Archive for January, 2009

Sunday, January 11th, 2009

 

There is no question that the
US and the Global economies are in recession.  This evidence is seeping thru the public relations media net at such a fast pace, that the various governments admitted publicly that they are in trouble.  That said, we here in the USA continue to feed our spending habits will more and more borrowing, not so much on the consumer side but rather on the government side.  The question quickly becomes apparent, “who will buy the stuff?”   Although we learned a hard lesson with the recent blow ups of Lehman, Bear Stearns, Merrill, Wachovia etc. we continue to believe that the rest of the globe will finance our spending habits.  Rather than continue on that path wouldn’t it be wiser for the incoming administration to work on their job creation plan without giving away money that this government doesn’t have?  Wouldn’t it be wiser for the new administration to strong-arm banks and other lending institutions to make mortgages less costly?  While the Fed has ratcheted down interest rates to 0.25%, banks have kept their refi’s level.  Is there something wrong with this picture?  A good way to return money to the consumer’s hands is to allow them to refinance their mortgages or take new mortgages at lower rates.  That will be more of, and longer lasting, tax break than then proposed tax break by the new administration in its efforts to redistribute wealth.  Let’s start with reasonable mortgages and refi’s.

Just incase, you haven’t had enough excitement for the first week of the New Year, on Monday Alcoa will kick off earnings season for the fourth-quarter.  This quarters dismal earnings should inspire some merger activity as some companies join forces to cut down on expenses like employees.  As to the new administration which is ready to “rock and roll” we will see the most aggressive changes early in the new administration.  The worst news will be in the early years of this new administration.  Most aggressive changes will be early on so that the latter years can be spent on re-election.  America voted for change and what America got looks remarkably like the old
Clinton administration with many of the same player in the inner circle.  Change, what change?

Monday:  Alcoa kicks off earning season.  Tuesday:  November international trade is released at 8:30, and Chairman Bernanke speaks in
London.  Wednesday:  December retail sales are released at 8:30, December import prices are released at 8:30, and the Beige Book is released at 2:00.  Thursday:  The European Central Bank issues its interest rate decision (a cut is expected by many),  December PPI is released at 8:30, January Philadelphia Fed Survey is released at 10:00, Fed speaker include; Janet Yellen, Charles Evans and Dennis Lockart, and Intel releases earnings.  Friday:  December CPI is released at 8:30, December Industrial production and capacity utilization is released at 9:15 and the bond market closes early in advance of the Martin Luther King Holiday. 

The US Dollar index rallied in the face of an abysmal December “Jobs” report on Friday.  The chart tells us that we are consolidating and that we likely will move higher.  The stochastic indicator, our own indicator and the RSI are all pointing up from the overbought side of neutral.  The Thomas DeMark Expert indicator is issuing a solid sell signal.  We find ourselves in the Ichimuko clouds on the daily chart, above the clouds on the weekly chart and below the clouds for the monthly charts.  The 5-day moving average is at 83.24.  The top of the Bollinger band is at 84.924 and the lower edge is seen at 80.148.  So long as this market remains above 82.425, we will remain friendly to this market.  Should we close below that level, we will open the door to 81.90, 80.43 and 78.775.  The Market Profile chart tells us that should we close above 83.78, we will likely rally back to 86.23, 86.32 and then 88.58. 

The S&P 500 rallied for the first three trading days of the New Year taking the index to a high of 942.75 on January 6th, from there, the market receded closing down ending the week at 885.50. The uptrend line for the Monday session is at 874.50, a level we need to stay above.   All of the indicators that we follow herein continue to issue a sell-signal with plenty of room to the downside.   The 5-day moving average is at 911.10.  The top of the Bollinger band is at 933.55 and the lower edge is seen at 850.87.  We are in the Ichimuko clouds for the daily time-frame, and below the clouds for both the weekly and the monthly time-frame.  The Market Profile chart tells us that should the S&P 500 close above 933.90, it will rally towards 1007.85 with stops along the way at 936.15.  Unfortunately, below 816 we find the door open to 736, yikes!  This week we will begin to see the fourth quarter earnings which will impact the markets.  It isn’t so much what the earnings are but rather the discussion and company view of the next quarter that will impact the stock prices.  Should this market decline further, 852-853 will become an important level of support.  If that fails to support the market then, 828.75, 813-817 and then 739 will be in our future. 

The NASDAQ 100 looks to be rolling over to the downside.  All the indicators that we follow herein are issuing a continued sell-signal with plenty of room to the downside.  The 5 day moving average is at 1249.30.  The top of the Bollinger band is at 1271.59 and the lower edge is seen at 1162.40.   The NASDAQ 100 is deep inside the Ichimuko clouds on the daily chart, and below the clouds for both the weekly and the monthly time-frame.  We have closed below the uptrend line seen on the daily chart.  Actually we seem to be making a sine wave pattern without a completion on the downside.   If this is a pattern, we can expect to see the market trade down to a minimum of 1175.25 before any upside momentum is seen.  Should this market retreat below 1077.30 we will see a whoosh to the downside.

The Russell 2000 needs to close above 494.50 in the Monday session to turn the down-draft around.  All the indicators that we follow are issuing a continued sell-signal.  The uptrend line for the Monday session is at 456.15.  We can expect to see support at 457,425.80 and 412.40 before testing the November low of 369.20.  It does appear that we will not test those lower levels at the moment but should something bad happen, those are the number to watch.  We are inside the Ichimuko clouds on the daily time-frame.  The Market Profile chart speaks volumes in just a few letters.  Here it is:  should we trade higher, we will see quick moves above 504.40 taking us to 533.50 and 552.90.  Above 552.90 there is little resistance to the mid 600’s.  On the downside, we will find that below 407.40, there is little support and we will likely move quickly to the downside.  There you have it, upside and downside.  At the moment, it looks as though the downside will be the current direction.  Just remember, should we rally, this index can fly so, don’t get caught.

Crude Oil declined in the last three trading sessions.  All the indicators that we follow herein are negative with room to the downside.  We are below the Ichimuko clouds for the daily, weekly and monthly time-frames.  The 5-day moving average is at 44.51.  The top of the Bollinger band is at 50.37 and the lower edge is seen at 33.48.  When looking at the Market Profile chart, we see that below 35.10 there is no support and we have a liability to 25 or so.  On the upside we have supply as we move higher with some upside momentum should we rally above 75.60, but that level looks miles away from where we currently are trading.  The weekly chart looks as though we are tying to form a rounding bottom.  We are not convinced of that at this time.  Crude Oil is oversold for both the weekly and the monthly time-frame but there isn’t a bend to be found….well, so far.

Although gold closed lower in the Friday session, it did have a higher low and a higher high than was seen in the Thursday session.  We take this with a grain of salt and must see some further higher lows and higher highs to be convinced of a renewed rally.  We are above the Ichimuko clouds for the daily and monthly time-frames but in the clouds for the weekly time-frame.  The 5-day moving average is at 855.00.  The top of the Bollinger band is at 891.12 and the lower edge is seen at 811.33.  We like gold but not at these levels and would be buyers at lower levels.  However; given the current recessionary global economies, we believe that even gold will be abandoned as survival becomes paramount.  As the economies change and begin to recover, we will become aggressive buyers of gold.  We would also become aggressive buyers of gold as the US Dollar declines.