Every day I go through hundreds of charts, trying to determine if there is a unique pattern in any one of them. These days that is not the easiest task, since we seem to be in an all-or-none market.
As I thumbed through the charts on Thursday I noticed that the DAX had crossed its short-term downtrend line, whereas the S&P had not. I also noticed that the downtrend line dating back to the summer highs on the DAX was what halted the rally in early November and that same downtrend line is what halted the Central Bank rally on Wednesday.
Keep in mind that at the early October lows I pointed out how the DAX had not made a lower low after late September and the S&P had. So, the DAX led us then.
If we draw in the same lines on the chart of the S&P we find that the October rally did not quite make it to the summer downtrend line. We also find that this same downtrend line lives much higher than the equivalent in the DAX.
I bring this up because all we hear day in and day out is how if it weren't for Europe the US would be humming right along. We hear nothing but horror stories out of Europe. Admittedly they are justified, but if the US is the best house in the worst neighborhood as many have cited, then why is the S&P up 15% from the early October low and Germany's DAX up 20% from its lows? Why is it the DAX has crossed its short term down trend line and the S&P hasn't?
Now let's do the same exercise with France's CAC. The downtrend line from the summer highs was crossed (crossed!) in early October. I will note that the CAC's late July rally was much lower than the S&P's making its downtrend line much steeper, so in that respect, wasn't the CAC more of a leader than a follower last summer?
I am not a permabull, nor am I a permabear, but I do look for divergences. And it seems to me from these charts and the news events that surround our world these days, it is the European markets that are to be watched closely, not just because the news flow tends to emanate from there, but because if you just looked at the charts you would have to conclude they have been the leaders.
Friday morning will bring the jobless number. After the week we've had, this number will have to be spectacular for the S&P to cross over that downtrend line that is now so obvious at 1250. But we are still working off that oversold condition.