Sunday, December 06, 2015

Financials (XLF) and Emerging Markets: "Finnermarkets," new word (EEM)

There isn't a narrative that ties these two together, unfortunately. The one thing we can say is that there was a bullish retracement after the jobs report on Friday and a renewed call for interest rates to rise this month so although the market may have wanted to go down, with news like that a "strong showing" must be made. We must all be aware though that the retracement wasn't complete although it was broadly across the market. I think that the trend still remains down.

Below are the financials (XLF) which I have not written about in ages as their trends have been the tightest and curiously clues in the indicators the most ambiguous. Looking for the regular buy and sell signals, even obvious ones like on the RSI(5) has been hard. But recently divergence has emerged prominently on the MACD and TRIX indicators. Also we have not witnessed a break above the resistance line made by highs in August and early November. Furthermore resistance at $25.25 from the all time high has not been touched. I am calling a short/sell on XLF.
The recent decision by OPEC to maintain elevated crude production not only has bearing on the energy index which I have already reported on, but emerging markets (EEM) as well. I had not appreciated this obvious connection to oil and emerging markets, but the first country to lose out on this is Russia. Playing around with my charts I noticed a paradoxical bullish declining wedge. If EEM fails to stay above this line then the second wave (ascending portion) is officially over and the final third down-wave will begin. Any break below $33.00 is very very bearish. Right now I am recommending a speculative short/sell. My personal belief is that wave two of the descent has come to an end and the third wave decline is about to begin in earnest. Indicators are also oversold meaning that it may be a while before the decline begins so please watch carefully. Just as we saw with the financials, the bullish retracement on Friday did not correct the overall decline from the past few days.