In one week on Sunday June 17, 2012, Greece will hold elections which could lead to the succession from the common currency or the decision to stay in the European Union. This instability should help those looking for volatility in the global markets. Following that vote, here in the United States our own FOMC holds a two day meeting. As to our own FOMC meeting, we believe that if the FOMC is going to do anything, it will be done at this meeting or the following meeting. It is important for the FOMC to be considered neutral in view of the upcoming presidential elections. Most Fed officials do not want to seem political in their decisions.

Spain’s bank rescue which was announced this past Saturday should take some of the pressure off the market for the Monday session,…. that is until the next monetary blow up occurs. Just takes some rumors to begin a run on banks so be careful what you say! If the market rallies on Monday thank the European finance ministers and Spain for coming to an understanding, but don’t be too comfortable, remember the Greeks vote on Sunday. Wasn’t there a movie called “Never on Sunday?” It was about a Greek prostitute who was available for work on any day but a Sunday. This was filmed in 1960. Sunday the day of rest! Or votes!!! There is also a runoff election in France on June 17, 2012, will this excitement ever end?

The bottom line is that the more unstable the globe appears, the stronger the US currency and bonds are. When risk is on money migrates to our markets and is put to work in bonds. When risk is off, the money flows into stocks that produce income for the investors.

Here in the USA, we can look forward to the ruling on Obamacare. We expect to see something regarding that case from the Supreme Court before they end their session on the week of June 24, 2012. The justices are equally weighted on this court; we have four members from the Democratic Party and five members from the Republican Party. This ruling could also sway the markets which have priced in a win for Obama on this issue. We do not believe that the justices will be swayed by their party affiliations and hopefully will uphold the law of the land and the constitution.

After the November elections are over, the lame duck session will vote on the tax treatment of dividends. Should those dividend perks fail to retain their beneficial tax treatment, the markets could become unsettled. Remember newly elected officials will not be voting on this issue and only the current mob will be able to vote on this issue. There is some talk about keeping the tax favored treatment of dividend, but not allowing those with incomes over 200,000 to enjoy that benefit. The question should be asked what is being looked at as income. Is it stock options, is it a trust, capital gains? That question is more important than the level of earnings. Do you believe that Warren Buffet earns a pay check? If so that would put him over the edge. What if all his earnings are from long-term capital gains? Maximum tax on those gains is 15%. That isn’t going to change so what you are changing isn’t going to affect the multimillionaires that much. There are lots of questions on this and other issues. Millionaires can afford to hire the best minds money can buy to avoid and reduce their taxes. Remember, Buffet pays less tax than his secretary, yet he gets Medicare. You want to do something to help, the system survive? Take Medicare away from millionaires. Clearly they can afford medical insurance and care, why stress the system with their costs. We are sure, that they really won’t care. A senior just getting by with just enough money to live will care if those benefits are reduced.

As to the election, people don’t like change so unless things are really awful the public tends to vote for the incumbent. That said, it is not always the correct choice. A rally in the stock market will go a long way to help the incumbent get re-elected. People vote with their pocket books. If they are feeling poor and undervalued, their anger will turn against those who they blame for these circumstance.

Monday: IMF to report on Spain’s banking system.
Tuesday: May import prices are released at 8:30 and Bradley cycle trend change date.
Wednesday: May PPI is released at 8:30, May retail sales are released at 8:30 and April business inventories are released at 10:00.
Thursday: May CPI is released at 8:30.
Friday: May industrial production and capacity utilization is released at 9:15 and June Michigan sentiment is released between 9:45 and 10:00.

Don’t forget, futures have rolled to the September expiry!

The US Dollar index seems to be the beneficiary of instability in the markets. It appears that most opt to the US Dollar and its instruments in times of instability and unrest. Thus the US dollar index has been the default currency to be long in times of stress. The chart looks like it has formed a flag. The stochastic indicator our own indicator and the RSI have all issued a buy-signal from the positive side of neutral. We closed above the 5-day exponential moving average. We are above the Ichimoku Clouds for all time-frames. The 5-day exponential moving average is at 82.524. The top of the Bollinger band is at 83.53 and the edge is at 80.834. The horizontal support line is at81.897 and the initial resistance horizontal line is at 83.15 with a secondary resistance horizontal level at 83.609. If this is in fact a flag formation we can project 86.97 as the target for the next upside move. Actually when you look at the weekly continuation chart, you will see that 89.100 would be a possible target beyond the 86.97 level. What does that mean for the US? As to our exports, that would certainly be problematic and for tourism, not a good thing because the cost of visiting our shores would be much more expensive. For us, the world would become a better value and we would find that our funds will buy us more. Does the US have risk if the PIIGS fail? Certainly, we will feel the pain on our shores but that pain will be far less intense on our shores than in the combat zone.

The S&P 500 enjoyed a rally for four days last week, ending the week near the high of the Friday session. We managed to close above 200 day moving average but not the 50 day moving average. The 5-day exponential moving average is at 1303.80. The top of the Bollinger band is at 1346.39 and the lower edge is seen at 1276.23. We are below the Ichimoku Clouds for the daily time-frame, but above the clouds for both the weekly and the monthly time-frames. All the indicators that we follow herein are pointing higher with plenty of room to run. The Friday session pushed the market above the downtrend line, a good thing if, you are a bull. The next resistance level is1332-1336 the level where the breakdown of this index occurred. We have two ways to get over this level. The easiest way is to simply open high and not have to deal with the sellers or to plow through the seller and work our way above this level. We believe that this market can trade higher. With interest rates, basically negative, it doesn’t take much inspiration to invest your money in tax favored dividends and this part of the reason the retreats haven’t been deeper and more painful. We see on the Market Profile chart that should the market trade below 1253.20, that the door will be open to much lower levels. The Point and Figure chart shows that we have resistance at 1350.

The NASDAQ 100 closed the Friday session right on the downtrend line. The 5-day exponential moving average is 2521.30. The top of the Bollinger band is at 2599.36 and the lower edge is seen at 2459.43. We are below the Ichimoku Clouds for the daily time-frame, but above the clouds for both the weekly and the monthly time-frames. All the indicators that we follow herein continue to issue a buy-signal and continue to have room to the upside. The signals on the weekly chart confirm that as well. The NASDAQ 100 is currently above the 200 day moving average but remains well below the 50 day moving average. This market looks as though it is trying to plow ahead. In the face of dreadful news, the market has held its own and even made progress to the upside. That tells you that there is strength in this market….well so far there is. The Market Profile chart shows lots of overhead supply and very thin support below about 2408.26. That means that should the market trade below that level, it likely will drop further to 2371. On the other hand the upside resistance areas are 2602, 2661 and 2704.

The Russell 2000 rallied above the downtrend line in the Friday session closing near the highs for the day. We remain below both the 50 and the 200 day moving averages. The 5-day exponential moving average is at 755.28. The top of the Bollinger band is at 784.70 and the lower edge is seen at 736.19. We are below the Ichimoku Clouds for the daily time-frame, but remain above the clouds for the weekly time-frame. All the indicators that we follow continue to issue a buy-signal for both the daily and the weekly time-frames. The Market Profile chart reveals to us some levels of concern. We need to be aware that below 720.50, there isn’t much support. Above 770 we will likely rally to 783 and then 792. This market wants to rally but it does not have the dividend producing issues that are seen in the other indices that we review. Thus the growth story is not catching a bid because the population is indicating that they are not sure of the recovery here in the USA.

If you feel the need to see a really ugly chart, please take a look at crude oil. We did successfully test a higher low at 82. The previous low was 81.21. The 5-day exponential moving average is at 84.33. The top of the Bollinger band is at 96.35 and the lower edge is seen at 81.76. We are below the Ichimoku Clouds for the daily and the weekly time-frames and in the clouds for the monthly time-frame. The daily chart is showing a slight divergence in the indicators. We have buy-signals for both the daily and the weekly time-frames. The Point and Figure chart also looks lousy with support at 78.12. The Market Profile chart is verifying the findings seen on the Point and Figure chart. The Market Profile chart tells us that above 86.80 we will move back in to the early nineties but below 81.20, the road isn’t quite so clear. This market should find support in the mid-seventies if, it breaks below 81.20. The crude oil market also shows us a bulge in volume between 84 and 100. There will be sellers overhead which will pressure any advance in this market. The other problem is an economic problem, without an expansion the demand for this product will not be enough to support any price advances, unless there is some turmoil in the oil producing areas of the world.

Gold rallied in the Friday session but was unable to return to the previous day’s opening level at 1622.60. The 5-day exponential moving average is at 1607.96. The top of the Bollinger band is at 1629.91 and the lower edge is seen at 1527.49. The RSI is going flat at neutral. The stochastic indicator and our own indicator are curling to the upside but have not issued a buy-signal. We are below the Ichimoku Clouds for the daily and the weekly time-frames. The market looks as though it has lost some of its speculative glimmer. That is actually a good thing because the weak hands are gone. Does that mean that the market is going to regain its upward momentum, the short and long answer to that is no. We do know that this market looks as though it would like to rally but meets sells on all attempts. We believe the most important question to ask is where should we get scared? That level is at 1527.50 or so below that level we should find light support all the way to 1488.50 below that level….well there isn’t much support.

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