The "Risk On" trade that began with Draghi stating that the ECB will do whatever it takes to save the Euro is likely to fail. The SPY just could not get things going following Friday's rally and it closed essentially flat in yesterday's trading. The ETF is trading up into the May 4 swing point on volume of only 106.8 million versus 193.3 million shares on the May downdraft. This is not enough and suggests that the rally will fail.
The rally that began off the June 1 low has not been confirmed by the stochastics, RSI, or MACD. All these measures suggests that momentum and upside strength is weakening. Couple this technical outlook with the fundamental backdrop of a weak economic environment, slowing earnings growth, revenue results that are missing forecasts, and a market rallying on the hope of a Fed easing event (
which we do not see) leads us to conclude that the market is near a short-term top and that the high volume low on May 18 (a $129 price point) may be tested.
We also see confirmation of this view in the currency markets. The pullback in the UUP has occurred on lighter volume while the MACD remains positive, suggesting that the recent pullback is just a pause. As for the Euro, the CurrencyShares Euro Trust ETF (ticker FXE) rally attempt appears to have failed. The MACD remains in a negative range and the July 27th rally attempt broke down as it retested the May 30 resistance level, which is plainly seen in the Intraday chart below.
To us, this suggests the "risk on" trade will end shortly. Our shorts are still on, are yours?
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