5/20 Morningline: Stocks, Bonds and Fear

Yesterday I posed the question, would the U.S. markets respond to the euro, which affects finance and exporters to Europe, or to the U.S. domestic recovery, which affects everyone.

	trend	adx	psar	pps	macd	macd trend	sto	sto trend
SPY $109.77
VIX 40.59
TLT $98.18

At 9:55 a.m. Eastern

And the answer is (drumroll) . . .

The euro! Which says a lot about the nature of the markets in 2010.

Technical signals for the three indicators are aligned in a way not seen so far this month: Entirely bearish for blue-chip stocks; entirely bullish for the VIX and for Treasuries.

I think the word it is "capitulation".

Blue-chip stocks the morning gapped down and are trading 2% below Wednesday's close. Treasury long-term bonds gapped up and are trading 2% above Wednesday's close. Mirror images.

The fear index -- VIX -- is up nearly 16%, which puts it back in the trading range of May 6 and May 7, when the markets for about 15 minutes lost nearly all liquidity. Beyond that recent panic, the VIX hasn't seen these levels since April 2009.

The VIX and TLT are now showing consistent bull signals on the parabolic sar and Person's Proprietary Signal. They had been misaligned for several days.

Indicator Exchange-Traded Fund Symbols:
EEM - emerging markets
EUR/USD - euro/dollar currency pair
GLD - gold
JNK - high-yield corporate bonds
SPY - blue-chip stocks
TLT - Treasury long-term bonds
USD/JPY - dollar/yen currency pair
USO - crude oil
VIX - fear index

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The Investor's Guide to Active Asset Allocation: Using Technical Analysis and ETFs to Trade the Markets

Martin Pring's detailed deconstruction of the economic cycle: What sorts stocks to look for at each stage of the recovery. A masterful analysis.

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Abbreviations:
psar - Parabolic Stop and Reverse
adx - Average Directional Index
pps - Person's Proprietary Signal
ma20 - 20-day moving average
macd - Moving Average Convergence-Divergence
mfi - Money Flow Index
sto - Fast Stochastic

About the glance: The colors indicate the state of each signal.

• trend: Determined by the 5-day moving average, green for up, red for down, yellow for sideways
• adx: orange for above 30-up, blue for 20-down, purple for in the middle. Red is most prone to whipsaws
• psar, pps, macd: green for bull mode, red for bear
• sto: green for overbought, red for oversold, yellow for the neutral zone.

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