Full moons, eclipses, and various astrological events have come and gone without causing the market to belch, much less to crash. Thus, we can finally put these indicators to rest or disclose that because something occurs in the sky, it does not necessarily mean that the market will retreat and fall, it could, in fact, be a sign of a continued rally. That is exactly what we see now.
We are deep into back to school season and although, many are distracted with the “cash for clunkers” deals, we have to supply our children’s school needs and in many cases tuition. Although the “cash for clunkers” deals continue, parents all over the country are scrambling to find the funds for the back to school season. As the stock market rallies, people feel better about the economy and might just loosen up the purse strings a bit. We don’t foresee the spending sprees that the government is looking for. Rather, we see careful spending on needed items. Remember, parents will always buy for their children before they buy for themselves. Further, the children in school are the public face of the parents at home. By that, we infer that parents will put on a better face to their peers rather than admit tight funds. Therefore, the children will have what they need for school. Mommy and Daddy will have to make due with what they have in their closets for this year. Styles will be upgraded by accessories rather than new cloths. Swap meets will bring new looks, without the embarrassment of disclosure of financial restrictions. Many are making these affairs fun and almost party like. The bottom line is that retailers, save for the children’s back to school ware, are still in trouble.
Just as a query: this past week AIG agreed to pay the SEC 15 million dollars over an accounting improprieties without admitting guilt,, Bank of America agreed to pay the SEC 33 million to settle a shareholder suit, naturally without admitting or denying guilt, and GE settled their suit with the SEC on a civil fraud and other actions without admitting or denying guilt. Don’t you think some guilt should accompany any acts of improprieties? Why should the big firms get away without having to admit guilt? This practice has been on going for years, isn’t it about time to CHANGE that also?
Did anybody notice that Fannie Mae asked for another 10.7 billion dollars to help it get out of its financial hole? This past week we noticed that although there a green shoots everywhere, Fanny Mae lived in the weeds reporting another bad quarter with losses that widened. Perhaps, they should hire some of the folks at Goldman Sachs to come on over and help them invest and run the company better?
Tuesday: 2nd quarter productivity is released at 8:30 and June wholesales inventory is released at 10:00. Wednesday: June international trade is released at 8:30 and the FOMC ends its two day meeting with its interest rate decision (no change expected….duh) and with a statement (this should soften seeing the “green shoots” of economic recovery and some optimistic fertilizer). Thursday: July retail sales, and import prices both released at 8:30 and June business inventory is released at 10:00. Friday: July CPI is released at 8:30, July industrial production /capacity utilization is released at 9:15 and at 9:45-10:00 the
University of
Michigan survey is released.
The US Dollar index bounced from oversold levels in the Thursday session and continued that bounce into the Friday session with the best one-day rally seen since early June. All the indicators that we follow herein are issuing a continued buy-signal with plenty of room to the upside, plenty! With all of the splendid action seen in the two-day rally we need to see a close above 89.78 in the Monday session to break the downtrend line. We are below the Ichimuko clouds for the daily time-frame. The 5-day moving average is at 78.099. The top of the Bollinger band is at 80.619 and the lower edge is seen at 77.493. There are two more downtrend lines drawn from further points which should offer resistance to the US Dollar as it rallies. These downtrend lines are at: 80.118, and 81.953 and naturally, these lines will be points of resistance for the US Dollar index. We are seeing buy-signals in the weekly chart and some indicators on the monthly chart have turned positive. We need to see how the US Dollar behaves once it approaches the existing downtrend line.
The S&P 500 has been on an upside tear since July and, there seems to be no stopping it. We had a 9-count in the Thursday session and in the Friday session, a 10-count. Are we overbought? You bet we are, just remember the terms “bullishly overbought” which should tell you that although we are overbought the condition can continue. Don’t get caught into the idea that because we are overbought we have to go down right away. That is not a reasonable conclusion. What we see is a measurement of the “Lemming effect,” where portfolio managers, investors and others are just throwing money at the market because it is trending higher and, they don’t want to miss the rally. Where will it end? Who knows, when the piranha start feeding they don’t stop until there is nothing left to eat. We can merely tell you that right now, we are overbought and unless the declines become steeper and have more conviction, don’t fight the trend. The 5-day moving average is at 1001.55. The top of the Bollinger band is at 1034.37 and the lower edge is seen at 887.09. The stochastic indicator, our own indicator and the RSI all are overbought and all continue to issue a buy-signal. The Thomas DeMark Expert indicator is issuing a sell-signal. We are above the Ichimuko clouds on the daily and below the clouds on the monthly chart. Above 1011 the market profile chart shows little resistance until we get to1152…yikes!
The NASDAQ 100 rallied in the Friday session but not in the Thursday session. We have a 9-count on the chart. The stochastic indicator, the RSI and our own indicator continue to issue a buy-signal albeit at overbought levels. The Thomas DeMark Expert indicator continues to issue a sell-signal. The 5-day moving average is at 1618.50. The top of the Bollinger band is at 1686.96 and the lower edge is seen at 1434.79. We are above the Ichimuko clouds for the daily time-frame. Although the Friday session took the NASDAQ 100 to the downtrend line, it did not close above the downtrend line of 1628.04. This chart looks as though we are putting in a rounding top. Of course, a strong rally in the Monday session would remove the specter of doubt on the rally. If you take the weekly chart of the NASDAQ 100 and draw a Fibonacci retracement from the top of August 2008 drawn to the bottom of October 2008 and March of 2009, you will notice that we are at the 62% retracement level. Could just be an interesting observance or a real resistance point. Remember, this drawn on the weekly chart not the daily chart.
The Russell 2000’s rally in the Friday session was an eye-popping rally that left a bullish engulfing candle on the chart. We saw a 9-count on Wednesday and by Friday the count expanded to 10. The stochastic indicator, the RSI and our own indicator are all extremely overbought and continue to issue a buy-signal. The Thomas DeMark Expert indicator is going sideways at neutral. Naturally, we are above the Ichimuko clouds for the daily time-frame. The 5-day moving average is at 565.16. The top of the Bollinger band is at 588.87 and the lower edge is seen at 483.42. The uptrend line is very steep and we closed on the uptrend line. Naturally, we can not remain at this exaggerated level of assent. It would be possible for us to see this market consolidate by going sideways or, perhaps decline. It seems as though those who have missed the rally are now throwing money at the rally in an effort not to miss what is left of the short-term uptrend. Is this a change from bear rally to new bull market? Could be, but we do not have that evidence at this moment. We certainly fell that this rally presents a good case for the low of March being the low of this cycle. Again, the jury is still out on this one.
Crude oil is trading like a negative image of the US Dollar index. Friday, the US Dollar index rallied and, crude oil declined. Crude oil is above the Ichimuko clouds for the daily time-frame and in the clouds on the weekly time-frame. All the indicators that we follow herein are issuing a sell-signal. The 5-day moving average is at 71.56. The top of the Bollinger band is at 73.98 and the lower edge is seen at 59.03. We are in position to challenge the 74.25-74.60 levels. As we get above these levels, there is less and less resistance and supply seen on the chart. We are over extended on this chart and would expect to see the market back and fill, or, drop further.
Gold, as priced in US Dollars, retreated in the Friday session, which was the third day down for the precious metal. We are above the Ichimuko clouds for both the daily and the weekly time-frames. The weekly indicators continue to issue a buy-signal, however; the daily indicators are issuing a sell-signal. The 5-day moving average is at 963.44. The top of the Bollinger band is at 976.33 and the lower edge is seen at 918.51. The downtrend line for the Monday session is at 968.14 and the longer downtrend line is at 973.86. It would not surprise us to see gold retreat to 936.96. Yes, we are aware that this is miles away from where we are but that is the uptrend line. At the very least, expect to see gold retreat to 950 or so, which would keep the metal positive and set it up for a further run to the upside. Then again a visit to 936 or so would not violate the bullish look of the chart.
Here is the link to the October IFTA conference in
Chicago.
THERE WILL NOT BE A MARKET LETTER NEXT WEEKEND