The Ides of March brought us the fear on Friday when the financial problems and bail-out of Bear Stearns was made public. While this firm apply named “Bear” was bailed out– only on a temporary basis its woes will continue. Why? Because as customers continue to withdraw money and securities from the failing firm, this in turn will cause their liquidity becomes worse and worse. We do expect a white knight to appear and buy this firm for some of its very valuable pieces on the cheap. Remember Long Term Capital? The bail out of that hedge fund was supplied by banks and brokerage firms all but one…….Bear Stearns! Basically, Bear’s take on LTC was to let them fail. Bear Stearns refused to and was the only firm that did not help bail out that hedge fund. Now, it is the Bear that is in trouble. Memories on the “Street” are long.
Many hedge fund managers and indeed most of the portfolio managers and reporters in the media don’t remember a real “bear market.” These guys and gals aren’t aware that markets can go down for extended periods of time. The media is looking for the bottom– analysts are decrying that the bottom is at hand and we say, stay vigilant! Remember too, that bear markets have very volatile rallies that look alike, and lead investors to believe that the bottom is in. Be scared, and don’t believe everything you hear. Now is the time to find companies that will do well in a slowing economy. Think about what you would need and what you would cut from your budget. Would you buy new attire or eat? Would you pay your real-estate taxes or go on vacation? Get the idea? We always defer to toilet paper and booze in times of stress, which are items that never seem to fail even in recessions.
Talking about real-estate taxes, we just got our real-estate tax bill, up 20% from last year. It seems that along with the home’s value deceasing, we have state and municipalities increasing their costs–Now, we have increasing taxes, cost of living increases, and rising fuel costs. With values of real estate decreasing, we now further insulted by the state and local tax increases which could set that family just teetering on the edge right over the edge into mortgage meltdown and foreclosure.
The economy is slowing down and this slow down according to some Fed officials, should cause inflation to recede. In a pure world we would agree that this would be possible. This is not a pure world. Because we will have less desire to pay up for our needs and wants does not stop others in the globe from buying their needs and desires. Let us remind you that prices are determined by supply and demand. Certainly costs such as transport and currency play into this. Should the globe go into a recession, a slow down in inflation would be natural. However, our slow down in the USA does not translate to the globe.
OPEC and others are getting fed up with the depreciating US Dollar. What happens to Uncle Sam if we have a buyers strike at the auctions? As the US Dollar depreciates in value its status as reserve currency is called into question. OPEC has openly shown concern about the depreciating US Dollar. Yes, crude oil and many commodities are priced in US Dollars. As to OPEC these petro-dollars are keeping the price of crude at these levels. We wonder how long our trading partners will continue to support our debt. Remember, that if you are buying crude in Euros, you aren’t paying more for the product. If you are paying for crude oil in dollars, you are paying more. That goes for all the commodities that are traded in US Dollars. As the dollar weakens, the commodities appreciate and cause raw material inflation here however; if you have an appreciating currency, you do not have inflation. Thus we can have inflation why other might not. Our question again is would you want to own US Dollars or would you convert those US Dollars into hard assets, like companies or gold? We think that the asset play is where those dollars are going to go. Again with an unstable currency–its status as a reserve currency is brought into question. Would you like gold or depreciating US Dollars? Will we have a buyers strike at the US auctions in the future? Another problem that an overseas investor might have with our currency is the recent action by the Fed to bail out banks by providing liquidity. Is the US Government going to bail out all failing markets by printing more and more dollars? While we agree that this action regarding Bear Stearns is a positive move we really believe that some firms will have to fail and that bad business decisions will have to cause pain.
Tuesday will be a wild day on Wall Street. Why? Because we have the Producer Price index, the FOMC’s interest rate decision and statement and, quarterly earnings from Goldman Sachs and Lehman Brothers. If you see the VIX fly up to 37.57 you know you might see a mighty turn-a-round in the market for the moment. That is the high in the VIX from January 22, 2007. Yes, we could see a higher VIX as anxiety takes over rather than cool headed judgment. These are scary times but good times to make some good money.
Monday: February industrial production and capacity utilization.
Tuesday: PPI for February is released at 8:30, housing starts and building permits are released at 8:30, Goldman Sachs and Lehman Brothers release quarterly earnings and, the FOMC releases its interest rate decision and statement.
Wednesday: Morgan Stanley posts earnings.
Thursday: Philadelphia Federal Reserve Survey is released at 10:00, and February leading indicators are released at 10:00, and the bond market closes early in advance of the Good Friday Holiday.
The US Dollar index has rolled on to the June expiry. We did say last week regarding the March US Dollar index that: “The US Dollar rallied in the Friday session. We would expect to see the US Dollar trade in a new range of 74.65 to 71.45.” We may be approaching a time when we will see a bounce in the US Dollar index. We have a much oversold 14-count on the daily chart. The stochastic indicator is very oversold and looks as though it could issue a buy-signal by the Tuesday session. Our own indicator is also curling to the upside with a shorter time-frame. The Thomas DeMark Expert indicator is going sideways at neutral. The RSI is pointing lower at oversold levels. The 5-period moving average is at 72.904. The top of the Bollinger band is at 77.076 and the lower edge is seen at 71.735. The downtrend has been too steep to continue at this pace. We need to see the market go sideways or rally to correct this angle. On the Market Profile chart we are in the very unstable single print area of the chart. The point and figure chart is really bearish. The weekly chart reflects the deep plunge that the US Dollar index has taken. The stochastic indicator is issuing a continued sell-signal. Our own indicator is curling to the upside but has not issued a signal and the RSI is pointing lower. The Thomas DeMark Expert indicator is issuing a buy-signal. We would expect to see some adjustments with the FOMC announcement at 2:15 on Tuesday. Once this event is over, we would expect the US Dollar to, perhaps, bounce on the news. There are too many US Dollar bears but we can not argue with their position.
The Euro continued higher in the Friday session printing a 13-count. The stochastic indicator, our own indicator and the RSI are all grossly overbought but continue to point higher. The Thomas DeMark Expert indicator is going sideways at neutral. The 5-period moving average is at 154.178. The top of the Bollinger band is at 156.612 and the lower edge is seen at 145.024. The weekly chart looks like a pole. The Thomas DeMark Expert indicator and our own indicator are both curling over to the downside but only the DeMark indicator has issued a sell-signal. The stochastic indicator and the RSI are both grossly overbought but are pointing higher. We have some indicator that the market should stall at 156.20. However, should it get thru that number, stand aside and don’t fight it. There is no overhead resistance level, well not until 162 or so, just eyeballing it.
The Canadian Dollar continues to coil on the chart, although it had a very robust rally in the Friday session. Both the stochastic indicator and the Thomas DeMark Expert indicator are issuing a sell-signal. The RSI and our own indicator are really going sideways with a bullish tilt. The 5-period moving average is at 100.75. The top of the Bollinger band is at 102.88 and the lower edge is seen at 97.88. The Market Profile chart indicates that we closed right in the comfort zone. We did close above the Ichimuko clouds, which offer a continued bullish view. The weekly chart is really coiling and will break to one side or the other. The downtrend line on the weekly chart is at 101.21 and the uptrend line is at 100.35. As you know, these are basis a Friday close. The stochastic indicator, our own indicator and the RSI all continue to issue a buy-signal. The Thomas DeMark Expert indicator is issuing a sell-signal.
The British Pound Sterling broke above the Ichimuko clouds in the Friday session. All the indicators that we follow herein are issuing a solid sell-signal. We have signs of exhaustion. If we review the chart of all sessions we see a bearish engulfing candle. This is not the case when reviewing the “pit only” session. The 5-period moving average is at 200.21. The top of the Bollinger band is at 202.24 and the lower edge is seen at 192.44. The weekly chart has a long legged candle with a very small body. It really looks like a doji only that the body is a little too big. All the indicators for the weekly time-frame are issuing a buy-signal, however; our own indicator is curling over and really isn’t that positive. Looking at the point and figure chart we note that there will be food resistance at 202.40.
Here ye Here ye the March contract for the S&P 500 expires on Thursday not Friday of this week!!!!! The roll is over but we will have stragglers. We are really surprised to see that the indicators on the daily chart of the S&P 500 are not oversold. We did have an increase in the range of trading in the Friday session, expanding the upside and expanding the downside. The low of the Monday session of 1272.80 held for as the low for the week. Friday’s low was 1275.80. All the indicators that we follow herein are pointing to lower levels; all continue to issue a sell-signal with room to the downside. The 5-period moving average is at 130.384. The top of the Bollinger band is at 139.483 and the lower edge is seen at 127.661. We have a doji candle on the weekly chart. This generally tells of a time of transition and possible change of direction. The RSI is actually bending to the upside on the weekly chart. Our own indicator and the stochastic indicator are curling to the upside but no buy-signal has been issued. The Thomas DeMark Expert indicator continues to issue a sell-signal at oversold levels. The point and figure chart shows us that we will have trouble at 1306, 1324, and 1336. On the downside 1286 needs to hold or 1280 and 1276 will follow. Market Profile warns that under 1276.80 we become increasingly unstable. The monthly chart looks as though we will take out the January lows.
The NASDAQ 100 printed a new low for 2008 in the Monday session when it traded at 1674.00. We saw an increase in the range in the Friday session, expanding both the up and the downside from the previous day. The stochastic indicator, our own indicator and the RSI are all issuing a continued sell-signal. The Thomas DeMark Expert indicator is going sideways. None of the indicators that we follow are oversold….none! We noticed that in the Friday session the market poked above the downtrend line. The downtrend line for the Monday session is at 1771.07. The 5-period moving average is at 1729.95. The top of the Bollinger band is at 1828.60 and the lower edge is seen at 1688.87. Naturally, we are below the Ichimuko clouds. The Market Profile chart indicates that below 1683.60 we will be in a very unstable area. Here is some good news, we are oversold on the weekly chart and, the stochastic indicator the RSI and our own indicator are all issuing a buy-signal. The Thomas DeMark Expert indicator is issuing a continued sell-signal. We have a 9-count on the bottom and are oversold enough to stage a rather vigorous rally.
We have a mechanical buy-signal on the Russell 2000. Before you run out the door and start buying the small cap index let us warn you that the stochastic indicator, our own indicator and the RSI are all issuing a sell-signal. The Thomas DeMark Expert indicator is issuing nothing and is going sideways near overbought levels. The point and figure chart tells us that if we break 660, we could go to 654, a good level of support, a level that has been tested three times and held. The 5-period moving average is at 666.12. The top of the Bollinger band is at 729.17 and the lower edge is seen at 646.79. We also note that 690.30 on the upside should be good resistance. The indicators on the weekly chart are not clear, mostly flattish. We do have a long legged doji-like candle on the weekly chart. Market Profile charts warn that instability arises below 648.00. On the upside should the market rally beyond 729, it will quickly move higher taking it to761.40 or so. We have a 9-count on the monthly chart. The indicators are oversold on the monthly chart but no there are no buy-signals.
The Continuous Commodity Index fell in the Friday session as investments in the various commodities were sold to meet margin calls in the equity side of the market. This market has been on an upside tear for most of 2008. It is only logical that would feel the pangs of profit-takers leaning on a market that has enjoyed stellar profits. Looking at the daily chart, we could be building an “M” pattern. Here are the rules: we can not make a new high or, the “M” is out, and we must close below 547.89. Should we rally and close above the high of 577.64, there is very little in the way of resistance above that level and, the market will seek and find a new high. The 5-period moving average is at 564.92. The top of the Bollinger band is at 583.77 and the lower edge is seen at 532.13. The stochastic indicator, our own indicator and the RSI are all issuing a sell-signal. The Thomas DeMark Expert indicator is issuing a continued buy-signal. The weekly chart is and remains in overbought territory. The indicators are mixed with the stochastic indicator curling to the upside, our own indicator curling down and the RSI overbought and issuing a continued buy-signal. The Market Profile chart warns us that should we retreat below 557.20 we could move quickly to the 517.40 area. The point and figure chart says that if we can get above say, 565-566 we could be set up to rally towards the highs. The indicators on the monthly chart are all issuing a sell-signal.
May sugar retreated in the Friday session but remained above the uptrend line. The stochastic indicator, our own indicator and the RSI are all issuing a sell-signal. The Thomas DeMark Expert indicator is issuing a buy-signal. The 5-period moving average is at 13.30. The top of the Bollinger band is at 15.16 and the lower edge is seen at 12.89. The point and figure chart warns that we must remain above 13.26 or risk a retreat to 13.17, 13.11 and 13.02. The candle chart shows that we are making higher highs and higher lows. We are above the Ichimuko clouds. Unfortunately, the weekly chart looks negative. All the indicators that we follow are issuing a continued sell-signal. The indicators on the monthly chart are also negative. Proceed with caution.
May cocoa left a doji candle in the Friday session. The stochastic indicator, our own indicator and the RSI are all issuing a fresh sell-signal. The Thomas DeMark Expert indicator is issuing a continued buy-signal at overbought levels. We have a very scary 17-count. The 5-period moving average is at 28.18. The top of the Bollinger band is at 29.60 and the lower edge is seen at 24.36. We are in uncharted territory on the upside. Above 29.70 there is little in the way of resistance. We did have a higher high in January of 1980 when cocoa traded at 33.52. The weekly chart is exhausted however the stochastic indicator, our own indicator and the RSI are all issuing a buy-signal. The weekly chart and the monthly chart looks like a pole.
We have a mechanical sell-signal for May coffee. The market opened higher in the Friday session and plunged down 9.35 on the day! The stochastic indicator, our own indicator and the RSI are all issuing a sell-signal. The Thomas DeMark Expert indicator is issuing a buy-signal. The 5-period moving average is at 152.57. The top of the Bollinger band is at 170.78 and the lower edge is seen at 146.93. When reviewing the Market Profile chart it seems likely that we will return to the 138 area if we don’t hold at these levels. All the indicators that we follow on the weekly chart are issuing a uniform continued sell-signal for May coffee. The rally that was seen in recent weeks took coffee beyond its reasonable range and is just now adjusting downward towards reality. May coffee is and remains above the uptrend line on the weekly chart.
This is from last week’s analysis for Frozen Concentrated Orange Juice: “The weekly chart tells us that we might probe the open gap below the market. That gap is from 117.75 to 121.30. The indicators for the weekly chart are all issuing a continued sell-signal.” Thursday’s sell-off was a nasty affair continued into the Friday session. We have filled the gap below the market and now can look forward to 115.50 low last seen on September 5, 2007. The stochastic indicator, our own indicator and the RSI are all oversold and continue to point lower. The Thomas DeMark Expert indicator is issuing a buy-signal. The 5-period moving average is at 122.39. The top of the Bollinger band is at 134.08 and the lower edge is seen at 118.87. We are below the lower edge of the Bollinger band and can not stay there very long. We do expect to see some upside action or sideways action to correct for this extension to the downside. The indicators on the weekly chart are also oversold and continue to point lower. Let’s see if the September low holds.
Crazy May cotton is forming a wedge or pennant or coil. This market will break that formation but we do have a few days before that break will occur. The stochastic indicator, our own indicator and the RSI all continue to issue a sell-signal. The Thomas DeMark Expert indicator is issuing a buy-signal. The 5-period moving average is at 80.54. The top of the Bollinger band is at 89.96 and the lower edge is seen at 68.46. This market is erratic and should be avoided if possible. The weekly chart’s indicators are uniformly issuing a sell-signal.
Crude oil has a doji-candle on the chart. This is a transition candle that could lead to a retreat in the market. We are overbought as measured by the indicators. All the indicators that we follow herein are issuing a sell-signal. We remain far above the Ichimuko clouds, which is a positive. The chart is neatly rallying staying above the uptrend line. The Friday session did not expand the upside; Friday was the first day in seven that no new high was seen. The 5-period moving average is at 109.422. The top of the Bollinger band is at 111.7804 and the lower edge is seen at 94.3886. The crude oil market has been, for the most part, staying above the 5-period moving average so a break of that trend might usher in a retreat. The indicators on the weekly chart continue to issue a buy-signal. We closed the weekly session on Friday above the upper edge of the Bollinger band (on the weekly chart) and the market will have trouble remaining at that level without either a retreat or expansion of volatility. The monthly chart is also positive and looks much like the weekly chart regarding the Bollinger bands. Keep an eye on the US Dollar while watching crude, yes, they are linked.
April gold pierced the $1000 mark twice this past week. The indicators that we follow indicate that there is more room to the upside. The 5-period moving average is at 98.432. The top of the Bollinger band is at 1010.854 and the lower edge is seen at 914.356. As we move above $1000 we can expect some buy-stops to become elected, pushing the market ever higher. When reviewing the point and figure chart we see some support at 992-990. On a dip, 972 should offer good support with further support at 960 or so. The weekly chart is positive. All the indicators that we follow for that time-frame are issuing a buy-signal. The monthly chart shows that we are above the upper Bollinger band. We continue to like gold but believe that some healthy retreat will be seen. The retreat may not be very deep and we will reassess the market as this unfolds.