Archive for April, 2009

Sunday, April 26th, 2009

Bonus boom times are returning with the lift in the markets.  Not only are they returning but they are booming.  The leaches of society are out there promising mortgages up to 98% of the value of the home!  Further, no documents required…..does this sound familiar?   “Government sponsored loans up to 98%, no documents, no verification”?  Maybe we should call?   

The world is different, but the world is the same.  We, here in the
USA, will not be able to convince our neighbors to fund our buying habits, indefinitely.  We will begin to feel a push back against our perpetual borrowings.  Either we give our currency some value, aside from vying for the greatest debtor nation, or people and countries will just cut back buying our debt.  The arrogance of our leadership has led them to believe that any global doubt in our currency as the reserve currency is ridiculous. However should we find our auctions lightly attended, we are sure that there will be  pressure applied, to the powers that be in
Washington DC, to print more money to cover our ever growing appetite for shopping so that we can fund our spending habits and buy our way out of this recession.  This is a faulty premise.  We need to produce something other than shoppers.  Actually, we do produce some infrastructure, barges, rail cars, real cars, steel, lumber, and lots of agricultural products as well as the tools to implement farming.   We outsource our manufacturing to the point where very little is produced here in this country. 

The stock market loves the earnings reports this season.  With much of the bad new out of the way via speculation, all this not so bad news is lifting the shares.  The opinion on the street is that the worst of the mess is over.  Many have observed that although the economy continues to retreat, that retreat is less that it was and seems to be stabilizing.  We agree that right now, that seems to be the fact.  People are frothing at the mouth to buy foreclosures trying to find the bottom of the housing market.  Some have formed pools of money with the purpose of buying the “toxic mortgages” from the banks.  None of this is a bad idea, so long as the time horizon is far enough out and the need to remove capital from the project has a long time horizon as well.  For a quick turn, who knows, but we would guess that it is not going to be as quick as the stock market recovery has been.  We feel that the recovery seen in shares is vulnerable to an eventual retreat.  Currently every retreat is met with bottom fishers trying to “buy the dips.”  Unfortunately, we will not go straight up from here and will, at the very least pause to digest the speedy gains we have seen.  We do not believe that the entire downdraft is complete.  We continue to believe that we will have another major move to the downside.  Perhaps, that move will remove the previous low and perhaps not.   Right now, we are on the Bull train with no stops until the brakeman applies the brakes.  

This week we have the FOMC meeting but what can they do further?  We are as close to zero as it get, okay so we could go to zero and yes, there are more arrows in their quiver but the pickings are getting very lean indeed.

Tuesday:  April consumer confidence is released at 10:00.  Wednesday:  1st quarter GDP is released at 8:30, the FOMC issues its interest rate decision with a brief statement, and it’s another big day for earnings.  Thursday:  April Chicago PMI is released at 9:45, March personal income and consumption is released at 8:30, and both the New Zealand and
Japan release their interest rate decisions.  Friday:  April Michigan Sentiment is released at 9:45-10:00, April car sales are released at 10:00, March factory orders are released at 10:00 and April ISM is released at 10:00.

The US Dollar index had an absolutely awful week last week.  The chart looks as though it is a head and shoulders top formation.  We are now below the Ichimuko clouds.  We find two uptrend lines which are at; 84.65 and 84.333.  The downtrend line is at 86.92.  Should the market close below the uptrend line, we would find that 83.725 83.145 and could project 78.775 as a minimum downside target.  All the indicators that we follow herein continue to point lower all, have room to the downside.  The 5-day moving average is at 86.206.  The top of the Bollinger band is at 87.02 and the lower edge is seen at 84.251.  The uptrend lines on the weekly chart are at 84.574 and at 84.179.  The downtrend line is at 87.202.  We are above the Ichimuko clouds for the weekly time-frame, but are entering into the clouds for the monthly time-frame.  We need to see a close above 86.206 and 87 to turn this chart bullish.   Under 83.16 things get really sticky looking and a whoosh to the downside becomes very possible.  Below the 83.720 level, the volume trails off leading to further pressure to the downside.  On the upside above 87 and change we will see a lift to the 89 level.

The S&P 500 continues to plow its way higher although, it seems to be loosing steam to the upside.  We remain overbought but have been in this bullish condition for some time now.  We have only one indicator issuing a sell-signal and that is the Thomas DeMark Expert indicator.  Market Profile chart tells us that above 872.00 we should find out way to 896 and above 923, there should be a tail wind encouraging a run to over 1000.   On the downside, we will not have a huge problem unless we drop below 664, when, we will plummet further.  The 5-day moving average is at 846.60.   The top of the Bollinger band is at 878.16 and the lower edge is seen at 791.45.  We are above the Ichimuko clouds on the daily time-frame but remain below the clouds for both the weekly and the monthly time-frame.  Should this market continue its trek to the upside, it will see problems at 874.22.  Should the market have the energy to rally above that point for more than 2 days, we will have broken out to the upside and can expect to see a further rally to 923 and then 1000.   On the downside, the uptrend line is at 832.23 on the daily chart.  Further support will be found at 823, 802.25, 779, 765.50, 749.50 and 711.25.  

The NASDAQ 100 was again stronger than the S&P 500.  The strongest of the indices seems to be the mid-cap S&P 400 which rallied 2.91% in the Friday session.  The NASDAQ 100 is reaching for the 38% Fibonacci retracement level of 1387.98.  The weekly chart is overbought and has just issued a sell-signal.   The uptrend line is at 1327.50 for the Monday session.  We are above the Ichimuko clouds for the daily time-frame, but remain below the clouds for both the weekly and the monthly time-frame.  The 5-day moving average is at 1336.40.   The top of the Bollinger band is at 1385.22 and the lower edge is seen at 1228.51.   We could see an initial retreat to 1327.50 and then an additional retreat to 1306.79.  So long as we stay above the 1306.79 area we will be in a bullish frame of mind.  Although we are overbought, we can remain that way.  Only the Thomas DeMark Expert indicator is pointing lower, all the others are pointing higher at overbought levels.  We have been overbought since March and can remain in that condition until the market wants to take a breather. 

The Russell 2000 broke above the weekly downtrend line taking it from the September high, but remains below the longer downtrend line from October 2007 which is at 681.  The next resistance line is at 518.60.  We are overbought on both the weekly and the daily charts but neither time-frame is signaling a change of direction to the downside.  Only the Thomas DeMark Expert indicator is issuing a sell-signal, all the others continue to say buy.  The 5-day moving average is at 466.36.  The top of the Bollinger band is at 487.37 and the lower edge is seen at 415.18.  We are above the Ichimuko clouds for the daily time-frame but remain below the clouds for the weekly time-frame.  The uptrend line is at 456.71.  We need to see this market settle above 481.60 to open the door to 518.60.  Before you run off and go long, we need to caution you that we are in a trading range and until we break out either to the up or the downside we will likely remain here for some time to come.  For trading purposes, a trading range that can be defined is ideal.  Erratic behavior is never good for the scalper or trader because it is too difficult to quantify the information. 

Crude Oil is also in a trading range seeming to go nowhere fast.  The upper level for crude is 54.66, a level that needs to be removed to for this market to spring to the upside.  On the downside, we had a low this past week of 43.83.  For the bulls it would be more positive if this market could stay above that level.  When looking at the weekly chart we could be seeing a cup and handle “tea cup” formation.  We are above the Ichimuko clouds for the daily time-frame.  We remain below the clouds for both the weekly and the monthly time-frame.  The 5-day moving average is at 48.48.  The top of the Bollinger band is at 54.07 and the lower edge is seen at 46.07.   Although we are getting overbought, there is room to run on the upside.  The uptrend line is at 44 so, we need to stay above that level to ensure and upside bias.  We seem to be in a trading range with no reason to believe that we are going to break out anytime soon.

Gold looks like it would like to move higher however there are too many bulls in the boat and it is tipping to the side.  We are in the Ichimuko clouds on the daily chart.  The indicators are all overbought but all continue to point to higher levels.  The 5-day moving average is at 896.00. The top of the Bollinger band is at 936.10 and the lower edge is seen at 859.73.  We remain above the clouds for the weekly and the monthly time-frame.  The downtrend line on the weekly chart is at 924.40.  For the bulls to take control, we need to see the market close above that level.  The weekly indicators are issuing a buy-signal.  Remember, gold is a negative bet on the US dollar.  As the US Dollar weakens we see money flow into gold.  Also talk of eventual inflation scares people into gold.  We are not near inflation yet, as a matter of fact, we are in deflation/stagflation.  It is too early to look to gold for an inflation hedge.