This was an interesting week. As the Greek mess continues, new elections have been scheduled for mid-June. Facebook is now a public company and managed to close with a gain on the day, okay so 23 cents isn’t much. Facebook traded up to 38.43 in extended hours, which means after the market closed officially these trades took place, under 1000 shares traded at 38.42, but most of the extended hour trades were at 38.41. For all those people who didn’t get a chance or have the opportunity to buy this overhyped issue, sell the puts, once the options begin trading in about two weeks. You will be paid to take risk of possibly overpaying for this issue. We do not recommend that trade and we are mentioning it as a strategy for somebody wanting to own this issue. For those who are looking for an entry point in this stock, the next ramp to the upside will occur when Facebook is added to the NASDAQ in about 91 days at about the same time the insiders will be able to sell their shares. Next!
Hooray Memorial Day Weekend is approaching and the official beginning of the summer vacation period. After the past few weeks of market turmoil it will be nice to have the warm sun and surf wash away some of the grit from the past few weeks of market turmoil.
Well the S&P 500 moved clearly below the trading range box in which it had been trading for the last 11 or so weeks. We saw a break to the downside stopping at the horizontal line of support at, it actually stopped at 1289.75 which is 0.50 above the 1289.25 which was the high of the week of October 24 2011. We can move lower and really have not seen a wash out as yet. The area of support is 1280 to 1198. That said, this market is oversold enough to begin a DCB from just about any level. A DCB (dead cat bounce, apologies to cat lovers we did not make this one up) will take this market back to the 1332 – 1328 level. The 61.8% retracement number from the December lows to the March high is 1281.92. If this market trades below that level, the retracements go out the window and we will see more pain inflicted to the bulls. The market has closed down on the session for six of the past session and likely bounce with in a day or so. The quality of strength of that bounce will tell volumes regarding the commitment to the up or downside. Light volume on this bounce, if only initially seen is fine so long as the volume picks up. The duration of the bounce is also important. Should this market implode on itself on the second day of the rally, it is telling you that the downdraft has not finished running its course and will likely continue. Every market goes up and down. People mistakenly believe that you can only make money in either a bull or a bear market. That is not the case, a crafty trader can make money on either or both sides of the market because no market goes straight up and no market goes straight down. If there is to be a rally, it will be a stair stepping one and if there is to be a decline it will also stair step its way down. The problem most investor seem to have is that they get stuck on a side and refuse to admit that they are wrong. Then because of that mind-set they stay in a position too long and then mistakenly believe that because they have time invested in the position that it will turn for them. The worst thing to do, of course, is to add to a losing position. Your risk is increased by the additional funds and just maybe the market is telling you that you should invest somewhere else. Remember, the trend is really your friend.
Tuesday: April existing home sales are released at 10:00.
Wednesday: April new home sales are released at 10:00
Thursday: April durable goods are released at 8:30.
Friday: May Michigan Sentiment is release between 9:45 and 10:00 and the bond market closes early at 2:00.
This week the US Dollar index continued its march to the upside having broken out of the triangle on May 4th. The high of the Friday session hit resistance left by the January 16th close. What goes up must come down and though the US dollar index will likely continue its break to the upside it has moved much too far much too fast. The Thursday session left a doji candle on the chart swiftly followed by a bearish engulfing candle on Friday. Fridays candle hit major resistance at the old January 16th open and found support about half way through Tuesdays’ real body (that’s halfway through the price range on Tuesdays’ price action for you non-candlestick aficionados). In the short term we can see the index moving back to 81.019 (an area given support by the price action on March 14th-15th). The upper Bollinger band is at 81.791 and the lower band is at 78.075; Friday’s action just brought us back inside the bands. We are above the 20 period moving average which is at 79.933 and riding above the 5 period exponential moving average which is at 81.241. All indicators that we follow are issuing very clear, unmistakable sell signals, curling over with rounding tops in over bought territory. We are way above the Ichimoku Clouds; the index itself has taken on the look of a pole but that doesn’t mean long term there isn’t room to the upside! We have signs of exhaustion in this market and another troubling event was seen when the market printed a new high for the month the promptly reversed course removing the previous day’s low and closed the session only slightly above the previous day’s lows. Could it have been position squaring before the weekend or something more ominous? We do not know.
Looking at a weekly chart of the US Dollar index we see that remarkably, we are still stuck in a very well defined trading range with 81.966 as resistance and 78.739 as support. In the medium term we could see the index retesting this old high. All indicators we follow continue to issue a buy signal.
The S&P 500 chart really looks like a failed double top with a total break for the neckline of 1360. We had the support zone all the way down to 1332 and when that was removed on the second day, remember our two-day rule, it became a sale. Where will it stop? We believe that good support was found in the Friday session but that we could easily fall to 1281, 92 and 1272.75 on the next downside assault. This market is suffering from contagion and fears, which are well founded. We have the PIIGS in Europe, Asia slowing down and a very strong US dollar which will hurt our exports. Then there was the egg that Facebook laid, actually the problem was caused by heavy demand for the IPO and it was priced on the high side. The S&P 500 is below the Ichimoku Clouds for the daily time-frame but remains above the clouds for both the weekly and the monthly time-frames. The stochastic indicator and the RSI are both grossly oversold but do not show signs of a bend to the upside and continue to point lower. Our own indicator is trying to curl to the upside and looks as though it might give a buy signal within a day or so. The Thomas DeMark Expert indicator is issuing a buy-signal. We have a nine count on the chart. The 5-day exponential moving average is at 1313.18. The top of the Bollinger band is at 1360.73 and the lower edge is seen at 1297.36. All the charts look really ugly. The Market Profile chart is really scary looking and the point and figure chart indicates that we need to hold that line. The weekly chart looks equally ugly. The indicators continue to point lower, all of them. Dad used to call the markets hysterical and manic, he was correct.
The NASDAQ 100 closed the Friday session within a nickel of the low print. The stochastic indicator and the RSI are both grossly oversold but continue to issue a sell-signal. We are below the Ichimoku Clouds for the daily time-frame but remain above the clouds for both the weekly and the monthly time-frames. Our own indicator is curling to the upside but has not issued a buy-signal and the Thomas DeMark Expert indicator is issuing a buy-signal. The 5-day exponential moving average is at 2528.90. This market has moved aggressively outside the downward slopping downtrend lines. This just shows the force of the downside slide. We believe that there will be substantial resistance for this market at 2583.25. There should be support for this market at 2427.50. Should the market closed below 2428.96 we could get another wave of heavy selling, because that number is a 61.8% retracement level. There is a gap in the Market Profile chart between 2387.28 and 2411.64. This could be an interesting week.
The Russell 2000 closed the Friday session down for the fifth day. This chart really looks like a head and shoulders top with a violation of the neckline which tells us that the sell-off will continue although we do see a bounce within a day or so. The stochastic indicator and the RSI are both grossly oversold but our own indicator is curling to the upside and looks as though it will issue a buy-signal within a day or so. The Thomas DeMark Expert indicator has issued a buy-signal. This market is not as oversold as the other market that we follow herein. We are below the Ichimoku Clouds for the daily time-frame but above the clouds for the weekly time-frame. The 5-day exponential moving average is at 760.91. The top of the Bollinger band is at 2782.28 and the lower edge is seen at 2490.58. The Market Profile chart tells us we have a problem below 742.14. The point and figure chart confirms that reading. This is going to be a difficult week and we will know fairly soon how weak or strong these markets are. Fasten your seat belts and hand on for Mr. Toad’s Wild Ride!
It is difficult to find anything that looks worse than crude oil does. The slide has been pole like and not forgiving for those fighting the trend. We are below the Ichimoku Clouds for the daily time-frame, in the clouds for the weekly time-frame and above the clouds for the monthly time-frame. The 5-day exponential moving average is at 93.01. The top of the Bollinger band is at 109.06 and the lower edge is at 89.45. We do have a nine count on the chart. The stochastic indicator and the RSI continue to point lower at oversold levels. Our own indicator is about it issue a buy-signal but insomuch as it hasn’t done so at this time it could easily turn into another sell-signal. We will have an answer to that tomorrow. The weekly Market Profile chart shows that the market will have support at around 87.74 on the downside.
Although we have a buy-signal on gold, remember that margin clerks are prowling the streets and will sell any position to raise cash to meet a margin call. We mention that because most of the markets have been in decline and that decline has been significant. When declines such as these occur, people caring margin accounts using leverage to increase their positions or in the case of commodities as a good faith deposit for a future purchase are liable to receive requests for additional funds. Many times cash is raised by selling positions to cover that call. Thus even strong issues and commodities feel that pressure. Producers might also see the need to cut back on their hedges because of a diminished forecast of future need. Gold rallied for two of the three trading days last week ending the Friday session at 1591.80. We are below the Ichimoku Clouds for the daily and the monthly time-frames but we are below the clouds for the weekly time-frame. All the indicators that we follow herein are issuing a buy-signal on both the daily and the weekly charts. The 5-day exponential moving average is at 1574.38. The down trending channel lines are 1605.10 and 1517.35. The top of the Bollinger band is at 1697 and the lower edge is seen at 1534.90. The shorts are not going to become concerned until the market closes above 1637.36. We have had a nice two-day rally but a short will need more than what we have seen to become inspired to cover a position. The Market Profile chart shows us that under 1525, this market could drop into a vacuum to the downside.