This weekend, Citigroup is holding an emergency meeting. Although it is reported that the CEO has tendered his resignation; a meeting to deal with the problems of the debt market, particularly, how to write off more of their investments, will be the center-piece of the weekend’s activities. How much will this “Prince” of Wall Street be paid to leave Citigroup?…..is it more than Merrill paid its fearless “ex-CEO” or, is it less? It is remarkable that Wall Street firms pay their top dogs for underperformance, rewarding them for losing money. Without the debt market mess, how long would this last? Overpayment for underperformance? Why haven’t the shareholders of these issues, voiced their disapproval? It is shameful that the managers at the top are rewarded, at the expense of the little guys, at or near, the bottom. Naturally, as losses are booked, the firms go on “PIP” or, profit incentive plans. The bottom is: that the lesser managers and employees will lose their jobs, just because the bosses at the top are so grossly overpaid.
As to the Friday “Jobs Report”, we believe that if jobs were as plentiful as this report shows, that the battle against illegal immigration would be a non-issue. But it is an issue in an economy which is not creating enough jobs and in an economy that is slowing down. What we see are legal Americans, fighting back, for their rights. We see a system that cares more for alien illegals than its own citizenry. We Americans cannot go to a hospital for care without paying for that visit; we Americans must pay taxes, we Americans should not have to pay for those who avoid paying into the system, who bleed the services of the system, and who are here, illegally. The word ‘illegal’ means that they are doing something against the law; isn’t it time to recognize that fact?
“By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.” John Maynard Keynes
This quote was on the Friday “Chart of the Day.” We should all read this quote and understand it. With oil at over $90 bucks a barrel and approaching $100, with the Continuous Commodity Index up over 13% since January, don’t you think we have inflation? The Continuous Commodity Index is an equally-weighted index of 17 commodities, including agricultural, metals, and energy. We can remember hearing the alarm bells of inflation going off in 1992, when the index went to 211! Do you remember 1999, when the index was at 183.38 and, at 182.83, in August of 2001? What would today’s 455.10 do for such an index? By the way, this index does not have a heavy weighting in energy, but rather, is equally weighted so, crude oil is only 5.88% of this index. The life-of-contract-high was seen on Thursday, when the index traded at 455.96 (cash, not futures). Easy money policy does lead to inflation and did lead us to the housing bubble and the mess in which we currently find ourselves. Further, this infusion of greenbacks, destabilizes our currency. This past week, we heard the suggestion that crude oil should no longer be priced in US Dollars…..okay, so Venezuela made that suggestion, but the answer from OPEC was ‘no’…..not yet! Naturally, we are paraphrasing. Think about the consequences of this sort of move, away from the US Dollar. Further, remember, that petro-dollars received by OPEC member, are in dollars, which currently is a depreciating currency.
As to the FOMC’s recent increase in rates, it is apparent that Wall Street’s expectations, helped spur that movement. The question remains: will Chairman Bernanke behave as a teacher, overseeing a group of vigilante students or, will he move forward, without regard for the group and get the lessons done. At this moment in time, Dr Bernanke is the Wall Street whipping boy. Remember also that the FOMC and the Federal Reserve can tinker only with the short-rates. That should tell you that the risk of longer- rates will be assessed by those dealing in the paper, beyond the FOMC’s tinkering hand. In other words, if the Street needs to pay higher interest rates to sell their obligations, they will do. These rates will be based on interest rate risks and, the quality of the loans.
FROM THE PITS, with love, comes this erratic report: during the early part of the week we noticed a marked step-up in risk taking, as hedge funds sold “naked out of the money puts”, in heavy quantities. This is a behavior that indicates that the seller views the risk to the downside, to be minimal. By Thursday, we noticed the sellers returned to buy back those obligations “at the market,” a behavior of fear and angst; oh no, the market might go down! On Friday a rethink of that, led to an opening bout of selling, taking that risk on again, and then, buying the risk back, when the market declined, only to sell it out again, by the close. This is NUTS!!!!!! The market makers were on a feeding frenzy! Naturally, the media covered this day as a noneventful day…… unless you were there, to see the VIX blow out to the upside and then to contract, by the end of the day!
Monday: Fed Governor Mishkin speaks, and the Muni Bond case is on the docket at the Supreme Court; this could affect the tax paid on out-of-state bonds, making all muni bonds state-tax, free……nice!
Tuesday: Fed Chairman Bernanke speaks.
Wednesday: 3rd quarter productivity is released at 08:30, September, wholesale inventories are released at 10:00, and September consumer credit is announced at 03:00.
Thursday: Fed Chairman Bernanke speaks, the European Central Bank releases its interest rate decision, and the Bank of England releases its interest rate decision.
Friday: October import prices and international trade numbers are released at 08:30; at 10:00, November Michigan Sentiment is released and the bond market closes, one hour early, in advance of the Veteran’s Day Holiday.
The question is “how low can it go” for the US Dollar index. The brief rally seen, after the rate-cut vanished into thin air, in the Friday session. The rally was extremely feeble; unable to hold even the slightest gain, without a speedy retreat. “Oversold” is an understatement of the condition of the US Dollar index, but this condition, can it continue? Not a single indicator that we look at is bending upward! We continue to have sell-signals at extremely oversold levels yet, sell-signals, nonetheless. We have a 7 count and note that we could be within a day or two of a rally. The question is? What kind of rally, and for how long, will said rally, last? The best we can guess would be that we are at levels that would sustain a three-day rally, returning us to about 77.10. The 5-period exponential moving average is at 76.568. The top of the Bollinger band is at 78.906 and the lower edge is seen at 76.162. The first of the steep downtrend lines is at 77.04, for the Monday session, the less steep line is at 77.453, for Monday. The weekly chart shows that if the US Dollar index can close above 77.05, we just might get a rally out of this mess. We do have a 9-count on the weekly chart. The indicators on the weekly chart continue to point, lower. The monthly chart isn’t as awful as the rest of the time-frames and has one indicator, our own, issuing a buy-signal. Only the stochastic indicator continues to point lower; the other remaining indicators are going sideways. There could be hope, after all.
The Euro keeps on trucking higher, printing another high in the Friday session. All the indicators that we follow are positive, and all, are overbought! Yes, we do have signs of exhaustion and a remarkable, 19-count. Are we overbought? You bet we are! Can we sustain these levels? We don’t think so, but we will not short, this rally. The 5-period exponential moving average is at 144.732. The top of the Bollinger band is at 145.405 and the lower edge is seen at 140.467. For Americans traveling in Euro-land, take meal replacement bars with you, because you aren’t going to be able to afford to eat! As for travelers to our shores, come on over and spend your bucks here; everything is really cheap, in terms of the Euro, just in time for Christmas shopping sprees. The weekly chart has a remarkable 14-count and we see a sell-setup at 143.80. Even the monthly chart is overbought! However, we do have a sell-signal on this chart, issued by our own indicator, as well as the stochastic indicator.
A new high for the Canadian dollar and with it comes a scary 15-count! Three of the four indicators that we watch, continue to point higher, albeit at grossly overbought levels. The Thomas DeMark Expert indicator continues to issue a sell-signal. We do have signs of exhaustion on this chart. The 5-period exponential moving average is at 105.62. The top of the Bollinger band is at 106.32 and the bottom edge is seen at 100.51; obviously, we are above the upper Bollinger band and, will have trouble, staying there. We also could be watching an evening star unfold; however, it is too early to make that call, at this time. But, should the market gap lower, in the Monday session, and fail to trade above 106.78, we would be inclined to be short for a trade. The weekly chart shows a huge green candle, with a 10-count and signs of exhaustion. Here, we do have mixed reading from the indicators that we favor. The stochastic indicator and the Thomas DeMark Expert indicator are both issuing a sell-signal. The RSI and our own indicator are issuing a continued buy-signal, although the RSI is grossly overbought. The monthly chart shows signs of exhaustion and of loss of speed, to the upside. The stochastic indicator and the RSI are both overbought, but are issuing a continued buy-signal. Both the Thomas DeMark Expert indicator and our own indicator are issuing a sell-signal.
The US Dollar Pound chart is making a life-of-contract high, and has a 14-count. The stochastic indicator, the RSI and the Thomas DeMark Expert indicator have stopped trending, and are all going sideways; only our own indicator is issuing a sell-signal. The 5-period exponential moving average is at 207.318. The top of the Bollinger band is at 208.148 and the lower edge is seen at 201.126. The weekly chart shows the huge rally seen last week, leaving a huge green candle, with signs of exhaustion. Only the Thomas DeMark Expert indicator is issuing a sell-signal; all the rest are grossly overbought, but continue to issue a buy-signal. Remember, this week on Thursday, the Bank of England will make its interest rate announcement, along with a statement. Perhaps, the trade is: the, buy the rumor and, selling the fact! The monthly chart is also overbought and also, is exhausted. This time- frame offers sell-signals from our own indicator, the stochastic indicator and the RSI.
Okay: here is the deal, should the S&P 500 close above 1558. 50, without removing 1492.60 on a retreat, we will get a buy-signal, that would indicate that the market could test; and possible new marginal highs could be printed. We do not believe this will happen, but as a chart reader, we have to tell of the possibilities and conditions, of that call. On the other hand, should we remove the 1492.60 level without a rally above 1558.50, we will get a serious sell-signal, projecting a retreat to the 1480 upper edge of a gap to 1474.30, where some support will be seen; then, another plunge to 1435, which would open the door to 1399.50 and then, 1375.00. As to risk reward, we favor the downside, but will throw in the towel if the upper level is removed first. Friday’s session left an exhausted candle on the chart, that of a long-tailed doji. Strangely, not one of the indicators that we follow is oversold or, even close to oversold. Although both our own indicator and the stochastic indicator are bending to the upside, neither is issuing a buy-signal. The Thomas DeMark Expert indicator is issuing a solid sell-signal and the RSI? Well; it simply is going sideways, near neutral levels. The 5-period exponential moving average is at 1534.26. The top of the Bollinger band is at 1586.22 and the lower edge is seen at 1500.22. The weekly chart confirms the finding of the daily chart, with the addition of an uptrend line at 1505.46 for this coming Friday, a level we dare not stay below. The indicators all are issuing a sell-signal. The monthly chart is consolidating, however the indicators in this time-frame are all issuing, a sell-signal.
The NASDAQ 100 chart looks better than that of the financially-burdened S&P 500 chart. This index made a high in the Thursday session and closed up on the day, in the Friday session. Both our own indicator and the stochastic indicator are bending to the upside, but continue to issue a sell-signal. The RSI is flat, near overbought levels, and the Thomas DeMark Expert indicator is issuing a sell-signal, from overbought levels. The chart looks as though we are forming a rounding top, and continues to look okay. The 5-period exponential moving average is at 2224.95. The top of the Bollinger band is at 2242.90 and the lower edge is seen at 2152.94. The weekly chart is exhausted. We continue to have a sell-signal from all the indicators that we follow. The chart continues to look positive. The monthly chart has a 12-count and is overbought. All the indicators, uniformly are issuing, a sell-signal. Remember, this index does not have financial stocks to worry about and is performing far better than is the S&P 500 chart.
The Russell 2000 came within inches of the October 22nd low, but it did reverse course and traded higher, in the Friday session. The indicators are bending to the upside and it looks as though, with the benefit of a rally in the Monday session, could issue a buy-signal, by the Tuesday session. The downtrend line is at 827.21 for the Monday session. The 5-period exponential moving average is at 814.96. The top of the Bollinger band is at 858.23 and the lower edge is seen at 793.91. The weekly chart shows that the Russell 2000 held the uptrend line last week. This coming week’s uptrend line is at 796.60. The downtrend line is at 826.56 for this coming week. A move above or below these lines, on a closing basis, will indicate to us the resolution of this pennant. The indicators, on the weekly chart, uniformly, are issuing a sell-signal. The monthly chart indicates that three of the four indicators followed herein are issuing a sell-signal, while the Thomas DeMark Expert indicator is issuing a buy-signal.
Today we must use the January future’s contract for analysis, because our cash chart is totally incorrect. The future’s contract actually made a new life-of-contract high in the Friday session, when it printed 456.00. All of the indicators that we follow are overbought, but the stochastic indicator, our indicator and the RSI are all pointing higher, only the Thomas DeMark Expert indicator is issuing a sell-signal, from overbought levels. The 5-period exponential moving average is at 453.10. The top of the Bollinger band is at 457.83 and the lower edge is seen at 440.41. The uptrend line on the daily chart is at 451.09 for the Monday session. The weekly chart shows that the indicators are in the same positions as in the daily chart; three overbought and issuing a buy-signal, and the Thomas DeMark Expert indicator issuing a sell-signal. The monthly chart shows an ominous 14-count. All the indicators are overbought and all, are issuing a sell-signal.
March sugar rallied in the Friday session. It seems that there is a disconnect between sugar and crude oil. We remember when one commodity boosted the other but today, that is not the case. The good news about the Friday session is that we did not remove Thursday’s low and, we did close up, on the day. The stochastic indicator and the Thomas DeMark Expert indicator continue to issue a sell-signal. The 5-period exponential moving average is at 9.99. The top of the Bollinger band is at 10.32 and the lower edge is seen at 9.71. We have a long-term uptrend line at 9.78 and a shorter line at 9.84. The downtrend lines are at 9.94 and at a better line, at 10.06. We will see a big move, one way or the other; we are guessing that the move will be to the upside, unless the uptrend line is broken. The weekly chart tells us that we need to close above 10.85, to confirm an uptrend, and a rally to the 11.50 area. The indicators on the weekly chart are uniformly issuing a sell-signal. The uptrend line on the monthly chart is at 9.92. This time-frame is a more positive view.
December cocoa continued its rally this past week and made the week’s high of 20.02, in the Thursday session. Friday’s session was an inside day and left a red candle on the chart. All the indicators that we follow are issuing a uniform, fresh, sell-signal, from overbought levels. The 5-period exponential moving average is at 19.55. The top of the Bollinger band is at 19.78 and the lower edge is seen at 17.79. We closed the Friday session just below the upper Bollinger band. We have a 14-count on the weekly chart. The market looks, food, but has signs of exhaustion. The indicators are all pointing higher, except for the Thomas DeMark Expert indicator, which is issuing a sell-signal. The downtrend line on the weekly chart is at 19.99 while the uptrend line is at 18.44. The monthly chart shows that the range of the trading is getting narrower. We continue to believe that there will be stiff resistance as the market approaches 20.30 and that we will have a hard time, closing above 20.50. We are terribly overbought on the daily chart and should have trouble, making upside progress. Remember, this commodity is subject to arbitrage, also on a currency basis; New York is traded in US Dollars and London is traded in Pounds Sterling.
Yikes, December coffee took a pounding and probed the 118.00 level before staging a bounce. December coffee has returned to the congestion area and now has liabilities to116 and 115.20, where support should be found. We are grossly oversold, as measured by the stochastic indicator, but this indicator continues to issue a sell-signal. Our own indicator, the Thomas DeMark Expert indicator and the RSI are all issuing a sell-signal. The 5-period exponential moving average is at 121.62. The top of the Bollinger band is at 139.62 and the lower edge is seen at 114.63. The weekly chart is very interesting. Coffee has managed to close above the uptrend line at 118.00. The indicators are all at oversold levels, but all continue to point lower. We need to close above 118.58 on next Friday. The monthly chart shows the contraction of the range and, that we are above the uptrend line, but that is about it.
January Frozen Concentrated Orange Juice managed to close above the downtrend line. The uptrend line for the Monday session is at 139.50 and the downtrend line is at 140.38. We are trapped between 135.00 and 145.00. The stochastic indicator and the RSI are both issuing a sell-signal, the former from an oversold level. Our own indicator is about to issue a sell-signal and the Thomas DeMark Expert indicator continues to issue a buy-signal. By the Tuesday session, we will see a resolution of these mixed signals. Tuesday, we will have a point of inflection at139.80 and we will move violently, either to the up or the downside, challenging the horizontal congestion lines. The 5-period exponential moving average is at 138.75. The top of the Bollinger band is at 155.23 and the lower edge is seen at 131.57. The weekly chart shows that the lows of this past week, damaged the uptrend line. The indicators are fairly mixed for this time-frame and are not helping. We will wait to see the resolution of the Tuesday point of inflection and take our clues from the action of the market, that day.
December cotton is getting very flat and very range-bound. The indicators are all issuing a buy-signal, none from oversold and most are at or slightly above neutral. The 5-period exponential moving average is at 64.15. The top of the Bollinger band is at 65.60 and the lower edge is seen at 62.58. The downtrend line is at 64.68 and the uptrend line is at 63.62. The weekly charts shows that we will have a point of inflection in about two and one half weeks, that is so long as we remain range-bound. The indicators on the weekly chart are all issuing a uniform, sell-signal. The monthly chart shows that we are forming a pennant.
December crude oil closed at 95.93 in the Friday session. On Thursday, we saw December crude oil trade at 96.24 before swooning and closing lower. Friday’s session left a large green candle with a higher low and a lower high. The indicators are overbought, but continue to issue a buy-signal. The 5-period moving average is at 93.57. The top of the Bollinger band is at 97.12 and the lower edge is seen at 77.37. This market is grossly overbought, but as has been said, this is the “perfect storm.” We have a weak US Dollar, turbulence in the markets, and always, a threat of storm or violence to keep the bids alive. Both the weekly and the monthly charts are overbought, but we continue to see buy-signals, even at these levels. We would expect to see a return to 83.87 and 78.28…..eventually. For now, don’t fight the market, but realize that we are somewhat overcooked on the upside and can use some backing and filling, to remove some of the excesses of this market.
December gold is another market showing excess to the upside. The Friday session took this market to 811. We are reminded of the frenzy in the gold market when the Hunt Brothers tried to manipulate the market. This time is different because there is no manipulation, just rally. As with crude oil, we believe this market is grossly overextended to the upside and needs to digest some of its recent gains. We would not be surprised to see 776-780 and then a return to 750, where good support will be found. Yes, the indicators are overbought, but continue to issue a buy-signal. The 5-period moving average is at 796.30. The top of the Bollinger band is at 807.17 and the lower edge is seen at 731.90. The weekly chart confirms the overbought condition. All time frames are overextended to the upside. The question to think about is: where will the missing gold bulls step in to buy the pull-back and will that be enough to continue this rally?