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Semiconductors and China Are the Weakest Links


While regional banks are the strongest, even as bad loans rise.

The Ascending Wedge Support Is Broken for the Dow, Giving Round 12 to the Bear

The Dow traded below 10,570 on Wednesday, which breaks the uptrend that goes back to the March 2009 low. The Bear thus wins the twelfth round of the Bull versus Bear Title Bout, making the score card 9 to 3 in favor of the Bull. A close today above my weekly pivot at 10,634 gives round 13 to the Bull. A close on Friday below my annual support at 10,375 gives the Bear the knockout victory.

The Yield on the 10-Year Below My Semiannual Pivot at 3.675, Signaling Risk Aversion

The daily chart for the 10-Year yield shows potential to the 50-day and 200-day simple moving averages at 3.558 and 3.443. This yield began the year testing monthly support at 3.868.

Yields face another supply test next week with auctions of $44 billion in 2-Year notes next Tuesday, $42 billion in 5-Year notes on Wednesday, and $32 billion 7-Year notes on Thursday. Of interest is that the next FOMC meeting ends at 2:15 p.m. on Wednesday, which could provide a catalyst for volatility in US Treasury yields.

Gold and Crude Oil Decline as the Dollar Strengthens, and the Euro Weakens

Gold ended Wednesday below my annual pivot at $1115.2 with my semiannual pivot now resistance at $1139.7. You know I believe that the gold bubble has popped, but we need a weekly close below my quarterly support at $1084.9 to signal risk to annual support at $938.7.

Crude oil has tested and held my annual support at $77.05 and a weekly close below indicates risk to quarterly support at $67.22. This would be a sign of a weaker-than-expected global economy.

The Dollar Index has rallied into my zone of weekly and quarterly resistances at $78.59 and $78.96. The dollar is testing its 200-day simple moving average for the first time since May 8, 2009.

More important is that the euro broke below its 200-day simple moving average 1.43 for the first time since May 7, 2009. The downside is to the 200-week simple moving average at 1.3848.

Semiconductors and China Are the Weakest Links

The Philadelphia Semiconductor Index (SOX) is down 2.8% year to date and weekly closes below my semiannual pivot at 358.89 indicates risk to semiannual support at 271.90, which would certainly be a surprise to Wall Street hype.

Investment in China is probably the number-one choice hyped by Wall Street, but the China 25 Fund (FXI) is down 2.7% year to date, and is approaching its 200-day simple moving average at $40.07. If you recall, FXI failed at my annual resistance at $44.53 with risk to annual support at $39.25.

The Regional Banking Index (BKX) is up 12% year to date, despite bad loans rising.

The line in the sand between the president and big banks is the "Wall Street Greed Tax." Bad loans are on the rise, but it would be a lot worse if those off-balance sheet trusts were counted in quarterly results.

The 50-day simple moving average is $44.21 with the October 14 high as $49.28. The wider range is between my semiannual support at $40.76 and monthly resistance at $50.74.
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