The close last Friday could not come soon enough for most investors while traders bailed after the New York close, knocking the futures five points lower on the heaviest volume of the day.
The technical and sentiment readings have been in the moderately high-risk zone since before Christmas. Some of the bulls became disillusioned in early 2014 as the market moved sideways (Souring Sentiment Will Help Stocks), which made the market even more vulnerable.
The sentiment has shifted since last week as the selling was the heaviest in some time, with the declining stocks leading the advancing issues Friday by a 6.4 to 1 margin. The ARMs Index or TRIN, a measure of overbought/oversold market condition closed at 1.75 on Friday with its 10-day MA at the highest level since the late February 2013 lows.
On a short-term basis, this favors a decent rebound this week that could last a couple of days as many did not succumb to the panic selling in reaction to China’s manufacturing data. As discussed in Friday’s Weak Ahead
column, I reviewed some of the past China-inspired market declines that eventually set up good buying opportunities. The overseas markets were lower early Monday but the futures are higher.
This market correction should not only eventually provide a buying opportunity in the US markets but also overseas some potential buy zones are evident on the weekly charts.
The fact that the OBV did confirm the highs makes the current OBV decline look like a buying opportunity and the AOT could give a bullish trigger in the next few weeks.
There is resistance now at $180.50-$181.32 and stronger at $182.76.
The SPDR Euro STOXX 50 (FEZ) is made up of the largest Eurozone companies. It has 38% in the top ten holdings with a yield of 2.75% and an expense ratio of 0.29%.
FEZ is currently 5% below the highs at $42.43 as it closed last week below the quarterly pivot at $40.99.
The 20-day EMA is at $39.96 with the quarterly projected pivot support at $39.54.
The weekly starc- band is at $38.73 with more important weekly chart support at $36.90, line e.
From the June 2012 lows, the FEZ was much stronger than the S&P 500.
That was also the case from June 2013 through November.
Recently it has kept pace with the S&P 500 (see circle).
The weekly OBV peaked in October and has since formed lower highs, line h.
The OBV dropped below its WMA, which has started to flatten out.
The OBV shows a long-term bullish pattern.
There is strong resistance and a gap in the $41.16 to $42.00
What It Means: The strength or weakness of a rally this week may help us determine how long the market decline or correction may last. I would recommend you keep an eye on the quarterly pivot levels for the key ETFs (see table) as those that hold these pivots on a weekly closing level may be the new leaders.
Some of the country ETFs that are looking the best are the iSharesMSCI Austria (EWO), iShares MSCI Spain (EWP) and iShares MSCI Italy (EWI). I think the SPDR Euro STOXX 50 (FEZ) could drop down to the $38.50-$37.00 area.
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