Loan modification = reward the risky and punish the reasonable. Reward those home owners who, bought too much house and knew it and punish the guys and gals who, knew what they could afford. This really doesn’t seem correct. So all of you responsible people learn this, chuck out responsibility, remove caution, throw your banker under the bus and spend spend spend, and then you too will qualify for your loan modification!
Bubbles in the economy will occur as they have always occurred in history. Just take a look at history to identify business cycles. This time, however; the Federal Reserve Bank has been the enabler of choice, clearly doing so to try to avoid excess pain for in the economy. Keeping interest rates ridiculously low for extended periods of time in an effort to avoid a recession causes the next bubble to show up. Had Chairman Greenspan not kept interest rates on the floor for the length of time that he did, the housing market likely would not have become a bubble. Even when the bubble was boiling, the Federal Reserve Bank did nothing to temper the bubble and turned a blind eye on the markets and the bank/brokerage monkey business. You wonder what would have happened if the Federal Reserve hadn’t tinkered with the economic cycle. Well, it is likely that we would have had a severe recession following the bursting of the tech bubble. We have endured these jobless recoveries for so long, that we don’t understand that when we emerge from a recession, we should begin to produce stuff that has a global need. Shopping is not one of those needs. Producing cars, computers, materials, fashion, paint, steel for new bridges, new roads all of that uses people and the people must find employment to move this country out of recession. True, it has been declared that we are out of recession. You tell that to the thousands without a job, or the college graduates who can’t find a job or the thousands of American citizens that are on food stamps and welfare. So as we enter the New Year, remember although we are “out of the recession” we are still in the recession with decreasing tax rolls, increasing deficits and rolling unemployment.
Monday: November construction spending and December’s ISM index are both released at 10:00. Tuesday: November factory orders are released at 10:00. Wednesday: The minutes for the December 15th FOMC meeting are released. Thursday: Kansas City Fed President Hoenig speaks. Friday: December nonfarm payrolls/unemployment rate is released at 8:30, November wholesale inventories are released at 10:00 and November consumer credit is released at 3:00.
The US Dollar index left a true doji candle on the chart as a result of the trading activity in the New Year’s Eve lightly traded session. Normally, we would say that this candle indicates a transition of a possible change of direction from the preceding direction. What we see is that so long as the US Dollar index stays above 77.665, that it is possible that we could be watching the formation of a bull flag. Should the 77.665 level be removed on decent volume, we will know that the formation is not a bull flag and could open the door to a retreat to the 76.49 area. The 5-day moving average is at 78.258. The top of the Bollinger band is at 79.496 and the lower edge is seen at 74.999. The stochastic indicator has issued a sell-signal but has gone flat at near overbought levels. The RSI is flat near overbought levels, our own indicator is not trending and the Thomas DeMark Expert indicator is issuing a mild buy-signal. The indicators are mixed as is the chart. We are at the point where if we remove 78.55 on the upside, we will open the door to 78.77 and higher highs. On the other hand, if we remove 77.665. We likely will drop like a stone. We are above the Ichimoku clouds for the daily time frame. We are below the Ichimoku clouds for the weekly and the monthly time-frame. The indicators for the weekly time-frame are overbought.
The S&P 500 dropped like a stone at the end of the New Year’s Eve session leaving a long red candle on the daily chart. Naturally, this retreat was a low-volume event as traders ran out the doors to get home for New Year’s Eve. All the indicators that we follow herein are issuing a continued sell-signal with plenty of room to the downside. The 5-day moving average is at 1115.46. The top of the Bollinger band is at 1127.08 and the lower edge is seen at 1090.52. We are above the Ichimoku clouds for the daily and weekly time-frame but are below the clouds for the monthly time-frame. As you look at the weekly chart, the market drop seen in the Thursday session isn’t so impressive however; we do have sell-signals for that time-period. We do not have a sell-signal on the monthly chart but we are significantly overbought for the time-frame. The Bollinger bands are beginning to widen a bit showing some volatility returning to this market. This market is overbought enough for some selling to return to this market. Many of those who wanted to sell but take the gain in 2010 will be waiting for a place to sell, while many of those who took loses on 2009 will be waiting to put that money to work in 2010. It should be an interesting battle. We will give it to the small caps and take it away from the large caps. We have sell-signals on all time-frames.
The NASDAQ 100 futures contract has very clear signs or exhaustion. The 5-day moving average is at 1851.57. The top of the Bollinger band is at 1889.25 and the lower edge is seen at 1748.13. We are above the Ichimoku Clouds for both the daily and the weekly time-frame but are in the clouds for the monthly time-frame. All the indicators that we follow continue to issue a sell-signal for the daily and the weekly time-frames. We are overbought on the monthly time-frame but have no signal at this time. We see signs of exhaustion on all of the time-frames. Although the decline in the Thursday session was large, there was no damage done to the uptrend….so far. We do have a 9-count on the monthly chart, which is troublesome for the bulls. We have a 15 count on the weekly chart, more troubles for the bulls. We would not be surprised to see this market retreat to the 1815 area where support should be found. We would advise caution until the shakeout shows us where this market wants to go.
The Russell 2000 futures followed in lock step with the other financial indices. We are so far above the uptrend line of 616, that a continued retreat will not change the trend. All the indicators that we follow herein are issuing a continued sell-signal. The 5-day moving average is at 624.93. The top of t he Bollinger band is at 639.40 and the lower edge is seen at 584.94. Naturally we are above the Ichimoku Clouds for the daily and weekly time-frames. We are overbought on all time-frames. Both the weekly and the daily time-frames have issued a sell-signal. Until and unless the uptrend line of 616 is broken, we will continue to look at retreats as just consolidations. We believe that the buying will be seen in small capitalization stocks and this is the index to watch. Be very careful and stay very alert.
Crude oil looks as though it will continue to the upside. We are overbought by all measures but we do not have a sell-signal. We are above the Ichimoku Clouds for the daily and the monthly time-frames but we are in the clouds for the weekly time-frame. The 5-day moving average is at 76.803. The top of the Bollinger band is at 80.834 and the lower edge is seen at 67.795. So, here is the deal, should we find ourselves in a recovery, crude oil will be needed for the expansion. Should the US Dollar weaken, crude oil will rally because it is priced in dollars. The problem is that although the US Dollar index has rallied so did crude oil. This tells us that the rally in crude is based on demand. We are constantly being told that there is ample crude in storage and in the market but when the price of crude could have dropped via the strong US Dollar, it didn’t. Therefore, the rally in crude is based on true buying and not based on a weak currency. Perhaps, the rally in crude is the fear of inflation down the road, we are not sure. We simply read the charts and leave the fundamentals to others.
Gold left a doji like candle with a long wick on the chart as a result of the Thursday session. Perhaps, the retreat in gold was profit taking or a lack of insecurity in the market. The chart looks as though gold is backing and filling in an uptrend. Further, should gold close above 1111.90, we would expect to see another run to 1141.50, 1169.30 and then 1226.40. Yes, this is a bullish looking chart. The further footnote is that should gold close below 1086.60 and then 1075.0, the bullish bets will become bearish bets looking for support at 1026.90 and 986.80. We are in the Ichimoku Clouds for the daily time-frame and above the clouds for both the weekly and the monthly time-frames. Although the market is not oversold, we are slightly below the neutral levels and we have a buy-signal. The 5-day moving average is at 1098. The top of the Bollinger band is at 1183.90 and the lower edge is seen at 1058.93. This should be a very telling week for gold.