Archive for August, 2009

Sunday, August 30th, 2009

 

 

ANNOUNCEMENT: There is a great conference for professional technical analysts from all over the world coming up in October. The conference will be in
Chicago and it is open to anyone who is interested in attending (pro or not). Please see http://ifta2009.com for more conference details.
 

Is it September already?  Back to school, back to work and into the “worst month of the year” for the stock market.  Well that is has been its history, but this year everything seems to be topsy-tervy and could surprise us to the upside.   We just reviewed some notes we took at some springtime symposiums.  It appears that most of the speakers we heard claim that March 6th was the bottom of the market, however; two of the speakers also claimed that the market would crash on August 7th, and would hit the low on September 24th  and another lower low on October 7th, which will be the bottom of the crash.  So far, it would appear that the low claim was good, but the crashes didn’t materialize.  True we have to wait and see if the September crash and the October crash materialize.  Those two dates are in the future.  Do we believe this?  Absolutely not, however; we will listen and carefully watch those dates.  Maybe they are correct, and then again maybe not.  We felt that we should disclose this vital information to our readership. 

On to the real world.  During this past week, the S&P 500 made a marginal higher high for the month and for the entire run from the March lows.  The problem the chart illustrates is that we have 5 doji-like candles.  A doji candle is a candle where the opening price and the closing price are either the exact same or nearly the same.  We will say, formally, that all of the five candles from this past week (actually two of the candles were doji candles) are not true doji candles, but they show very small real bodies. As you may or may not know, a doji is a candle that indicates indecision, a time when both bears and bulls seem to have equal control over the market.  These doji-like candles indicate that there may be a possible change in direction in the market.   Insomuch as the previous direction has been up, it is likely that the change of direction will be to the downside.  We know that this is not the popular reading on the market, but unfortunately we read the charts and not the media hype.  

Another interesting chart is that of the VIX, or Volatility Index.  This chart seems to be coiling, which generally leads to an explosion to one direction or the other direction.  Our guess is that the direction will be to the upside.  A further look at the Bollinger bands on the VIX shows the viewer that we are rather narrow and again warns us that we could explode, or have an extreme increase in the volatility of the volatility index, no we are not being funny, it is a derivative of a derivative.  Take a look at the weekly chart of the VIX and you really see the coil and what appears to be a formation of a saucer-like bottom.  All this translates negatively for the S&P 500.   

We understand that the “cash for clunkers” was such a success that the government is considering doing the same program for appliances.  With that thought in mind, don’t buy any appliances until we discover the details. 

Monday: 
Chicago purchasing managers for August is released at 9:45.  Tuesday:  July construction spending is released at 10:00, August car sales, and August ISM is released at 10:00.  Wednesday:  August Challenger, Gray & Christmas job cuts report, the FOMC minutes from the August 2 day meeting are released at 2:00, 2nd quarter productivity is released at 8:30, ,  and July factory orders are released at 10:00.  Thursday:  August chain store sales, weekly mortgage rates are released and the ISM August index is released.  Friday:  August nonfarm payrolls and unemployment rate is released at 8:30.  
 

The US Dollar index seems to have found a bottom, well for now at least.  That level of support is at 77.81 with further support at 77.56.  If the US Dollar index can close above 78.67, a very short-term downtrend line, it likely will travel to the next downtrend line at 79.19.  Naturally, we are below the Ichimoku clouds on the daily, weekly and monthly time-frames.  Should we see the US Dollar index break the aforementioned recent lows, we would expect to see some support at 77.22, 76.02, and 74.72.  There are more numbers below but these should hold the market for now.  Remember we are also entering roll-over, when the September contract rolls into December.  This usually occurs in the second week of September, but it can begin at any time and last until the contract expires.  Naturally, those who need to roll will roll when the volume for the roll peaks.  All the indicators that we follow herein are issuing a fresh buy-signal.  The 5-day moving average is at 78.357.  The top of the Bollinger band is at 79.57 and the lower edge is seen at 77.51.    

The S&P 500 September future is coiling.  Currently, we are above the Ichimoku clouds on the daily, in the clouds for the weekly and below the clouds for the monthly time-frame.  We are getting a sell-signal from all the indicators that we follow herein.   The market has been very strong so, if you do short it, please use close trailing stops.  The 5-period moving average is at 1026.80.  The top of the Bollinger band is at 1036.21 and the lower edge is seen at 977.40.  The weekly Market Profile chart shows that above 1045 there is a gap in the chart which takes us to 1100.  The gap represents a place where we could see a melt up.  We are entering roll-over within the next two weeks and should the traders need to cover their shorts or roll their shorts, we could see a melt to the upside.  If you look at the chart, you will notice that we tried and actually traded above the upper Bollinger band for three of the past five days.  The 5-day moving average is at 1026.  The top of the Bollinger band is at 1036.21 and the lower edge is seen at 977.40.  It is interesting to note that the retreats have been very shallow and the risk appears to be returning to this market, the only fly in that theory is that when you look at the put purchased, you find that there were more puts traded than calls, the curious tidbit is that when looking at equity options the numbers are opposite.  Could it be that the index puts are being viewed as term-insurance for the portfolio?   

The NASDAQ 100 September futures, like the S&P 500 had a week of small bodied candles.  We are above the Ichimoku Clouds for the daily and the weekly time-frame and in the clouds for the monthly time-frame.  The 5-day moving average is at 1637.70.   The top of the Bollinger band is at 1655.55 and the lower edge is seen at 1578.63.  The stochastic indicator is issuing a fresh sell-signal but the other indicators are going sideways without a signal.  We poked above the upper Bollinger band on three occasions this past week.  We seem to be coiling. Should this market close below 1610 we would expect to see a decline to 1563.75.   We could decline to 1561 and not disturb the uptrend line.  It would not be unusual to see this sort of reversion to that line.  The market feels heavy, however; we have seen the declines remain shallow as fresh money is being put to work in this market.  We have seen the return of risk; the risk seems to be hedged with puts which would represent some downside protection.  The money invested in this market isn’t the long-term “I’ll stay the course” type of money but is rather scared money ready to jump ship at the whiff of a downdraft.   These are interesting times.  It is interesting to note that this index and the mid-cap index were the two winners in the Friday session. 

The Russell 2000 seems to be trying to rally and failing on a daily basis.  This index does not show the many doji candles seen on the other charts.  We see that the Russell 2000 poked above the upper Bollinger band in the Friday session.  A further difference with this index when compared to the others is that here, all of our indicators are uniformly issuing a sell-signal.  The 5-day moving average is at 581.30.  The top of the Bollinger band is at 588.50 and the lower edge is seen at 549.30.  We are above the Ichimoku clouds on the daily and the weekly time-frames.   The weekly chart has a doji candle which represents equilibrium between the bulls and the bears.  It also tells of the market’s indecision about the direction and many times is seen as a warning of a change in direction.  The stochastic indicator is issuing a fresh sell-signal on the weekly chart.  The Thomas DeMark Expert and our own indicator are both issuing a sell-signal only the RSI is going sideways at overbought levels.  We do have signs of exhaustion on the weekly chart.  If you do a Fibonacci retracement from September of 2008 to September of 2009 you will not that a 62% retracement will be at 604.98.  Looking at the Market Profile weekly chart you will find a gap from 591 to 609.70 where there are only single prints.  This is the last week of the summer the last fling, so to speak. Expect to see trading desks lightly populated with junior traders.   

The chart of crude oil and the chart of the US Dollar are mirroring images, one positive one negative.  The crude oil chart was more violent than was the US Dollar index chart.  They seem to be related to each other, as we know they should be.  Crude oil is not coiling while the US Dollar index is.  The crude oil chart is above the Ichimoku clouds for the daily and monthly time-frames but in the clouds for the weekly time-frame.  Our indicators are giving us mixed signals but none are issuing a sell-signal.  They seem to be as confused as the chart seems to be.  So long as the market does not close below 69.83, we will lean to the bullish side of this trade.  The 5-day moving average is at 72.61.  The top of the Bollinger band is at 74.82 and the lower edge is seen at 67.40.  We do have a troubling candle on the weekly chart that of a doji candle.   Right now, we are entering winter heating season so, we would expect to see some continued support of this market. 

Gold looks as though it is going to try for the August 6th high of 971.10.  Although the indicators are not yet overbought, they are getting pretty close to those levels.  That said, we continue to see a buy-signal for gold.  The 5-day moving average is at 946.82.  The top of the Bollinger band is at 967 and the lower edge is seen at 932.62.  We are above the Ichimoku clouds for all time-frames.  We are not gold bugs but believe that gold will challenge the old highs and probably make new highs.  This is not for tomorrow but a longer look at the chart.