilities, XLU , got at boost higher today to restistance.  Utilities, XLU, entered into an Elliott Wave 3 Down on October 19, 2010 at a price of 31.96; and entered into an Elliott Wave 3 of 3 down on November 4, 2010 when the Euro, FXE, topped out. Tomorrow December 14, 2010, we are likely to see Utilities follow the Euro lower.

International Utilities, IPU, got a similar boost as well 

X … The chart of municipal bonds, MUB, shows municipal bonds as an investment vehicle to be utterly broken. The crisis in funding in Municipal Bonds is now as severe as that in European Financial Institutions.

XI … The chart of the S&P, SPY, shows a close 0.05% higher at 124.56. And not only one but now two dark cloud covering candlesticks at the top of an ascending wedge: the top is likely in to the stock markets rally.

We are entering 2011 and are dealing with a different set of economic parameters than at the end of 2008/early 2009: the European Sovereign Debt Crisis has gone viral and the United States President has plans for the greatest deficit ever and the US Fed Chairman has started on an ambitious monetization of debt, which caused the 30 Year US Treasuries, EDV, to enter an Eliott Wave 3 Down on September 28, 2010.  The chart of the S&P weekly shows a likely Elliott Wave 2 top coming in at 124.56. 

XII … Today’s stock fallers include:Leisure and Entertainment, PEJ, -1.7%
Nasdaq Intenet, PNQI, -1.3%
Solar Energy, TAN -1.6%
Retail, XRT, -1.4%
Semiconductors, XSD, -1.3%
Small Cap Consumer Discretionary, -1.0%,
Networking PXQ, -1.0%
Nasdaq Clean Energy, QCLN, -1.0                                                                                                                                                   Nanotechnology, PXN,
Transportation, IYT,-0.8%

Semiconductors: Intel, INTC, -1.9%, Taiwan Semiconductor, TSM, -1.5%

Transportation: ATSG, -4.3%, GMT, -1.1%, HUBG, -1.4%, UHAL, -1.0%, AER -0.8%, URI,.-3.6%
MINI, -2.5%, SFL, -1.0%, GWR, -0.9%, R-2.2%

Restaurant: PNRA, -2.4%, CAKE, -2.3%, DIN, -4.4%, CMG, -5.1%

Retail: SKS-3.4%, ANF- 2.3%, EL-1.7%,  

Consumer Discretionary:  TZOO -4.8%, PCLN-1.9%, Netflix, -5.6%, SWK -1.0%, RCL -3/2%,
HAS -2.5%, SFLY -2.1%,  RCII, -1.2%

Hard Drives, QTM, -2.0%, STX, -1.6%,

Proshares Bull ETFs, SAA, -0.8%, and USD, -2.2%

It was a dollar carry trade and yen carry trade that carried the stocks as high as they rose. Documentation for this is seen in the chart of Nasdaq Clean Energy, QCLN, compared to S&P Global Clean Energy, ICLN, where there has been a tremendous rally in the former compared to the latter …. The chart of ICLN and QCLN shows a growth to a 40% differential over the last year; the growth in the Nasdaq stocks relative to the S&P and global shares ended December 13, 2010, as a sell off in Netflix caused Leisure and Entertainment, PEJ, Nasdaq Intenet, PNQI, Solar Energy, TAN, Retail, XRT,Semiconductors, XSD, Small Cap Consumer Discretionary, Networking,  PXQ, and Nasdaq Clean Energy, QCLN, to fall lower in value.

XIII … The rally in the Nasdaq stocks, QQQQ, and the Nasdaq 100 stocks, QTEC ended today December 12, 2010 with the fall of Netflix.  A global stock market sell off is tomorrow December 13, 2010 as concerns become fully expressed over the European Sovereign Debt crisis and related contagion in the European Banking System.

With the fall of the Nasdaq Clean Energy, QCLN, and a likely soon coming fall in the Euro, the clean energy shares are likely to be a fast faller in a debt deflationary environment.

Thus it may be that natural gas, UNG, may start its fall once again, having hit resistance at 6.2.

XIV … Commodities, DBC, rose to resistance at 26.50. As currencies turn downward, carry trade investment is likely to come out of commodities causing them to fall lower in value.  The chart of oil, that is West Texas Intermediate Crude, $WTIC, suggests that a top may be in with today’s close in oil at 88.85. The ascending wedge in base metals, DBB, suggests that a top has been achieve.   

Mike Mish Shedlock reports Investors hold biggest commodity positions on record

XV … World government bonds, BWX, rose to resistance at 57.92.

XVI … Financial shares peak out.

Revenue Shares, RWJ,                                                                                                                                                                           Citigroup, C,  +0.9
Global Financial Firm, IXG, +0.5
Mastercard, MA, +1.8%
Banks, KBE  -0.5%
Nasdaq Community Banks, QABA, +0.2%
American Express, AXP, 0.3%

XVII … Summary

I am expecting a major market turn lower in major world currencies, DBV, such as the Euro, FXE, and in emerging market currencies, CEW, on concerns over the European Sovereign Debt Crisis and related European Financial Institution, EUFN, Refunding Crisis as well as a market turn lower in consumer discretionary and semiconductor sectors. transportation, Nasdaq clean energy, with basic materials selling off due to a fall in the Euro on December 13, 2010.

Gold, is a currency, it rose with the major currencies, DBV, and emerging market currencies, CEW, today and the Euro, FXE, today. I encourage investment in gold bullion, $GOLD.


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