Headline in the Wall Street Journal for Saturday September 4, 2010; “The White House Tuesday will launch its most ambitious effort at reducing mortgage balances for home-owners that owe more than their homes are worth.” Golly gee, a White House award for speculation in the housing market, or being exceedingly foolish. What lessons are we teaching our children with actions like this? What about the poor slobs who have a mortgage that is reasonable compared to what the house is worth? What about Jane and John Doe who have been struggling to pay their bills, who are so tapped at the end of the month, that they can’t even afford to buy clothes or shoes because they are dutifully paying their bills? Why reward the citizens that were irresponsible at the expense of the citizens that acted responsibly. It is not fair nor will it help the foreclosure rate. We are simply rewarding people for bad behavior. Don’t forget, it is tax payer money that funds these programs. The government’s message to the people is telling us to buy a home for more than it is worth, mortgage that home and then fail to pay? Solution would be to give a tax credit to those who have paid their mortgages and their bills. Give the responsible a break and take the cost of that program out of the salaries and benefits of the elected officials in Washington and in the various state governments. While on that subject, isn’t it time that we demand that if our elected officials are to rule on our health care and retirement, that they too must enjoy the same programs that they are forcing down the public’s collective throats? Congress has government health insurance and pension benefits, why not ask them to enjoy the benefits of Social Security and Medicare? Perhaps then, the system could get a facelift and a fix up.
Another headline in the Sunday New York Times: “New Program for Buyers, With No Money Down,” followed by “Florida’s High-speed Answer to a Foreclosure Mess.” We must have missed that class in school. So, here is our take; no money down and if you can’t make the payments and go into foreclosure, you can get a quick resolution in foreclosure court in Florida. Okay so the “Zero Down” buyers are not in Florida but rather Wisconsin, Minnesota, Idaho and Massachusetts. Fannie Mae rides again to the rescue.
September is the worst month of the year. It seems as though everybody knows that and the fence sitting is becoming very crowded. Please note, that we haven’t gain a remarkable amount of bears nor have we gain bulls, but the fence is about to collapse with the weight of the crowd. We continue to believe that should the Bush tax cuts enjoy a renewal that this will excite the markets to the upside as yield seeking money looks for homes in dividend paying stocks. We will see a herd of people jumping off the fence to the bullish side of the market. At that point, it would not be an awful idea to sit at the ready to sell into the maddening crowd.
We do expect to see some joy return to the market as the November elections draw near and the “Throw the Bums Out” theme becomes a reality. The question we have to seriously ask is; should congress extend the Bush tax credits for another year or so, will that be enough to keep some of the Congressional seat holders in office? Humm, good question. We can see the rally in anticipation of that extension but will that be enough to help those up for election.
Wednesday: The Fed releases the beige book for the 2nd quarter at 10:00 and July consumer credit is released at 3:00.
Thursday: July international trade is released at 8:30. Rosh Hashanah begins a sundown.
Friday: July wholesale inventories are released at 10:00.
The US Dollar index retreated in the Friday session but managed to say above the horizontal line at 81.995. Although the stochastic indicator is oversold, there is no indication that it is about to change direction. Both the RSI and our own indicator have room to the downside and are not oversold. The Thomas DeMark Expert indicator is going sideways at oversold levels. The 5-day moving average is at 82.73. The top of the Bollinger band is at 83.98 and the lower edge is seen at 81.239. Naturally, we are below the Ichimoku clouds for the daily time-frame but remain above the clouds for both the weekly and the monthly time-frames. The weekly time-frame looks week for the US Dollar index. We need to see a close above, first 82.618 and then 83.195 to muster any interest from the shorts. It looks as though the shorts will cover should we break above the higher of the two downtrend lines and certainly if we close above 83.635.
The S&P 500 futures contract has three bottoms at 1037 +/-. We have rallied ourselves back into overbought condition but we know that we can remain here for a few more days. Remember, we are beginning to enter into the roll next week so that we could see some additional volatility as we approach the roll from September to December. After a 4-day rally from the support zone of 1037, the market is now above the Ichimoku clouds on the daily chart and on the weekly chart but below the clouds for the monthly time-frame. The 1037 area has supported the market on three assaults defending and protecting that level. Although this rally could continue for several more days, we believe that it will take a rest before making further progress to the resistance level. Thus should the market rally for another two days, we would be willing to take the other side of the trade and buy some puts for the inevitable retreat. We are now in a trading range of 1124.25 to 1037. A break of either side of this band will lead to some quick reactions by either shorts or longs in the market causing chaos. The stochastic indicator, our own indicator and the RSI continue to point higher but with less velocity to the upside. The Thomas DeMark expert indicator is going flat at oversold levels. The 5-day moving average is at 1073.60. The top of the Bollinger band is at 1120.76 and the lower edge is seen at 1031.86. When you look at the Market Profile chart, you can see the clearly defined range of this market. The Point and Figure chart tells us that should we close above 1103.5 we could take a run to the upside.
The NASDAQ 100 has had a nice three-day rally and looks as though it has more room to the upside. The stochastic indicator, our own indicator and the Thomas DeMark Expert indicator are all overbought but all continue to point higher. The RSI continues to point higher and is not at overbought levels just yet, but one more push and that indicator will cross into overbought. The 5-day moving average is t 1811.90. The top of the Bollinger band is at 1899.22 and the lower edge is seen at 1743.02. We are above the Ichimoku clouds for the daily and weekly time-frames but are in the clouds for the monthly time-frame. Should this market close above 1918, we will have a clear shot to the upside of 1941, 1981.50 and 2058.75. On the downside, if we break below 1780, we will test 1754, and 1744.
The Russell 2000 has signs of exhaustion as a result of the rally seen in the Friday session. The stochastic indicator, our own indicator and the Thomas DeMark Expert indicator are all overbought and beginning to lose some of their upside thrust. The RSI continues to point higher and will take just a little more effort to get overbought. The 5-day moving average is at 620.22. The top of the Bollinger band is at 650.10 and the lower edge is seen at 584.25. We have crawled above the Ichimoku clouds for the daily time-frame and are comfortably above the clouds for the weekly time-frame. The downtrend line is at 644.00 and the uptrend line is at 600.11. As we progress into the fall, expect to see this index underperform the others as investors seeing yield sell these tax loss non-dividend paying candidates for income yielding securities. This index is the target for tax loss selling and is also the target of the January effect. In other words, losses will be taken as we progress into the last quarter of the year and this is where the money will be reinvested in January after the waiting period is over to negate a wash sale.
Crude oil is in the Ichimoku Clouds for the daily and the weekly time-frames. The market seems to be range-bound. The bottom of the range this week is at70.76 and the top of the range is at 76.13. Naturally a break in either direction will cause a flurry of activity. The lower channel line is at 72.11 and the upper channel line is at 76.55. The 5-day moving average is at 74.03. The top of the Bollinger band is at 79.90 and the lower edge is seen at 70.20. All of this data verifies our already stated position that crude oil is stuck in a range. We do see some divergences in the indicators and that makes us look more carefully at the retreats, which have yielded higher levels on the indicators. We do see a point of inflection in two weeks, should we continue in this range-bound boring trade. The point of inflection will be at 74.24. The rule for a point of inflection is to go with the move and don’t fight it.
Gold gave up some ground in the Friday trading session. The bottom of the channel line is at 1238.33 and the upper edge is at 1266.60. We are comfortably above the Ichimoku clouds for the daily, weekly and monthly time-frames. Gold looks as though it will rally to the old highs. Once 1264.80 is removed there is no upside resistance for gold. We continue to like gold on pull-backs.