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Tuesday, October 9, 2012

Global economy through the market's eyes

I like to take a peek once in a while at some economically sensitive items  to see what the market thinks.  Lets start out with the weekly chart for the BRIC ETF EEB.

EEB rallied off the lows from last summer, but has failed to break out above the down trend line so far.  This chart is kind of in limbo here until it rolls over or breaks out on the upside.

Next up is the basic materials ETF XLB.

This one has broken above its downtrend line.  Is this a reflection of real demand or the latest QE program? I don't know how to answer that question.  It turned back at the spring high for now.  If it can conquer that high it would be hard to argue with the chart.

Here is the chart of CAT, the poster child of cyclical stocks.

CAT is certainly not setting the world on fire lately.  It gave back a lot of the FED QE rally gains.  If the global economy was picking back up again I would have thought this stock would be doing better.

Here is another very economically sensitive stock CLF.  This company makes products used to make steel.

This stock topped last year as the global economy started to slow down.  It is not really showing much recovery at the moment.

Here is the cyclical index.

$CYC is forming a triangle pattern and is testing the down trend line.  Will it break out or be turned back?  It is at the point where the rubber meets the road.  We will just have to wait and see what it does.

Next up is the semiconductor index.

The SOX is right in the middle of a really big triangle.  Notice it bottomed before SPX did at the 2009 low. It also topped earlier in 2011 then most other indexes did.  This one is in limbo here as far as economic predictions go.

Last but not least is the transport index.

The transports are trying really hard to do nothing at all.  They are forming a triangle pattern and getting close to the apex.  When most of the other items were rallying on FED QE rumors, this index failed to join in.  No clear sign the economy is picking up in this one. 

The XLB ETF is showing strength  not confirmed by anything else at this time.  Most of the charts have improved from last summer.  A lot of that move up we know was caused by the talk and actions of the ECB and the FED.  People piled into risk assets based on hope.  If that hope turns to reality these charts should make upside headway and start breaking out.  I don't see enough here to pronounce the worst is over for the global economy yet.  I think it is a bit risky to assume that is the case.  There are some charts at important junctures though.  If we get more break outs, the outlook would become more positive.


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