Consolidating or Correcting

 | May 10, 2013 | 8:30 AM EDT
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Well, at least we saw some intraday volatility! Before we get to the stock market, we should begin with the currency market.

We'll start with the U.S. dollar vs. the Japanese yen since that is the one everyone was discussing midday. There was quite a breakout when this currency pair went through 100.


Let me note that the pattern it broke from out from measures to 103-104. However, I was asked when I posted this during the trading day if that meant the S&P 500 would break out as well. I don't think it is that simple. The S&P has run 100 points between April 18 and now, and if you look at the chart of the dollar vs. the yen, you can see this did nothing. Therefore, I am not so sure they are as correlated as they used to be. Some might say the correlation broke down on Thursday when the S&P did not follow the currency, but I might note the correlation broken down weeks ago when the S&P went up and the currency pair did not.

It wasn't only the yen that had a big move on Thursday, the Australian dollar did as well. I had shown this chart on Wednesday morning after the Aussie surprised us by cutting rates. At the time I noted that if it broke 101, it was a breakdown from a major top. It broke on Thursday. This currency pair now measures to around 98.


The move down in the Aussie dollar might finally get gold to break down and retest its crash low. I am still eyeing that 1440 support level as the price that needs to break to get gold going back for the retest. As a reminder, typically after a crash we see a retest of some sort about four to six weeks later. We are in week four now.


Now, back to the stock market where the PowerShares QQQ (QQQ) hit the measured target of $73 during the trading day. In this market, hitting a target has typically meant some sideways action. I can only think of one index that hit its target and actually rolled over and died. That's the utilities.

If I wanted to be wildly bullish as all the folks on television are, I would measure a much higher target on the Qs, taking the pattern back over a year. But I think I will settle for this short-term target, measured from the whoosh down in early April.

PowerShares QQQ

Finally, speaking of the utilities, please note that they barely took a breather at the support of 515 but are now approaching an uptrend line dating back to the beginning of the year. I did not detect much panic from folks about this group but at least the folks on television did "notice" them finally, now that they are down about 5%. I would be shocked if they don't at least make an attempt to bounce from this uptrend line. I am not bullish on them, just thinking a short term bounce.


In sum, some targets hit and some currency movements should coordinate with the overbought condition to make this market feel more normal by either consolidating or correcting. Or maybe one more central bank will feel the need to add more liquidity? Are there any left?



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