Archive for July, 2009

Sunday, July 26th, 2009

Hate be a told you so, but we did tell you about the “Lemming effect” about two weeks ago.  We are not seers it was very obvious that once the market rallied, the left behind portfolio managers would jump and say “me too” chasing the market higher.  Okay so now that that is done, we will see some follow thru to the upside.  Be aware that the dips that you see in the market will be bought by those left out of the rally.  That behavior will run its course, leading to the scared longs bailing on any deep market retreat that lasts more than two days.  Until the crowd gets nervous, the crowd behavior will be to buy every dip.  Watch the dips for clues as to when this bounce gets tired.  Right now, the lemmings are still buying. 

Has the economy really changed that dramatically?  Answer is no, just the perception of the economy has changed.  Two weeks ago we heard nothing but chatter about the bad news in the economy and how the market was going to fail.  This past week, every media talking head has been bullish.  Even some of the well known bears have tempered their words and allowed a somewhat bullish commentary.   The boat two weeks ago was too far tipped to the bearish side and now, the bulls are tipping the boat the other way.  This week will be the last week for the month of July and as such, we should see some portfolio adjustments propping the market somewhat higher.  This should continue into the first days of August as retirement money is put to work, thus we don’t see any large retreat until at lease the middle of the first week of August.  

We are not a dooms sayer, but we are offering these words of caution.  The market doesn’t go straight up nor does it go straight down.  We have bleeps in between that give both sides opportunities to make money.  Because the market has been up for essentially 9 out of 10 days doesn’t mean that it will be up for the next 20 days.  We believe that the S&P 500 futures can and likely will return to the 940 level and might even drop to the 922 level before starting another leg to the upside.  We are not bearish but we are not lemmings either.  We look at markets unemotionally and that is what you should be doing.  When the NYC cabbies start discussing stocks with their fares, understand that things have gone too far.   

Monday:  June new home sales are released at 10:00.  Tuesday:  July consumer confidence is released at 10:00, May S&P/Case Shiller price index is released at 9:00 and San Francisco Fed President Yellin speaks.  Wednesday:  June durable goods are released at 8:30, the Beige Book is released at 2:00 and New York Fed President Dudley speaks.  Thursday:  June mutual fund sales/redemptions are released.  Friday: 
Chicago purchasing managers report is released for July at 9:45, and 2nd quarter GDP is released at 8:30.  
 

The US Dollar Index had a doji candle in the Thursday session and an inside day in the Friday session.  This sideways action is allowing the US Dollar index to break above the daily downtrend line.  We have a 9-count as of the Tuesday session.  We are oversold by all measure and seem to have some slight divergences.  When we made a lower low on Thursday, the indicators did not make a lower low but rather made a higher low.  This tells us that we need to be skeptical and review the chart, which tells us that we could bounce from these oversold levels.  That said, this is not a bullish conviction, but rather a statement that we believe that the market will bounce from this level.  Should the US Dollar index close below 78.375 for two days, then we will move quickly and viciously to the downside.  To turn this market around we need to see a close above 79.572 by this coming Friday.  The weekly chart is oversold however the monthly chart has more room to the downside.  The US Dollar index is below the Ichimuko clouds for all time frames.  The 5-day moving average is at 78.973.  The top of the Bollinger band is at 81.293 and the lower edge is seen at 78.572.  All the indicators that we follow continue to issue a sell-signal albeit at grossly oversold levels.  If the US Dollar index can close above 79.933 there could be a chance for a decent rally to the upper edge of the Bollinger band. 

The 10 day rally in the S&P 500 has taken the futures contract from 865.50 to 979.00.  The market tacked on 113.50 points in two weeks!  Even the frothy bulls will concede that this market can retreat to 940 before continuing higher.  We have a solid 9-count and we are wildly overbought.  We do not have a sell-signal.  The 5-day moving average is at 959.75.  The top of the Bollinger band is at 977.88 and the lower edge is seen at 855.85.  The 21 day moving average is at 916.869.  We are above the clouds on the daily  Ichimuko clouds, in the clouds for the weekly and below the clouds for the monthly time-frames.  We are overbought on the weekly chart and continue to point higher.  This week should see some follow thru as we enter the last week of the month.  Even if the economy were firing on all cylinders, a rest would be in order.  Will we have it this week?  It is possible but we will probably rally into Friday’s last day of the month. 

The NASDAQ 100 has been higher for 12 trading sessions and still counting.  We have signs of exhaustion and a 9-count.  We are grossly overbought but continue to point to higher levels.  The 5-day moving average is at 1566.45.  The top of the Bollinger band is at 1597.54 and the lower edge is seen at 1368.81.  The 21 day moving average is at 1483.17.  Naturally, we are above the Ichimuko clouds on the daily and weekly time-frame but are in the clouds for the monthly time-frame.  We are overbought on the weekly and the monthly charts as well as on the daily chart.  Can we go high?  Sure we can.  The question isn’t can we, but rather will we.  Watch this market for clues on the S&P 500 and the Russell 2000.  Remember, this index led the rally and will probably lead any decline that we might see.   

The Russell 2000 rallied in the Friday session.  We have a 9-count on this index and we are about as overbought as we have seen this index.  That said, we do not have any sell-signals.  We can remain bullishly overbought for some time.  We would expect to see the market, at the very least, go sideways before continuing its action.  Actually, we expect the market to retreat and then rally into the end of the week which is the end of the month. From there, once the 401K money is invested we expect to see a retreat to 518.80 on the September futures contract.  It is also likely to see 509 before we see a run to the upside.  The 5-day moving average is at 532.70.  The top of the Bollinger band is at 545.98 and the lower edge is seen at 467.19.  The 21 day moving average is at 506.58 which will offer support for this market on any decline.  Remember once this market gets above 577, there is nothing but thin air overhead and nothing much to stop the rally.  We are above the Ichimuko clouds for the daily time-frame but are in the clouds for the weekly time-frame.  We are overbought on all time-frames, yet there are no sell-signal.   

Crude oil in the Ichimuko clouds for the daily time-frame and below the clouds for both the weekly and the monthly time-frame.  On a daily chart, crude oil is overbought but has not given any sell-signals.  The 5-day moving average is at 66.30.  The top of the Bollinger band is at 72.47 and the lower edge is seen at 58.36.  If this market can close above 68.49, it will run to the low 70’s.  We have a 9-count and the market is showing signs of exhaustion.  This should be an interesting week for crude oil. 

Gold closed just marginally above the Ichimuko cloud on the daily chart.  The Friday session saw some resistance as it approached the Thursday high.  Gold did close near the highs of the day.  All the indicators that we follow herein are issuing a sell-signal on the daily chart.  The 5-day moving average is at 951.38.  The top of the Bollinger band is at 960.33 and the lower edge is seen at 908.22.  The 21 day moving average is at 930.27.  We are above the Ichimuko clouds for both the weekly and monthly time-frame.  Both the weekly and monthly indicators are issuing a continued buy-signal for gold.  So long as the market stays above 904.80 we will give it to the bulls and look for some backing and filling before the next run to the upside.