Archive for December, 2008

Sunday, December 28th, 2008

 

Banks must be making fortune borrowing money from Uncle Sam at a quarter of a point and lending it out at 5 1/8, the refi rate.  We will take that spread any day, then there are the inflated bank fees that go along with the refis.  How can they not make lots of money?  Recently, we tried to refi the “ole” mortgage only to find out that the rate was well above where it should have been and then we found out that the fees, even with the savings on the monthly costs, would take two and half years to pay off. 

Most players were on vacation last week and will continue their vacation this coming week thus, the volume will be very slow.  We may feel some downside pressure as the last tax sales are taken.   It is possible that the end of these tax sales will encourage the markets to rally as we enter the New Year.  We certainly don’t hold out a lot of hope on that score.  We do feel that so long as we remain above the November low, it is possible that we could regain some confidence in the market bottom.  It is possible that we are in a bottoming process, yet, we are skeptical.  The charts are showing us that we are in a range bound market with little volume, either up or down.  We see a point of inflection for the S&P 500 for the Monday session.  Again, this action seems to be within a trading range and it is likely that we will either rally to the top of that range or decline to the bottom of that range.  The upper edge of the range is at 918.25 and the lower edge of that range is at 813.  Notice that those numbers are neither the highest nor the lowest levels, thus we are in a range.  Should the market remove the Friday high of 871.75 then the break out will be to the upside, on the other hand, should the market remove 861.13, the downside will be the winner.   Remember, the trade will tell you the direction and it is up to you to act.

As we end the year 2008 we say farewell to a year of pain for the bulls and bucks for the bears.  We were on target with our prediction for 2008 here is a quote from that letter, “In the first quarter of 2008, we will continue to feel the pangs of pain from the fall out of the sub-prime mess.  This will cause banks and other lending bodies to, finally, become conservative on their lending practices.  Then, as a first quarter gift, we will begin to see some of the lending excesses, in the form of “Exotic Mortgages,” begin to fail.  While this event will likely only be felt in the wealthy sectors of the economy, it will nonetheless, curtail spending and further pressure home prices.  The FOMC will continue to lower rates, but this will not help loosen the new tight lending practices, just learned.  Many lenders have been stung by the mortgage-bee and, will be less likely to lend that aggressively again.  This will slow down the consumer spending habits.” 

Our forecast for the coming year is that we will remain in a very volatile market with yet another shoe to drop.  Once that is out of the way, we should begin to repair our financial situation.  Communities, cities and yes even states will find their coffers dry and will have to cut services as more and more homes are in foreclosure.  Remember that the tax man isn’t getting paid real estate tax on a foreclosed home either, so that income stream will be removed from cities, towns and villages across the USA.  This will put a strain on the state budgets.  By the end of the year, this should begin to get better thus, we believe that the year will end a bit better than where it began.  Credit card defaults will continue this coming year and bankruptcies will continue to bloom.  It will take almost the entire year for this to unwind.  This global recession, which feels like depression will abate but will not lead to a run to the upside.  Stability will be a key accomplishment, for this economy. 

There are certain problems in the system as we see it.  First of all, the reduction of raw material prices is not filtering thru to the end user.  Take your grocery bill, has that bill dropped?  The answer is no, but food stuff cost has dropped.  Take your bank for example, are they will to lean money at a reasonable rate?  No, they are not, they are price gouging and there is nobody out there to stop that.  The banks are charging excessive fees and excessive rates even for their best customers.  Banks are going to rebuild their balance sheets on the backs of the consumers.  Unfortunately, they all seem to have the same script and seem to be price-fixing together. 

Tuesday:  October S&P Case-Shiller home price index is released, PMI for December is released at 9:45 and December consumer confidence is released at 10:00.  Wednesday:  early close for the bond market.  Friday:  ISM for December is released at 10:00. 

The US Dollar index is reflecting the fact that most desks have closed their books for the year.  At this time of the year, it is rare to see anything happen in advance of the New Year.  The market is dull with a downside bias.  We would use the 5-day moving average to get into or out of a trade in the US Dollar index until more volume returns; today the 5-day moving average is 82.073.  The downtrend line is at 81.92.  The top of the Bollinger band is at 89.956 and the lower edge is seen at 79.231.  All the indicators are neutral and not trending which, supports what the chart is telling us.   The Market Profile chart tells us that should we trade above 84.00, that we will rally to 86.  We are below the Ichimuko clouds on the daily and monthly charts but above the clouds for the weekly time-frame.  We would stand aside this market until the vacationing traders return next week.

The S&P 500 will have a point of inflection in the Monday trading session.  The 5-day moving average is at 86.90.  The top of the Bollinger band is at 920.80 and the lower edge is seen at 831.98.  The MACD is just crossing issuing a sell-signal.  The stochastic indicator is flat at neutral as is the RSI and our own indicator.  The Thomas DeMark Expert indicator is flat at an oversold level.  We are below the Ichimuko clouds for the daily, weekly and monthly time-frames.  The weekly chart shows that we are forming a coil or a pennant.  The weekly time-frame is friendlier than is the daily time-frame for the bulls.  We are seeing divergences for the weekly time-frame.  The MACD is about to turn positive yet, the stochastic indicator, our own indicator and the RSI do not support that finding.  We believe that this week will be dull, for the most part. 

The NASDAQ 100 preformed better than did the S&P 500 in the Friday session.  The 5-day moving average is at 1192.07.  The top of the Bollinger band is at 1258.31 and the lower edge is seen at 1121.66.  We are below the Ichimuko clouds for the daily, weekly and monthly time-frames.  The Friday session remained below the downtrend line at 1191.00.  The downtrend line for the Monday session is at 1182.36.  We are getting some mixed signals from the indicators.   The MACD has just issued a sell-signal while our own indicator has just issued a buy-signal.  The stochastic indicator is still issuing a continued sell-signal and the RSI is going sideways.  The Thomas DeMark Expert indicator is oversold and going sideways.  We will stay out of this market until we get clearer signals.

So long as the Russell 2000 does not close below 457, we will give it to the bulls.  The 5-day moving average is at 474.12.  The top of the Bollinger band is at 498.09 and the lower edge is seen at 429.50.  The Russell 2000 is below the Ichimuko clouds for the daily time-frame.  If this market can rally above 504, it will have a chance to see 550.  On the downside, should this market trade below 397, look out below!  First, the market must trade and close above 495 to open the door to the upside.  The chart is consolidating and getting very narrow.  This behavior will lead to a violent move.   

The crude oil chart looks like a very organized down trending chart.  Strangely, we are getting buy-signals from all the indicators on the daily and the weekly chart of crude oil.  The 5-day moving average is 38.86.  The top of the Bollinger band is at 55.97 and the lower edge is seen at 35.29.  We are below the Ichimuko clouds for the daily, weekly and the monthly time-frames.  The Market Profile chart warns that should we close below 34.70, look out below!  We see some support below at 25.  Should we rally, we have supply all the way up.  This chart looks as though crude oil could rally, if you go long keep your stop at 34.70. 

Gold has been slowly appreciating.  We need to see a close above 883.60 to open the door to the 938.  All the indicators that we follow herein are issuing a continued buy-signal.  The 5-day moving average is at 848.38.  The top of the Bollinger band is at 888.00 and the lower edge is seen at 743.82.  Gold is above the Ichimuko clouds for the daily and monthly time-frames but in the clouds for the weekly time-frame.  We believe that gold will back and fill before venturing higher.  We have to trade above 924 and then 938 to open the door to the old highs.  The uptrend line for the Monday session is at 840.42.