Everybody is talking about the “cash for clunkers” program offering the buying public $4500 per old gas guzzlers towards the purchase of a qualified new car. The chatter is that this will steal purchases from the future. While it could be true that some purchases will be stolen, the fact is that the American public has always and continues to have a love affair with the automobile, a fact that is being ignored. It is unlikely that these purchases will cause problems regarding future purchases because by the time the green economic shoots turn into real plants, the purchasing public will again have disposable income and cash to buy a new set of wheels. The problem with this thought process is that the public is so deeply in debt, that a new car purchases will only be made after some credit card debt is paid off and the mortgage/real-estate taxes are current. That could take quite a while. With an employment rate in the double digits and jobs difficult to find, it is not likely that the buying public will dig out of their financial mess anytime soon. Therefore, the “cash for clunkers” won’t steal from the future purchases but rather give the car companies some current sales. Hopefully, the car companies won’t believe that this is the beginning of a new robust economy and will have the sensibility to understand that any recovery will be slow and difficult and that the public will deleverage before taking on more debt.
So, who is taking advantage of the “cash for clunkers?” We believe it the few lucky soles to continue to have employment and have no fear of being laid off. We are entering “back to school” season. This is the time when parents begin to purchase school needs for their children. This is a very important season for retailers for both clothing and school supplies including computers and the like. And if you hadn’t noticed we are into Halloween and Christmas season as well. Yes, it is Christmas in August, never to early to start stuffing those stockings. Do you think a car will fit in this year’s stocking?
We have heard a lot of chatter lately about dual citizenship and moving assets off shore. It seems that the new “Team Obama” tax plan is encouraging the wealthy citizen to leave and look elsewhere to live. Not only will the tax receipts drop during this sort of action but the charitable giving will plummet should “Team Obama” reduce the tax benefit of the contributions. This will have a real negative effect on the tax roles because the wealthy basically carry the country paying most of the tax. The middle class pay, but not that much, and the less fortunate pay nothing and remove funds from the system. Do you really want to tax the wealthy out of this country? What will we do if they leave? Thankfully, nothing has been done so far, perhaps the good elected officials will do their fighting thing and nothing will be done. After all, the elected officials depend on contributions not only from corporations but wealthy citizenry. Something to consider for our future.
Monday: June construction spending is released at 10:00, July ISM index is released and July’s light vehicle sales are released. Tuesday: June personal income and consumption is released at 8:30. Wednesday: July layoffs are reported by Challenger Gray & Christmas and June factory orders are released at 10:00. Thursday: Bank of
England issued its interest rate decision, and the European Central Bank issues its interest rate decision. Friday: July nonfarm payrolls and unemployment rate are released at 8:30 and June consumer credit is released at 3:00.
The US Dollar index, yikes, is the first word that comes to mind. Friday’s action took this index to the lows of June 2, 2009 and actually traded below that level printing a low of 78.310 in the Friday session. We now have opened the door to the September low of 77.730, below that; we see a liability to 76.985. All the indicators that we follow herein continue to point lower. Only our own indicator and the stochastic indicator are oversold, the others have room to the downside. Naturally, we are below the Ichimuko clouds for the daily, weekly and monthly time-frames. The 5-day moving average is at 79.079 and the downtrend line is at 79.50 for the Monday session. The top of the Bollinger Band is at 81.198 and the lower edge is seen at 78.131. Perhaps the economy is showing green shoots but those shoots appear to be priced in anything but the US Dollar index. You know what really is scary, below 77.180 there is thin air and nothing much to stop the US Dollar from a further flop. Remember, the 2008 low was 71.050. There should be support found at 76.025, 75.34, and 71.55.
The S&P 500 continued the week’s rally into the Friday session yielding another up day for the index. The Friday session was an inside day. We continue to see signs of exhaustion in this index. All the indicators that we follow herein continue to issue a buy-signal albeit at overbought levels. There isn’t a bend in the lot of them. This tells us that we are bullishly overbought. As 401K money is put to work in the Monday session, we could see a continuation of this up move. We do expect to see some backing and filling and retreats this week. The 5-day moving average is at 979.55. The top of the Bollinger band is at 1012.48 and the lower edge is seen at 853.11. We are above the Ichimuko clouds for the daily time-frame, in the clouds for the weekly time-frame and below the clouds for the monthly time-frame. We find the weekly chart overbought but without an indication that a change of direction is coming. The Market Profile chart shows us that above the high of the Friday session there is very little resistance. The chart looks as though we could go sideways unless we close below 978.75 which would cause some concern for the bulls.
The NASDAQ 100 retreated in the Friday session causing some concern for the bulls. Three of the four indicators that we follow are issuing a sell-signal on the daily chart. Only the Thomas DeMark Expert indicator is pointing higher. Further this index is so overbought that the sell-signals are still in overbought areas. We are above the Ichimuko clouds for the daily and weekly time-frame but below the clouds for the monthly time-frame. The weekly indicators are also issuing a sell-signal although the monthly indicators, which are overbought, continue to point higher. We would not be surprise to see a retreat to 1552 and then 1499 or so. The 5-period moving average is at 1602.10. The top of the Bollinger band is at 1663.90 and the lower edge is seen at 1364.55. Unless the market closes above 1632, we will remain defensive on this index.
The Russell 2000 lost a point in the Friday session. This index is showing signs of exhaustion. The stochastic indicator, our own indicator and the RSI are all overbought but not issuing a sell-signal. The Thomas DeMark Expert indicator is going sideways at neutral. We expect to see support at 548, 529.10 and at 518. The 5-day moving average is at 551.60. The top of the Bollinger band is at 572.11 and the lower edge is seen at 462.40. Unless this market closes above 562.80, we expect to see some backing and filling and some profit taking. It would not be unlikely for this market to trade back to 509 before starting another leg to the upside. Naturally, we are above the Ichimuko clouds on the daily time-frame and in the clouds for the weekly time-frame. Proceed with caution.
Crude oil was the beneficiary of a very weak dollar sending its price to the highest level seen in several weeks. We closed just inside the Ichimuko clouds on the daily time-frame and we are below the Ichimuko clouds for both the weekly and the monthly time frame. As to the indicators, they are issuing a continued buy-signal for all time-frames. The 5-period moving average is at 67.07. The top of the Bollinger band is at 70.00 and the lower edge is seen at 59.28. We remain positive for crude oil.
Gold enjoyed a huge rally in the Friday session. This action was enough to close gold above the Ichimuko clouds for the daily time-frame. Gold is above the clouds for both the weekly and the monthly time-frame. All the indicators that we follow herein continue to issue a buy-signal with plenty of room to the upside. The 5-day moving average is at 944.00. The top of the Bollinger band is at 966.10 and the lower edge is seen at 909.95. Although gold did not remove the recent high of 962.50 it seems to be positioned to trade higher. So long as gold stays above 930 we will give it to the bulls with a view to 969 where, we see the next resistance level.