Disconcerting Underperformance

 | Dec 05, 2012 | 7:15 AM EST
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It wasn't very long ago that we sat around complaining about the Europeans, wondering why they couldn't get a deal done so we could move on. It makes me wonder if they're complaining about us in the U.S., wondering why we can't seem to get a deal done. My grandmother probably would have said that's the pot calling the kettle black.

Turning to the market, let me note that the performance of the KBW Bank Index (BKX), especially relative to the S&P 500, has become quite disconcerting as that ratio makes lower lows.  Some of these names have given back almost the entire rally off the lows. Of course, since this is my third day of complaining about the banks, they will probably rally Wednesday, just to get me to hush up.

On the other side of the fence there is the Russell 2000, which I reviewed Tuesday, noting that a calm pullback to the downtrend line was better than a gap down. The latter move hasn't happened thus far, so that's the good news. Another positive development is that the S&P may have closed in the red, but the Russell closed near the high of the day. So far, then the Russell is working off the overbought reading in a mild fashion.

You might recall that I began to look at the charts of the European markets Tuesday, beginning with the German Dax. Today we'll look at the Cac 40 from France. We can see the index has resistance at 3600. If it can break out from there, it will measure to 3750. I am not so convinced it can do so, but that's because we have often seen markets get to the old highs and struggle. This is the third time up here for the Cac this year.

I do want to note that this index looks different to me than the Dax does, because you can see the Cac bounced off the uptrend line, whereas the Dax -- as noted in Tuesday's column -- seemed to have enjoyed a throwback rally. For now all I see is a market toying with the highs.

Cac 40

This brings me to the chart of the euro-dollar currency pair. Up until a few weeks ago, I had been a dollar bull, but I got lucky when I decided the buck had gone too far. Of course I should have turned bearish on it, not just neutral, but I did not.

We see the euro-dollar cross has a similar pattern to the Dax: It has rallied to resistance and appears to be enjoying a throwback rally of sorts. I don't particularly want to short it yet, because I suspect it will pull back and rally again. For now I'll just say this is the resistance area to which we should see a pullback.

Euro-Dollar Cross

As I've noted in Columnist Conversation, there is some support on gold as we approach this trendline. I would expect an oversold bounce from there, but for now I am still rather neutral on gold, as I have been for months. If the yellow metal cannot rally to $1,725 per ounce and stops at the $1,710 area before turning back down again, I would expect a break of this line the next time down, so I would turn negative on it. But, for now, that looks like some decent support for a bounce.


P.S. It is not my style to make big projections for the year to come, but I did contribute to RealMoney's 2013 outlook, published Wednesday. Please click on the link if you would like to see what pattern I have my eyes on.


Overbought/Oversold Oscillator -- NYSE

Overbought/Oversold Oscillator -- Nasdaq

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volatility is quite low here, and we could see some downsides here in the short term. ...



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