Welcome to November! With Thanksgiving on the horizon, black Friday and Christmas soon to follow we are closing in on the last two months of the year. Remember as you enter these generally positive months that investors will take any loses that they have before December 31, bond swaps will look to sell bonds for a lose and replace those bonds with similar yields and maturities to be used for swaps and some may actually take some profits out of the market in bonds and stocks. This leaves us with a great time to buy bonds and look for deflated stocks.
How can anyone be surprised that the consumer pulled back on purchases this past month? Once the government stimulated bargains, via homes and autos disappeared, so did the consumers who, with increases in food and lodging costs, retreated from spending. Many economy watchers are enamored with the increased savings rate; perhaps, the savings rate isn’t really savings at all and is really paying down some debt. With interest rates on non-tax-deductable credit card debt soaring it is no surprise that those balances will be top on the list to pay down. Once that is done, expect to see a more controlled consumer emerge. We have not addressed the fact that our younger generation that is looking for work can’t find work and those who have found work can’t afford to live on their own. That leaves us with a generation living at home with mom and dad. The new home buyers aren’t there because they can’t afford the monthly payments, don’t have the down payment or are underemployed or even unemployed. There is an entire generation of college graduates who now are in graduate school, who will be graduating and looking for a job. These are some of the students who, when they couldn’t find a job after graduation, opted to go to graduates school to increase their employability. As a result, they have increased their student loans and still don’t’ have a job, how would you expect this group to afford to purchase anything. Yes, minimum wage jobs are flourishing but who can afford to buy a house with a minimum wage income and no savings. Those who had expected to retire now either can’t afford to or have increased responsibilities that prevent them from retirement. Besides, what would they do anyway?
Monday: September construction spending and October ISM are released at 10:00.
Tuesday: September factory orders are released at 10:00.
Wednesday: Challenger Gray & Christmas release their October layoff report and the FOMC issues its interest rate decision with a brief statement at 2:15 no change is expected.
Thursday: The Bank of England and the European Central Bank both issue their interest rate decisions both making a statement regarding their decisions and October sales for major retail chains are released. Friday: October nonfarm payrolls and unemployment rate is released at 8:30, September wholesale inventories are released at 10:00 and September consumer credit is released at 3:00.
The US Dollar index actually rallied for four of the five trading days last week. While we remain below the downtrend line, it did relieve to oversold condition and actually put it in an overbought condition, on a short term basis. We will need to see a close above 76.598 for two days before we would believe that this rally is anything more than an oversold bounce. We cannot see the shorts abandoning their position until and unless the downtrend line is shattered. Then again, some shorts may want to take some profits as we close in on the last two months of the year. If we were short, we would become very concerned should the US Dollar index close above 76.845. The 5-day moving average is at 75.920. The top of the Bollinger band is at 77.017 and the lower edge is seen at 75.096. All the indicators that we follow herein are pointing higher, however; most are in overbought territory. We remain below the Ichimoku clouds for the daily, weekly and monthly time-frames.
The S&P 500 futures contract enjoyed a spectacular rally in the Thursday session and an even better retreat in the Friday session. We are oversold as measured by the indicators that we follow herein, however; we continue to see some downside pressures. The 5-day moving average is at 1066.13. The top of the Bollinger band is at 1104.02 and the lower edge is seen at 1031.59. We closed below the uptrend line for two of the past three sessions. It looks as though we have opened the door to the 1012, 1008, 991 and 975. We closed in the Ichimoku clouds for the daily and the weekly time-frames and remain below the clouds for the monthly time-frame. On a longer view of this market, the weekly and the monthly chart, we are rolling over to the downside. We are above the weekly long-term uptrend line of 1026.32. Should we violate that line for more than a poke thru, we will see some bears emerge from their winter’s hibernation and feel some real downside pressures. We further have the nervous bulls, looking at some profits considering the risk of possible evaporation of those profits. Should some downside pressure emerge, you will see these nervous longs exit stage right. Until proven otherwise, the investors will probably opt for dividends that pay more than money market funds or bonds. This behavior should help keep the markets footing from failing and the sleeping bear in his den.
The NASDAQ 100, the leader in the rally of 2009 was the leader in the retreat of October. The market did not fall off the face of the globe, but did suffer a retreat that took it back to the levels seen at the beginning of the month of October. No, we did not lose more than a month of gains. Naturally, we are oversold but continue to look as though we will go lower before we go higher. All the indicators that we follow herein are pointing lower all. The 5-day moving average is at 1727.41. The top of the Bollinger band is at 1781.37 and the lower edge is seen at 1669.02. We closed below the lower edge of the Bollinger band and we cannot stay there for very long. Therefore we will bounce above that line. We are in the Ichimoku clouds for the daily and monthly time-frames but above the clouds for the weekly time-frame. Both the weekly and the monthly charts look as though this market is rolling over to the downside.
The Russell 2000 seems to have been the source of funds for the past week. This index retreated and closed below the lower edge of the Bollinger band. While the index cannot stay there it is a very weak sign to see this. The 5-day moving average is at 590.58. The top of the Bollinger band is at 634.28 and the lower edge is at 567.30. We are in the Ichimoku clouds for the daily time-frame and just barely above the clouds for the weekly time-frame. The stochastic indicator, our own indicator, and the RSI are all oversold both our own indicator and the stochastic indictor giving a fresh sell-signal at oversold levels. The Thomas DeMark Expert indicator is going flat at slightly above oversold levels. For the shorts to get nervous, we would need to see a close above 598, which looks miles away from where this market closed. This market is traditionally the source of sales for the end of year tax season. On the positive side, this market is also the beneficiary of the “January Effect” and a possible source of stocks that will rally once all the tax selling has been completed.
Crude oil retreated in the Friday session completing a downside week. We are at oversold levels but continue to point lower. The 5-day moving average is at 79.41. The top of the Bollinger band is at 83.97 and the lower edge is seen at 68.76. We are above the Ichimoku clouds for the daily and monthly time-frame, but in the clouds for the weekly time-frame. The indicators that we follow are issuing a sell-signal for the weekly chart. So long as the crude oil market stays above 70.79, on the weekly chart, we will look at this action as merely corrective in nature. Below that level, we believe there will be more pain for the bulls. We would not be surprised to see this market bounce from the 74.98 level and also from the 73.87 and 72.05 levels.
Gold seems to be establishing a short-term support area at 1026.90. The 5-day moving average is at 1047.67. The top of the Bollinger band is at 1072.83 and the lower edge is seen at 1024.41. All the indicators that we follow herein are issuing a sell-signal from the negative side of neutral. We are above the Ichimoku clouds on the daily, weekly and the monthly time-frames. The uptrend line on the weekly chart is at 991.90 and that is the level that will scare the bulls. Till then, there is nothing for the bulls to fear except not having enough gold in their portfolio. On the daily chart, we have an uptrend line at 1021, which should offer support on any setback. Generally speaking, we are bullish gold but we also believe that it has come too far too fast and could use some backing and filling.