September 14th, 2014

The sentiment levels show that there are lots of bulls waiting for a correction and lots of bulls still out there. Meanwhile the bears have dwindled to a few scared animals. This week we have the Scottish vote for independence on Thursday. While it really doesn’t impact the US markets it will have a huge effect on the UK banks and debt market. After all if Scotland can declare independence why not other locals such as areas of Spain and Italy….Catalonia anybody?

The markets are nervous that the FOMC just might indicate, after their meeting this coming week that they will tighten sooner rather than later. Frankly this dovish group of academics, except for a few with actual experience in the field, will likely keep policy as it stand now. We see no reason to believe that they will stop medaling with the business cycle. Thus, once this meeting is over, a relief rally should emerge just in time for the quarterly quadruple option’s expiration this week. After all, the average American worker is no better off today than s/he was 25 years ago and actually, they are a little worse off today. The income improvements are seen for those who already are well healed and those who live on government subsidies. Government payouts have improved as have the legions of those receiving them. We have more money going to programs than ever before in our history. While the average hard working American is making less money today, adjusting for inflation etc., than s/he did in the 1970’s. No wonder discretionary spending is muted; they are too busy paying monthly bills.

The S&P 500 rolled to the December expiry this past week. The market was tilted to the bears more than the bulls with three negative days and two very modest positive days. In terms of Fibonacci retracements, the market hasn’t even hit the 38.2% level let alone the 50% or 61.7% levels. Those levels are 1965.37 for 38%, 1951.12 for 50% and 1936.87 for 61%. The 5-period exponential moving average is 1984.99. The top of the narrowing Bollinger Band is 2004.18 and the lower edge is seen at 1967.41. We are above the Ichimoku Clouds for all time-frames. All the indicators that we follow herein continue to point lower and have not yet become oversold. The down trending channel lines are 1992.89 and 1969.45. 14% of the Friday volume was seen at 1977. The 60 minute 0.1% by 3-box point and figure chart has a downside target of 1939.56 and a serious downtrend line above it. The RSI continues to point lower although it is becoming oversold. The daily 1% by 3-box chart looks positive with an upside target of 2371.33. The S&P 500 remains above both the weekly and monthly uptrend lines. That said, some of the overbought indicators are beginning to roll over and could signal a cautionary sell-signal fairly soon. We did notice that the decline in the Friday session was on light volume. We need to see an increase in that volume as a confirmation that a change in direction is underway. Clearly, we have to wait and watch this before declaring the bull market dead. We continue to believe that a correction will come but the timing of that correction eludes us. We recommend that tight stops are employed.

The NASDAQ 100 declined in the Friday session losing 0.62% on the day or 25.25 points. The daily chart looks as though this index is in a trading range and has formed a neat rectangle with a high at 4113.75and a low at 4045. The Bollinger Bands are becoming very narrow and this tells us that something is going to happen fairly soon. It does not tell us the direction of the explosion but only that it will occur. The RSI, stochastic indicator and our own indicator continue to point lower and are not at oversold levels, thus there is plenty of room to the downside. The Thomas DeMark Expert indicator is pointing high. The 5-period exponential moving average is 4073.18. The top of the Bollinger Band is at 4103.85 and the lower edge is seen at 4021.04. The volume was extremely light in the Friday session. The 30 minute Market Profile chart confirms the rectangle. We seem to be trading in a range and until or unless we break out of that range we will likely continue to trade within that range. Should we break out with good volume, please follow the money and don’t fight the trend. The daily 1% by 3-box point and figure chart continues to look positive. The 60 minute 0.1% by 3-box chart is showing us that the market is in a congestion area and shows a break in the uptrend line and a solid downtrend line. The target is 3987.25. Keep your stops tight and let the market tell you what is going to do, don’t fight the tape.

The Russell 2000 did not disappoint in the Friday session and was the big loser among finical indices. The chart; however, does not look as bad as the number would imply. The low for the Friday session as higher than the low seen in the Wednesday session and the entire week looks like a sideways wide range move. All the indicators continue to point lower with plenty of room to the downside. The Bollinger Bands are becoming narrower. The 5-period exponential moving average is 1160.43. The top of the Bollinger Band is 1175.66 and the lower edge is seen at 1146.07. We are above the Ichimoku Clouds for all time-frames. The 30 minute Market Profile chart illustrates the range bound movement of this index. The Heikin-Ashi shows this range clearly as well. Above 1169.40 or below 1147.70 action will be necessary. We also need to see volume re-enter this market on those moves. So long as this market stays inside the abovementioned range, no action is needed. Go long if a serious bulge occurs above 1169.40 or go short on a heavy volume downdraft below 1147.70. Keep your stops tight and fasten your seat belt.

Crude Oil declined in the Friday session but did print a higher low and higher high for that session. We are below the Ichimoku Clouds for all time-frames. The 5-period exponential moving average is 92.68. The top of the fairly narrow Bollinger Band is 95.79 and the lower edge is seen at 91.58. The down trending channel lines are 95.41 and 89.75. It is troublesome that the rallies have been unable to even touch the upper channel line. The indicators for all time-frames are negative, with the exception of our own indicator that has just turned positive for the daily time-frame. The volume was strong in the Thursday rally session. Either it was short covering, or some nibbling, we are not sure at this time. The daily 1% by 3-box point and figure chart has a downside target of 80.49 and downtrend lines. The chart look as though the market could break to the downside, not really sure about that one. The 60 minute 0.2% by three box point and figure chart has two targets; one at 89.79 and one at 96.1. There is a strong uptrend line and an internal downtrend line. So long as the market is below the 5-period exponential moving average, we remain negative for a short-term trade. Caution is warranted here.

Gold fell in the Friday session and closed below the lower edge of the Bollinger Band. The market looks like a waterfall. The only good news we can share is that these severe downdrafts cannot last too long and that they generally will boomerang to remove some of this steepness and oversold qualities. That said, the operative word was generally, which means that it doesn’t always happen. At the moment, gold is very close to some important support. Should that support fail to materialize, you can expect to see a flush out to the downside stopping 1183.80. We are below the Ichimoku Clouds for all time-frames. Indicators are negative for all time-frames as well. The 5-period exponential moving average is 1244.76. The top of the Bollinger Band is 1309.65 and the lower edge is found at 1235.73. The daily 1% by 3-box point and figure chart looks, in a word, dreadful. There is a downside target of 1113.14 and downtrend lines which will keep any rally in check. The 60 minute 0.1% by 3-box chart has a downside target of 1223.47 and nothing on this chart looks very good. The nicest thing that could be said is that the chart is oversold but there isn’t a bend or a curve to be found in the RSI. Is this action in the gold market a vote of confidence for the US Dollar or some feeling that interests will rise in the US sooner than later. This would be negative for gold. Instability in currencies and ZIRP interest rates are all positives for gold. At this time, those reasons for owning gold seem to be fading. This is a market to watch.

The US Dollar index declined in the Friday session. The Dollar printed a high for the year in the Tuesday session and has been going sideways since that time. We have what appears to be a pennant forming. The rally from 81.775 has been spectacular with few pauses in this aggressive rally. The 5-period exponential moving average is 84.251. The top of the Bollinger Band is 84.881 and the bottom edge can be found at 81.504. All the indicators that we follow herein are issuing a sell-signal. We are above the Ichimoku Clouds for both the weekly and daily time-frames but are inside the clouds for the monthly time-frame. The weekly chart clearly shows the aggressive ascent seen in this index. Looking at the monthly chart we see 85.66 as resistance. The daily Market Profile chart show how dramatic the US Dollar’s index has been. We believe that so long and instability reigns in this market that the US Dollar will be the beneficiary of scared money. Remember we have the Scottish vote this week that could impact the pound to the benefit of the dollar. In the meanwhile, both crude and gold are weak.