July 24th, 2016

Technical analysis is amazing. Two weeks ago we drew a horizontal line projecting where we believe the S&P 500 would go basis its past behavior….today’s chart shows that the line was hit twice last week and, for the moment, is a resistance point. A point of concern is the failing volume in this four-day rally. This is typical of this market which has been the poster child for a wishy washy market. Perhaps the Fed’s tinkering with the business cycle has resulted in this sort of muted reaction where we get neither boom nor bust economies. Speaking about muted reactions this entire seven-year economic expansion has been, at best, muted.

The USA continues as the safe bet for those suffering from negative interest rates. Naturally the money is flowing to our shores where at least the money will earn something. It is always better to be paid for lending money safely than paying for somebody to hold your money. Wonder why the super smart bankers haven’t figured that one out? Oh well!

Earning season has had a few surprises some positive, some negative. Interestingly, mergers are beginning to appear. It is a perfect environment for companies to borrow money with cheap interest costs and merge with a company that will add to your earnings. As an effect of this merger, employee head-counts are reduced and some real-estate is consolidated. It is also a great time for corporations to borrow money on the cheap and buy back their stock.

The S&P 500 gained 9.50 in the Friday session. Unfortunately, the new highs printed in the Wednesday session and then in the Thursday session were both on declining volume, not a good thing. During the past three days, the index either made a new high or approached the high. It seems as though this market is getting a bit tired and just might need a rest before plowing to the next high. All the indicators that we follow herein continue to point higher, but are getting extended. The next level, after some digestion of the recent highs will be 2218.75. Above that level is 2268.75. The most frequently traded price for the day-session was 2167.00. By 3:00 on Friday afternoon, the high for the day was in place and the market began to shed some of its excesses. This is typical behavior especially on a Friday summer afternoon as traders escape to the beaches and flatten positions to avoid weekend chaos that could erupt.

The NASDAQ 100 gained 20.25 handles (points) in the Friday session leaving a bullish looking candlestick on the chart. The NASDAQ high is at 4739.50 and the market is a robust rally away from removing that resistance level. That said, the market is overbought and might need to rest before assaulting that level. The stochastic indicator and the RSI continue to point higher albeit at overbought levels. Our own indicators has just issued a sell-signal. The concern here is the lack of volume. The Heikin-Ashi daily chart remains solidly bullish. The weekly chart shows that this index has been moving higher for the past four weeks. Be aware that when we approach the six week mark, generally the market reverses. Naturally there have been instances when the market actually has gone up for longer than six weeks, actually as long as 13 weeks but generally six is the magic number that halts a rally. That said, if we should take out the high, we might be able to extend the rally a little bit longer. Friday’s high was printed at about noon and after that, a stead drift sideways. The most frequently traded prices were 4659-4659.75.

The Russell 2000 gained 11.10 handles (points) I the Friday session. This index has been consolidating at around these levels for nine trading days. Both the stochastic indicator and the RSI are pointing higher. Our own indicator is issuing a continued sell-signal. The Bollinger Bands are continuing to expand. The weekly chart shows the four-week rally and the current stall at 1210. As the market moves higher, expect to see the index out-perform on the upside as money moves away from yield and searches for growth. On the other hand, should the market retreat, this index will be the source of funds and will out-perform on the downside. The most frequently traded price was 1210-1210.50 but the highest volume was seen at 1209.50 where 13.4% of the day’s volume was seen.

The US Dollar Index rallied 0.369 handles (points) in the Friday session printing and higher low and a higher high for the day. Both the stochastic indicator and the RSI are pointing higher and both have room to the upside. Our own indicator is issuing a sell-signal. The Bollinger Bands have contracted and look as though they might be ready to expand again. That would indicate more volatility will likely be seen in the near future. The daily Heikin-Ashi chart is solidly bullish. The weekly chart is bullish showing that the next resistance level is at 98.25 and then at 98.59. The monthly chart shows that we are midway to the recent 100.60 high seen on December of 2015. The old high was 121.29 which was seen in July of 2001, a long time ago. The resistance level of 100.60 has seen several attempts to break, but so far has held the market back from further rallies. The most frequently traded price was in the overnight session and was 96.95. The most frequently traded price was 97.475-97.50. 14.2% of the day’s volume was traded at 97.50. The Friday high was printed at 12:20 after which the market drifted on mostly light volume. Remember, as the US Dollar rallies, most dollar based commodities will fall. Gold is the only outlier, insomuch as it acts as a commodity sometimes and then it acts as a currency other times. A strong US Dollar can buy lots of stuff in let’s say London where the Pound is down quite a bit. That said, the strong US Dollar hurts the US based companies that want to sell stuff globally. Cheap imports also hurt American made products because they compete for the consumer’s purchase. As an additional point, increased costs such as labor costs and raw material costs cannot be passed onto the consumers.

Crude oil retreated in the Friday session trading in the downward trending channel of 48.14 to 43.00. The trading is getting very narrow, the volume is dropping and we are beginning to coil. There is support at 42.42. All the indicators we follow herein are pointing lower with plenty of room to the downside. The 5-minute TradeFlow chart shows a rally into 2:40 or so and then sideways action on low volume.

Gold lost 8.90 in the Friday session. Both the stochastic indicator and the RSI are pointing lower with plenty of room to the downside. Our own indicator is issuing a buy-signal. We see good support at 1310.70 and at 1306. Below that level there should be support at 1287.70. The Bollinger Bands are contracting telling us that the volatility is subsiding. The weekly chart is negative and indicates that further action to the downside should be expected. The monthly chart is giving us mixed signals and has a doji candlestick which warns us that the direction could change. This is not a reliable signal especially since it is on the monthly chart. The Heikin-Ashi chart shows the rounding action seen in the last half dozen sessions and could be a base building. It is still too early to tell on this one. The five-minute TradeFlow chart is negative. The take-away from this is, be cautious and watch the action of gold. We are getting too many mixed signals which tells us that we should not trade on this information until we have more clarity.

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