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Market Wrap

"Yen in Doubt," Get Out!

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The major U.S. indexes continued their retreat from recent highs as the "yen carry trade" continued to unravel with the Japanese yen showing strength against the dollar and the euro.

Decliners easily outpaced advancing issues at both major exchanges, and since last Monday's Market Wrap, internal measures have turned negative.

The NYSE Summation Index ($NYSI) from StockCharts.com, which measures the relationship between advancers/decliners at the NYSE has given a "sell signal" on its 20-point box which I've been following and updating in recent wrap. Tonight's closing measure is +596.13, thus a "sell signal" below it late January's +580 relative low reading.

More importantly, Dorsey/Wright and Assoc. NYSE Bullish % (BPNYSE) also reversed lower on 03/01/07, suggesting a more DEFENSIVE posture. I will tie in this major market bullish % when we review a bar chart of the NYSE Composite ($NYA.X) 8,837.97 -1.33% later.

StockCharts.com's NYSE Bullish % ($BPNYA) has also reversed back lower, falling 3.45% today (net loss of roughly 104 stocks to reversing lower point and figure sell signals) to 64.42%.

Please note! It takes a VERY MEANINGFUL amount of buying, or selling (as is the current case) to move such a BROAD MEASURE of internal strength and weakness.

Leadership as depicted by the NH/NL ratios has been bearish, with NASDAQ's 5-day NH/NL ratio now deemed near-term "oversold" below 30%.

In Tuesday's Market Wrap I noted that StockCharts.com's NASDAQ Composite Bullish % ($BPCOMPQ) had achieved "bull confirmed" status to 62.00%. Recent action, including today's, now has this very broad measure of internal strength/weakness REVERSING BACK LOWER to "bull correction" status at 54.50%, or 56.00% on its chart.

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The NASDAQ Summation Index ($NASI), which measures advancing/declining issues reversed back lower last week from +260. Tonight's closing measure is +6.88, but has not yet given a "sell signal" below its late-January relative low measure of
-80.00.

On Tuesday of last week, global equity markets fell sharply, with China's equity markets notably weak as investors contemplated the negative impact that a stronger yen against both the U.S. dollar and euro may have on global trade.

In essence, investors of equities may "fear" that too much strength in the yen vs. the dollar and euro could lead to economic weakness in Asian markets, or economies, should accelerated weakness in the dollar and euro have consumers in both of those countries buying fewer Asian manufactured goods.

But tonight's trade in the dollar/yen portion of the "carry trade" may signal some near-term stability for the major indexes as the cross-rate dollar/yen did achieve its point and figure bearish vertical count of 115.30.

Below is a real-time screen capture of the USD/JPY (dollar/yen), where it appears we're seeing a bounce from an intra-session low of 115.23.

Forex Global Currencies - 03/05/07 06:43 PM EST

The above screen capture was taken this evening as I began writing this evening's wrap. Last Tuesday's sharp declines in Asian markets did show some strong correlation to a strong move in Japan's yen.

US Dollar/Yen Cross Rates - 03/02/07

The above point and figure chart is from our good friends at Dorsey/Wright & Associates. Action in Treasuries and gold in recent sessions have suggested that there are some currency concerns.

While any security, or commodity can always exceed a bullish or bearish vertical count (sometimes never meet), if one portion of the "yen carry trade" were to find some stability, the dollar/yen cross rate chart would be a place to begin monitoring things.

Dorsey's chart above (red Os to 116.6355) would have been to Friday's close. I've added my own "blue Os" (O = Supply) down to 115.4764).

Point and figure chartists will note that on 02/27/07 (Tuesday of last week), the very bearish "bearish catapult" pattern was found. Coincidence with last Tuesday's sharp declines? I doubt it!

I don't think any of us need to be "experts" in currencies, but I want traders and investors to have an idea of how the sharp movements have perhaps roiled the equity markets.

If it is true that yen STRENGTH has come with EQUITY WEAKNESS, then perhaps, in the future, the OPPOSITE would be true. I would also want traders and investors to comprehend the STRENGTH in TREASURIES of late as a DEFENSIVE signal from the MARKETS.

All eyes will be focused on Japan's Nikkei-225 ($NIKK) tonight, which would be a first test for any signs of equity market stability.

Japan's Nikkei-225 ($NIKK) - 50-point box

Tuesday's trade for the Nikkei-225 is underway. At the time of this writing (08:55 PM EST), the $NIKK is up 127-points, or +0.77% at 16,770. So far, tonight's low has been 16,649, so we would not be able to currently chart another "O" to 16,500. While Tuesday's trade is not complete, the current session high of 16,770 does have me envisioning "X" with a "?" to 16,750 and suggesting some sign of stability in Japan's equity markets.

Other markets that will open up later this evening are Hong Kong's Hang Seng. Their StockCharts.com symbols is $HSI.

Here at Home in the Good'ol USA

My QCharts' data has had some problems due to last week's surge in volume that created some problems with various computer-related trading at both the NYSE and NASDAQ.

I've tried to correct some of the "more important" 5-dayNet% changes to reflect changes since last Monday's Market Wrap.

US Market Watch - 03/05/07 Close

As you can see, there is very LITTLE of anything except the price of Treasuries, which move inverse of their Yield that has shown a gain since last Monday.

Even as Treasury Yields as depcited by the 5-year ($FVX.X), 10-year ($TNX.X) and 30-year ($TYX.X) have fallen, the higher dividend paying Utilities HOLDRs (AMEX:UTH) $132.25 -1.04% and their 5.26% decline in 5-days should suggest that market participants have taken a DEFENSIVE stance, even for a group that tends to hold up better-than-most as a "defensive" sector.

Today's big losers continued to have the "subprime" area under pressure. Shares of New Century Financial (NEW) $4.56 -68.87%, the third largest US subprime lender plunged further as the company scrambled to avoid a bankruptcy filing following the disclosure of a criminal investigation into its practices.

European-based HSBC Holdings (NYSE:HBC) $85.91 -0.41% reported record earnings, but said it would take at least two years to fix its portfolio of bad home loans in the U.S.

Homebuilders as depicted by the Dow Jones Home Construction Index ($DJUSHB) 640.47 -4.02% were atop today's list of sector losers as investors continue assess tightening of lending standards.

NYSE Bullish % Reverses Lower!

One of the major market bullish % that I feel if imperative to cover this evening is the NYSE Bullish % (BPNYA) from Dorsey/Wright & Associates.

One June 30, 2006 this very broad measure of supply (O) and demand (X) reversed up at 50% bullish, signaling demand was starting to outstrip supply, and that an offensive posture was taking hold.

On Thursday, March 01, 2007 it reversed lower and while still "bull confirmed", bullish investors should not be more than 50% long in their equity accounts.

NYSE Bullish % (BPNYSE) - 2% box chart

The above chart of the NYSE Bullish % (BPNYSE) was screen captured earlier this evening. I'm just now getting today's closing reading where Monday's action saw this indicator fall an additional 3.62% to 63.24% bullish, so we would chart more "O"s down to 64.00 and stop.

Now let's quickly take a look at the NYSE Composite ($NYA.X) and make the tie between the mid-June low from the bullish % and the recent late-February high.

NYSE Composite ($NYA.X) - Daily Intervals

For several week's we've been "dragging up" our 0% retracement from the summer lows, and now we have many of the major market indexes like the NYSE Composite ($NYA.X) falling back below a 19.1% retracement.

A "normal correction" by fibonacci retracement standards would be to see 38.2% of the advance be retraced.

S&P Depository Receipts (SPY) - Daily Intervals

The broad S&P 500 Bullish ($BPSPX) from StockCharts.com and Dorsey/Wrights S&P 500 Bullish % (BPSPX) has also reversed lower.

With the SPY I had been "dragging up" its 0%. At last Tuesday's close, I showed an SPY option chain and option montage that strongly suggested we might see a trade at $137.00 on, or before March's expiration. Further observations since then suggest a March low at/near the $134.00 level.

I was very busy in Tuesday's Market Monitor. While I did not have a PROFILED SPY long trade open, I did suggest that those long above $142.00 sell covered calls as VIX.X.

In the above chart of the SPY, I've shown a PROFILED SPY put trade we made early Tuesday morning. I thought traders should take some money off the table later that day, but hold onto a portion of that trade, but have LOWERED the stop to $4.00 in the option to try and protect a gain from $2.60 option entry.
 

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