We are at the end of the trading road, and we will need to either turn to the right or turn to the left. On the right we have the S&P 500 going to 929.50, 945.25, 962.50, 984, 1008 and then 1067 and higher the real first ledge of resistance above is at 1104. On the left side of the road we have 875.25, 838.50,823, 815, 802.25, 775.50, 748.50 and then the March lows crop up. The important information about this road is that we can not remain at the cross roads for very long. We can back and fill at these levels for a little while, but we will see the market take one of the forks in the road. We believe that the first clue will be seen on a rally in the S&P 500 beyond 929.50. Should the market rally to and above that May 7th high, shorts will get scared and cover aggressively. Beyond that, we would expect to see some sideline money chase the trend higher. On the other hand, if the market removes 875, we would expect to see a waterfall like retreat. This is a very short-term look at the market. Remember, as we enter June, we will see the roll from June futures to September futures during the second week of June and expiration of the June future’s contract on the third Friday of June. Additionally, we will see further volatility as the guessing game of inclusion to the Russell indices occurs. This addition/subtraction to the Russell indices occurs at the end of the month of June. Should this market retreat rather than rally, it is extremely important for the market to defend the 875 level. Just as the removal of the May 7th high of 929.50 will inspire the shorts to cover and the buyers to get off neutral, so will the violation of the 875 level. A violation of this level will cause the shorts to press their positions and the longs to run for the exits.
We alerted you months and months ago that the
US deficit will cause valuation problems with the US dollar as a reserve currency. To date, we have seen no problems with our auctions although we have seen the yields drift higher. This tells us that buyers are demanding higher interest payments from these bonds and they are feeling more secure about the markets, enough so to demand more money for their loan. As to noise about the US currency as the reserve currency, we have been warning you for quite some time about the rumblings in
Asia regarding who or what is to be the reserve currency. Although these rumblings are emanating from
Asia, we believe that it will be the Chinese who will defend the US Dollar should the dollar fall too fast. Moving on to the effects of a weakening
US currency we naturally look at commodities that are traded in US Dollars. Naturally, as the
US currency retreats in value, these commodities will rally. The result of this sort of adjustment is increased inflation here in the
USA and no effect on inflation for the more stable currencies and those currencies that are rallying against the US dollar.
We were reminded of this intermarket relationship before the recent collapse of the commodity market. Study your INTERMARKET relationships. John Murphy has written several good books on this subject which, you should make every effort to read. His newest book is THE VISIUAL INVESTOR, a clear view of how markets relate to each other.
Monday: GM is expected to file for bankruptcy, April personal income / consumption at 8:30, April construction spending is released at 10:00 and May ISM index is released at 10:00. Tuesday: Pending home sales are released and Dallas Fed Reserve Bank of Dallas President Fisher speaks. Wednesday: April Factory orders are released at 10:00, Challenger, Gray & Christmas release their May job cut report, Fed Chairman Bernanke speaks on the “hill.” Thursday: 1st quarter productivity is released at 8:30, and Fed chairman Bernanke on the “hill” same speech different questions. Friday: May nonfarm payrolls / unemployment rate are released at 8:30, and April consumer credit.
The US Dollar index closed below the 79 level in the Friday session opening the door to the December lows of 78.775. We are below the Ichimuko clouds for all time-frames. The 5-day moving average is at 80.133. The top of the Bollinger band is at 85.299 and the lower edge is seen at 78.930. The stochastic indicator and our own indicator are grossly oversold and beginning to curl to the upside without giving a buy-signal. Should the direction continue we will get a buy-signal within a day or so. The RSI continues to point lower, and the Thomas DeMark Expert indicator is going sideways at oversold levels. The downtrend line is at 81.456. We believe that there will be some support for the US Dollar index at 77.115 and 76.025. Below the 76 level we will see support at 74.32 down to 71.555. We expect to see the US Dollar index bounce. We closed below the lower edge of the lower Bollinger band and we know, from experience, that we really can’t stay there very long. We are back to the July 2008 levels and appear to be looking at the April 2008 lows for some very light support. The chart looks awful but does look as though this index will bounce.
The S&P 500 looks as though we have entered into a trading range. We know from experience that we can not stay in that trading range for very long and that we will break to on side or the other. We also note that the trading range is getting narrower as is the volatility of this market. The downtrend line for the VIX is at 32.50. This is the quiet before the storm. We believe that if the S&P 500 removes the 929.50 level that the market will run significantly higher as trend following traders jump back into the trade and shorts, aggressively cover their positions. The indicators that we follow are all pointing higher and there is enough room on the upside for these indicators to run further. The 5-day moving average is at 902.90. The top of the Bollinger band is at 925.44 and the lower edge is seen at 875.17. These numbers are very similar to the key numbers we are watching. When we see numbers coincide with others they take on more importance. We are above the Ichimuko clouds for the daily time-frame but below the clouds for both the weekly and the monthly time-frame. The indicators are pointing higher for both the weekly and the monthly time-frames.
The NASDAQ 100 probed higher in the Friday session. This market closed higher in the Friday session expanding the trading range. The indicators are all pointing higher are all getting or at overbought levels. The 5-day moving average is at 1406.40. The top of the Bollinger band is at 1444.29 and the lower edge is seen at 1339.63. We are above the Ichimuko clouds on the daily time-frame but below the clouds for the weekly and monthly time-frame. The indicators continue to point to higher levels on the weekly and the monthly time-frame. The chart looks positive but needs to stay above 1336.50. That area has been tested five times in the past, perhaps not that exact number but levels right in that area. It is important for this index to stay above that level. On the upside, there isn’t much resistance until we get to the 1650 area.
The Russell 2000 enjoyed a robust rally in the Friday session. All the indicators that we follow herein are pointing higher with room to the upside. The 5-day moving average is at 491.08. The top of the Bollinger band is at 512.32 and the lower edge is seen at 469.62. We see that this index has tried seven times to break down at the 469 area and in each of the attempts found support and rallied back to the upside. We are above the Ichimuko clouds for the daily time-frame, but below the clouds for both the weekly and the monthly time-frames. We need to see this index close above 512.50 to scare the shorts and move the sideline money back into this index. On the other hand, should the market drop below the 469 area, we would likely see the shorts press their positions and the longs run for the exits. Above 512 there will be resistance at 536.50 and 551. Above that area is air and not much resistance.
Crude oil has been in an upside trend since April 2009. The rally in crude has been significant and is in part due to the weakness seen in the US dollar. The uptrend line is at 61.06 and there is some resistance at 67.77. The 5-day moving average is at 63.70. The top of the Bollinger band is at 66.17 and the lower edge is seen at 52.43. All the indicators that we follow herein are pointing to higher levels with room to the upside. We are above the Ichimuko clouds for the daily time-frame but below the clouds for the weekly time-frame. We are breaking above the Ichimuko clouds for the monthly time-frame. The indicators for all time-frames are positive with the shorter ones more overbought. The Market Profile chart shows us that we seem to be making a rounded bottom with a short-term upside target in the 75 range. Above 82.50 we will see a drift higher to the century mark.
Gold is above its uptrend lines and is on its way to February highs of 1004.90. We closed above the upper Bollinger band and will likely retreat from that level. We do have signs of exhaustion but these can continue for a while. All the indicators that we follow herein are pointing to higher levels although they are grossly overbought. Bullishly overbought comes to mind when reviewing this chart. We are above the Ichimuko clouds for the daily, weekly and monthly time-frames. The 5-day moving average is at 961.10. The top of the Bollinger band is at 977.14 and the lower edge is seen at 885.75. We find one very short-term uptrend line at 940 and a longer uptrend line at 917.39. We would not be surprised to see this market back and fill to relieve some of the overbought condition before the next up leg is seen.