Intermarket Fallout from Japan Nuclear Situation

Mar 15, 2011: 7:57 AM CST

News travels fast across today’s highly correlated intermarkets (namely Gold, Oil, Stocks, Treasuries, and the US Dollar Index – along with corresponding related markets) and when news is tremendously bad, fall-out in the cross-markets takes a rapid “Risk-Off” effect.

Let’s do a pre-market morning update on the four main cross-markets and how this changes the picture on the daily charts should these levels hold (or deteriorate):

(Click for full-size image)

As of 45-minutes until the market open (on a US Fed Day for that matter), we have the following data:

The @ES (S&P 500) is down 34 points (-2.6%)
Crude Oil (@CL) is down $3.50 (-3.5%)
Gold (@GC) is down $40 (-2.8%)

Those are the risk ON markets (which are bearing the brunt of the fears from the Japanese nuclear reactor news) and the risk OFF markets – Treasuries and the US Dollar Index – are rallying as part of the Risk-OFF play.

The Dollar (@DX) futures are up 0.50 (0.67%).

Keep the pre-market levels in mind as they all break the major inflection points in all these markets – namely the 1,300 then 1,275 in the S&P 500, $1,400 in Gold, and $99.50 in Oil.

While we’re under these levels, the game is changed as support is broken (and markets are collapsing under these levels).

If by chance these markets move quickly back above these levels, we would label this a bear trap.  If not, then the technical definitions move from “just a retracement into support” to the more ominous “potential early trend reversals.”

Do keep constantly watching these markets and these levels in real time as the day develops, being mindful that the Federal Reserve releases a policy announcement (which could include talk of additional stimulus) at 2:15 EST today… and that how these markets close will have a more meaningful impact than how they open.

Corey Rosenbloom, CMT
Afraid to Trade.com

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3 Comments

3 Responses to “Intermarket Fallout from Japan Nuclear Situation”

  1. elkojohn7 Says:

    Thanks for the heads up on a possible Bear Trap.

  2. Richie Rick Says:

    Would you explain what you mean exactly when you say “risk on” trades and “risk off” trades? I think I know what you are saying, but want to be sure.

    Thanks!

    RR

  3. Corey Rosenbloom, CMT Says:

    Richie,

    That's a good question! The TV media and the trading community have recently been referring to a broad trade made by the hedge fund (and trading) world as the “Risk On” trade, wherein they make multiple orders to put risk on when feeling bullish, namely going long stocks, oil, the Euro, gold, silver, or other highly positively correlated markets (which, in turn, increases the correlation).

    The Risk-Off trade is the opposite – they sell these positions/markets and then buy the Dollar, Bonds, and other 'safety' assets.

    It's just a quick way to say “macro-plays in cross markets” depending on expectations for bullish or bearish movement.