Archive for March, 2009

Sunday, March 29th, 2009

 

Are we ready for another “all boys’ club” investment?  An investment open to only the special “in crowd” and closed to all of the rest of us?   Toxic assets are a mixture of some toxic and some not toxic but illiquid assets that are market to the market on the balance sheets of the holders.  We all know that eight of ten assets held will be toxic, but the two that are not toxic will more than pay for the eight that are toxic.  It is more probable that the number will be less than eight.  So how can the public get in on this gamble?  Well, they can’t unless they buy the package from say a Blackstone or another group who, after buying the toxic mess, will mark it up and repackage it for the public to purchase, perhaps as an ETF, closed ended fund or mutual fund.  Not only will the public pay a mark up, but they may not be buying the best assets in the group.  Think about it, would you sell the best with the worst or perhaps, keep the best for your account.  This repackaging of these toxic assets would be another way to fleece the public, although it is probable that the public will come out okay.  If the government would like to partner with private capital, it should be open to the public much like savings bond.  Rather than call them savings bonds we could call them lotto bonds.  We buy lottery tickets why not lottery bonds.  Call it what it is, a gamble.  Of course, the biggest gamble will be on the side of the government which will be levering up this gamble.  We US tax payer fund the government plan and we will be affected by the folly of this plan should it go badly.

Have you enjoyed the recent rally?  It totally amazes us that people, analysts, and media personnel are such lemmings.  You would have thought that they have learned by now, but obviously they have not.  Are we out of the woods economically?  What do you really think?  Even agreeing that the market is a discounting mechanism, we have more than 6 months of pain in front of us.  That is only logic, not ESP. 

Frankly, we don’t know if we are bottoming or if we are enjoying a bear market rally.  We would like to believe that this is a bottoming, but the operative words were “we would like to believe.”  We have noticed that some issues are making higher lows and are not eroding at the previous rate when they retreat.  We see some hope, however; we need to see more confirmation.  It looked as though the public thru in the towel on investments, but the turn was too brisk and we remain cautious.  We do believe that when a recovery comes, that the
USA will lead that recovery.  So, it may be time to repatriate some money bringing it back to our shores for possible investment.  Investments should be hedged; this is a new word in investment lingo.  It replaces “buy and hold” as an attitude.  A hedge would be selling covered calls and buying protective puts on your stocks.  Perhaps indulging in some pairs trading, going long the stronger issue while selling the weaker issue in the same business, an example would be Lowe’s and Home Depot.  There are many ways to hedge.   Another important consideration is risk-reward.  Are the funds at risk going to give you the reward you are looking for or, are you risking too much to make too little.  A little math to calculate this is desirable.

Tuesday:  March Chicago PMI is released at 9:45 and March consumer confidence is released at 10:00.   Wednesday:  Happy April Fools Day, Ford and GM issue March sales, March ISM manufacturing index is released at 10:00 and February construction spending is released at 10:00.  Thursday:  The European Central Bank issues a statement and interest rate decision (a reduction is expected), and February factory orders are released at 10:00.  Friday:  March nonfarm payrolls and March unemployment is released at 8:30.

The US Dollar index rebounded nicely this past week with the best of the rally saved for the Friday session.  We are testing resistance at 85.86 and at 86.43.  Either of these levels could turn back this rally.  Should we trade thru these levels, we would expect to see further resistance at 87.204.  All of the indicators that we follow are uniformly issuing a continued buy-signal, with plenty of room to the upside.  The 5-day moving average is at 84.553.  The top of the Bollinger band is at 90.802 and the lower edge is seen at 82.873.  We are inside the Ichimuko clouds for the daily time-frame, above the clouds for the weekly and into the clouds for the monthly time-frames.   Remember, Friday we have the jobs data.

The S&P 500 should benefit for the last two days of the month and the first day of the new month.  Unfortunately, we are grossly overbought and we are curling over to the downside.  The stochastic indicator, the RSI and our own indicator are all issuing a sell-signal on the daily chart.  The Thomas DeMark Expert indicator continues to issue a buy-signal albeit at an overbought level.  The 5-day moving average is at 814.45.  The top of the Bollinger band is at 850.23 and the lower edge is seen at 655.54.  What the Bollinger bands are telling us it that the volatility is getting more intense.  If we use a simple uptrend line, we see that the market could retreat to740 without disturbing the uptrend line.  We are entering the Ichimuko clouds for the daily time-frame.  We are below the Ichimuko clouds for the weekly and the monthly time-frames.  The market seems to be rolling over to the downside.  Remember, this market has rallied a huge amount in very few days, so some of the excess of this move are adjusting.  So long as we stay above the uptrend line, let’s give it to a continuation of the bullish bounce.  As we approach the April 15th tax date, we expect to see some softness in this market.    On the downside, we should find support at 767.56, 748.12 and 728.68.  Overhead we have supply at 840.50, 866.00 and 873.00.  

The NASDAQ 100 had an inside day in the Friday session.  The market is overbought as measured by the indicators that we follow.   We must also tell you that this market has been overbought since it took its initial run to the upside.  We have remained overbought since March 13, 2009.  That should illustrate to you that this market has demonstrated tremendous strength.  Was it all quarterly mark ups with short covering or is it a sign of a new bull phase of this market?  These are questions which we will be able to answer in a few days.  The stochastic indicator, our own indicator and the RSI have all turned to the downside and are issuing a sell-signal.   Unfortunately, we have seen this signal four times now and that signal reverses within a day or so.  We believe that we will see either another change of direction or a real sell-signal this week.  So far, the jury is still out on this one.  We should see support at 1220.81, 1189.03, 1160.62 and 1132.21.  The 5-day moving average is at 1250.15.  The top of the Bollinger band is at 1298.149 and the lower edge is seen at 1023.43.  We are above the Ichimuko clouds on the daily chart, but remain below the clouds for the weekly and the monthly time-frames.  The NASDAQ 100 has been the best performing index in the group that we follow.  The chart shows a very aggressive “V” which has taken the market to almost the highs of January 6, 2009.

The Russell 2000 gapped above the downtrend line in the Monday session and never looked back.  The Russell 2000 continues to trade below the Ichimuko clouds on the daily chart and the weekly chart.  The 5-day moving average is at 428.14.  The top of the Bollinger band is at 448.64 and the lower edge is seen at 333.67.  The stochastic indicator, the RSI and our own indicator all are issuing a fresh sell-signal.  Just as with the NASDAQ 100 this signal can not be trusted just yet.  We have seen it several times in the past few weeks resulting in a reversal to the buy-side.  We will know within a few days whether to trust this signal or to ditch it.  The Thomas DeMark Expert indicator continues to point higher albeit near overbought levels.  The market looks as though if it can get above 478.80, there will be very little resistance above that level.  

Crude oil has been consolidating for this past week.  It does look as though it will retreat.  The 5-day moving average is at 53.45.  The top of the Bollinger band is at 56.11 and the lower edge is seen at 39.50.  The indicators that we follow are all issuing a sell-signal.  We are trading above the Ichimuko clouds for the daily time-frame and below the clouds for the weekly time-frame.  The weekly chart looks as though we are forming a rounding bottom.  The last candle on the weekly chart is a little troublesome because it is a doji candle, indicating that it is in transition and could change directions.   The Bollinger bands are becoming narrow, for the weekly chart indicating that we may soon find the volatility expanding as these bands widen out. 

Gold has been consolidating in the 900 range for several weeks.  We continue to see a sell-signal from the indicators that we follow however, that sell-signal is from neutral levels.  We are, just barely, above the Ichimuko clouds for the daily time-frame and well above the clouds for the weekly time-frame.  The 5-day moving average is at 935.06.  The top of the Bollinger band is at 963.48 and the lower edge is seen at 890.81.  This market continues to consolidate.  So long as we are above 882.70, we will give it to the bulls.