Here is a bit of good news–this past week the S&P 500 made a slightly higher low and a slightly higher high on the weekly chart. Thus, the candles look similar except for the fact that one is green while the other candle is red. This tells you that the previous week we opened the week on the lows and closed on the highs while in this past week, we opened the week on the highs and closed near the lows. The important issue is that we must look beyond the daily gyrations of the market to view the effect of a move. We do not believe that we are going to resume the bull market anytime soon however; we are believers of wild and wooly bear market rallies that trap waiting bulls into investing in the market and bottom fishing. We have heard much chatter in the media all looking for that bottom of the market. Unfortunately, most of the analysts trotted in front of the camera are of a bullish bent. Don’t these guys and gals know that you can make money in a bear market? Why not show the viewing public how it is done.
Odds makers are betting on another 50 basis point cut at or before the next FOMC meeting. What the pundits fail to understand, is that any interest rate cuts made today will take at least six months to filter into the economy and stimulate growth. True, the banks can refinance mortgages offering their customers lower rates on both new purchases and refinancings, but the question is will they? If you could borrow money cheaply, and loan that money out at a profit certainly, you would do it. Would you take a risk on a loan, given the recent developments seen in the markets within the past year? No, why take a risk when you can make plenty on safe loans. Therefore, those purchasers of homes will have to plunk down a decent down payment and will have to prove that they have good credit for which they will be rewarded with a new low interest-rate loan. The people in danger of defaulting on their mortgages probably will not qualify for those low-interest rate loans. Thus the defaults will continue for a time. Further, many of these loans were based on inflated values, inflated even at the time when they were made, and now, because the values have slipped, fall into further trouble. The reduction of interest rates currently in the market will not help these loans nor will the pittance awarded as a stimulus package help the growing problem.
A new problem appearing on the horizon is that the US Dollar is regaining some of its lost strength. Why is this a problem? Because, as the US Dollar gains strength, our exports, become more expensive and thus the positive effect that a cheap dollar and growing exports has had to the GDP will begin to evaporate. This addition to the puzzle could, if it continues, throw us into a negative GDP and would add fuel to the recession fires.
This week is an option’s expiration week and as such should add to the volatility seen in recent weeks. Not only do we have these options to contend with, but we have lots of Fed speak and Chairman Bernanke’s testimony to interpret. Chairman Bernanke is gifted with clarity of speech, he says what he means and there is no room for interpretation, while Chairman Greenspan was though to have spoken in tongues, always an item of interpretation and discussion, fabulous for news writers who could pontificate on the meanings hidden in the words.
Monday: St. Louis Fed President Poole speaks.
Tuesday: San Francisco Fed President Yellen speaks.
Wednesday: January retail sales are reported at 8:30, and December business inventories are released at 10:00.
Thursday: Fed Chairman Bernanke testifies before the Senate Banking Committee and Chicago Fed President Evans speaks.
Friday: January import prices are released at 8:30, January industrial production and capacity utilization are released at 9:15, February university of Michigan sentiment is released at 10:00, Fed Governor Mishkin speaks and the bond market closes early in advance of the Presidents Day holiday.
We had an inside day in the Friday session of the US Dollar index. The rally seen this past week, has been aggressive leaving the shorts to scramble covering their losing positions. If we simply revert to the uptrend line for Monday, we will retreat to the 76.091 level, and by Friday, that line will be at 76.664. Simply put, if we stand still until Friday, we will have reverted to the uptrend line. We do not expect that scenario and look for a retreat in the next few sessions. All the indicators that we follow herein are issuing a fresh uniform sell-signal from overbought levels. The 5-period moving average is at 76.399. The top of the Bollinger band is at 78.082 and the lower edge is seen at 75.498. The weekly chart paints a different picture than does the daily chart. In this time-frame, all the indicators are pointing higher. Further, if the US Dollar index can close above 77.85, we will scare the remaining shorts out of their trade and could force a rally to the 79.80 area. The monthly chart agrees with the buy-signals seen in the weekly chart. However, when viewing this time-frame, the US Dollar continues in the downtrend and needs to close above 78.645 to break the downtrend line. Watch the 50 day moving average of 76.360 for support.
We have a 13 count on the Euro chart which could lead to a rally within a day or so. The indicators that we follow are verifying that finding. All of the indicators are curling to the upside. Both the RSI and the Thomas DeMark Expert indicators have issuing a buy-signal and, it looks as though the stochastic indicator and our own indicator will also issue a buy-signal within a day or so. Friday’s session left a doji candle on the chart. The 5-period moving average is at 145.988. The top of the Bollinger band is at 149.444 and the lower edge is seen at 144.576. The weekly chart is ominous, showing that this past Friday’s close was below the uptrend line. All the indicators that we follow are issuing a sell-signal for the weekly time-frame. Frankly, the chart looks as though the Euro is staying in a trading range from 143.270 to 149.30. Until and unless we break either of these number on a closing basis (weekly charts end on Friday’s), we will continue to believe that the Euro will be stuck in this range. As an aside, should the Euro try to run to the upside, there will be buy-stops above the current highs as traders look again to the 150.00 level. We do not believe that this is the direction that the Euro will take, however; we must remind you of that old target. We believe that Euro-land will be and currently is in a slowdown. We believe that the Euro will falter as it is discovered that the economy is under pressure. The monthly chart verifies the findings of the weekly chart.
The British Pound Sterling gapped lower in the Thursday session. We must add that gaps in this chart are not unusual. The Friday session was slightly more positive than the Thursday session, but did leave a small red candle on the chart. The retreat seen in the British Pound has been too steep to continue at this pace. We need to see this market either go sideways for a while, or to rally back to test the downtrend line. This does not change the direction of the market which is down, but rather relives some of the oversold condition found in the market today. All the indicators that we follow herein are issuing a buy-signal. The 5-period moving average is at 195.21. The top of the Bollinger band is at 199.08 and the lower edge is seen at 193.38. The weekly chart remains bearish. We do have a 9-count, however; the indicators are all uniformly issuing a continued sell-signal, albeit at depressed levels. Our next level of support will be found at 191.92, under that level, the decline will be a lot steeper. The monthly chart confirms the findings of the weekly chart.
The Canadian Dollar has had an interesting week ending the Friday session with a robust rally. The indicators are uniformly issuing a buy-signal on the daily chart. The 5-period moving average is at 99.57. The top of the Bollinger band is at 101.26 and the lower edge is seen at 96.52. The weekly chart is showing the opposite findings. We see a doji-like candle on the chart. The stochastic indicator, our own indicator and the RSI are all curling over to the downside but only the RSI is issuing a sell-signal. All the indicators are at or near the oversold area. The Thomas DeMark Expert indicator is curling upwards from near oversold levels. We need to close above 101.14 to turn this chart back to positive. The monthly chart tells us that we are getting a much tighter trading range and that we are coiling. The indicators are going sideways for this time-frame. On a very short term basis we are positive on this market.
The S&P 500 consolidated in the Friday session leaving a doji-like candle on the chart. All the indicators that we follow herein continue to issue a uniform sell-signal, only the Thomas DeMark Expert indicator is at oversold levels, the rest have plenty of room to the downside. We were encouraged to notice that the Thursday low of 1312.40 was above the low seen on January 28th of 1311.50. We would watch that low as a possible marker indicating an area where the market should defend the bears against a retest of the recent lows of 1260.50 and 1255.30. The 5-period moving average is at 1344.50. The top of the Bollinger band is at 1416.07 and the lower edge is seen at 1300.00. As silly as it may sound, the Bollinger bands are contracting. The weekly chart illustrates that the trading range, for the past two weeks, has been almost identical. The stochastic indicator, our own indicator and the RSI are all issuing a continued sell-signal on the weekly chart. The Thomas DeMark Expert indicator is bending up from oversold levels, however; the slope of the incline is very shallow. The monthly time-frame shows all the indicators pointing lower and nearing oversold levels. We continue to believe that we will test and break the most recent lows. Although it appears that sentiment indicators are bullish, we see nothing but “buy the dip” analysts paraded out by the media. Many of these analysts declare the market “cheap.” We ask that they review the meaning of cheap in the light of an economic slow-down and decreasing earnings.
The NASDAQ 100 enjoyed a rally both in the Thursday and the Friday session. The stochastic indicator and the RSI are both issuing a buy-signal. The Thomas DeMark Expert indicator is issuing a solid sell-signal at oversold levels and our own indicator is going sideways without a signal. The 5-period moving average is at 1780.70. The top of the Bollinger band is at 1938.84 and the lower edge is seen at 1727.80. The weekly chart isn’t that friendly and illustrates that the market made a lower high and a lower low on the week. The indicators are all pointing lower. It is important for the market to stay above 1698, which was the January low. The monthly chart also has a bearish hue to it. All the indicators on the monthly chart are pointing lower.
The Russell 2000 managed a higher high and a higher low in the Friday session. All the indicators that we follow herein continue to issue a sell-signal, with plenty of room to the downside. The 5-period moving average is at 706.08. The top of the Bollinger band is at 729.01 and the lower edge is seen at 671.90. The weekly chart shows a consolidation of the range. The stochastic indicator, the RSI and our own indicator are all issuing a sell-signal. The Thomas DeMark Expert indicator is issuing a buy-signal on the weekly chart. The monthly chart looks ugly and shows that this market will have some support at 674 or so, before it tests the lows of 637.50 which were seen in January. The indicators for this time-frame are all issuing a continued sell-signal. The chart looks as though we could stay here in a range from about 670 to 722 for a while. Until or unless this market can close above 733.80 we will be of the opinion that the low of January will be tested and probably will be violated.
The Continuous Commodity Index cash printed another new high in the Friday session. The new life-of-contract high was 518.47. The stochastic indicator is overbought and continues to issue a buy-signal, our own indicator is issuing a buy-signal, and the RSI is also issuing a buy-signal. The Thomas DeMark Expert indicator is sitting a dead neutral going sideways. We have continued signs of exhaustion in this market. The 5-period moving average is at 509.28. The top of the Bollinger band is at 516.49 and the lower edge is seen at 477.76. We closed above the upper edge of the Bollinger band. This indicates that we will either get more volatile, or decline back below that number. The weekly chart is just as bullish as is the daily chart. Here too, we are above the upper Bollinger band. The indicators are overbought and pointing higher! The monthly chart is overbought as well, with a scary 19-count on that time-frame. The indicators are rolling over to the downside but are not issuing a sell-signal. We remain cautiously bullish on this index. We do expect to see some profits removed and thus some backing and filling.
Wow, May sugar aggressively rallied at 11:45 on Friday into the close of the open-out-cry session at 12:30. At 11:45 it was trading at12.55 by 12:30 it was trading at 13.18. Five minutes later, the high was seen of 13.19. When viewing the Market Profile chart you see the single prints taking the market to the 13.08 and to 13.14, an area of some congestion. It certainly looks as though this market is gunning for the highs of 13.40. All the indicators that we follow herein are issuing a continued buy-signal. The 5-period moving average is at 12.64. The top of the Bollinger band is at 13.21 and the lower edge is seen at 11.59. The uptrend line for the Monday session is at 12.42. The weekly chart has a 9-count and a sell-setup point at 12.23. We have definite signs of exhaustion in this market. The stochastic indicator and the RSI both continue to issue a buy-signal at overbought levels. Our own indicator and the Thomas DeMark Expert indicator are going sideways. We closed above the upper edge of the Bollinger band on the weekly chart so, be careful.
March cocoa enjoyed a rally in the Friday session, but failed to remove the high of the Thursday session. On the other hand, it failed to remove the lows of the Thursday session. All the indicators that we follow herein are issuing a continued buy-signal at overbought levels. The 5-period moving average is at 23.50. The top of the Bollinger band is at 24.07 and the lower edge is seen at 20.75. The Market Profile chart tells us that should we trade below 22.96 we could and likely would see a quick retreat to 22.26. On the upside we are alerted to a trade above 23.80 which would cause a rally to new highs. The weekly chart shows signs of exhaustion. All the indicators that we follow herein are issuing a sell-signal on the weekly chart. The monthly chart is also overbought and warns us of a consolidation or retreat.
March coffee enjoyed a robust rally in the Friday session taking the March contract to the high of 147.40 before profit takers appeared. The stochastic indicator, our own indicator and the RSI are all extremely overbought and not issuing a signal. The Thomas DeMark Expert indicator is issuing a sell-signal. The 5-period moving average is at 143.61. The top of the Bollinger band is at 145.72 and the lower edge is seen at 128.56. We closed above the upper edge of the Bollinger band. We will find it difficult to remain at this level unless the volatility expands. Our sell-set up is at 142.00. The weekly chart shows that all the indicators are overbought, but continue to point higher. After an aggressive move, it is expected that there will be some consolidation or some backing and filling.
Frozen Concentrated Orange Juice declined in the Friday session returning the market to levels not seen since October. All the indicators that we follow herein continue to issue a sell-signal. The 5-period moving average is at 136.28. The top of the Bollinger band is at 142.78 and the lower edge is seen at 132.98. We did close below the lower edge of the Bollinger band, thus we would expect to see a rally up to inside that lower band. Should we break below our Friday low, we could see a retreat to 125.40, 121.15 and to 118.20. The weekly chart continues to look lousy. The indicators that we follow continue to issue a sell-signal albeit at oversold levels. We have a gap on the chart from121.80 to 117.75. Should we step into that gap, expect to see a test of the waters a rally and then finally a closing of that gap.
March cotton has been consolidating for several weeks. The uptrend line is at 68.26. All the indicators that we follow are issuing a continued buy-signal. The 5-period moving average is at 68.60. The top of the Bollinger band is at 72.04 and the lower edge is seen at 66.33. The weekly chart has signs of exhaustion. The stochastic indicator, our own indicator and the RSI are all issuing a continued buy-signal on the weekly chart. We seem to be consolidating and forming a pennant. The Market Profile chart verifies that finding. We find ourselves above the clouds and so long as we remain above the uptrend line, we will give it to the bulls.
Crude oil traded below the clouds for part of this past week and closed in the clouds in the Friday session. We closed above the short-term uptrend line in the Friday session. The 5-period moving average is at 89.09. The top of the Bollinger band is at 93.79 and the lower edge is seen at 86.69. All of our indicators are issuing a buy-signal on the daily chart. The weekly chart looks as though we tested the recent triple bottom of 86.11 and rallied from that level. All the indicators that we follow herein are issuing a buy-signal on the weekly chart. We have lots of overhead supply which will contain the upside moves. The downside shows that if we trade below the 86.11 area we will trade to 84.49, 83.30 and likely trade as low as 78.54. On the upside, we need to see a close above 91.80 to get the bulls moving again.
April gold closed near the highs of the session and has opened the door to a revisit of the recent highs. All the indicators that we follow herein are issuing a fresh buy-signal from neutral levels. The 5-period moving average is at 907.40. The top of the Bollinger band is at 937.66 and the lower edge is seen at 879.17. The weekly chart is overbought but has just issued a fresh buy-signal. We are also overbought on the monthly chart. The market continues to look as though it want to go higher. Remember: “The trend is your friend.”