Archive for October, 2009

Sunday, October 25th, 2009

This past week, many Medicare recipients were notified that the cost of additional insurance (Medicare Supplement) would be raised from $96.40 to $104.20 in 2010 and to $120.20 in 2011.  We were further told that seniors and those who receive social security will not receive a cost of living adjustment for this year because there hasn’t been any perceivable inflation.  This adjustment, called COLA, is made to adjust incomes to overcome the effects of inflation.  If there is no inflation why is there an increase in the Medicare insurance premiums?  If the government is saying that there is no inflation than where is the extra money going?

While on that topic, Congress passed their annual raises. This is automatically done to avoid the burden of showing up in the middle of the night to vote in a pay increase.  It also avoids the public awareness of their pay increases.  We understand the absolute anger that the public has with the pay packages that many of those TARP reaping institutions are paying their upper management, but why is nobody angry about the pay increase for Congress.  If there is no inflation in the system, as stated by the government, and the seniors won’t get more money but will have the right to pay more for insurance, why is the Congress getting a raise?  Shouldn’t they be set to those same standards that they are trying to set for others?  While we are at that, why aren’t our dear elected officials paid for performance.  The country is in deficit, they should certainly not get a raise, and perhaps they should pay for the right to be in Congress.  A trader is paid a fixed salary, and then paid a bonus for performance.  Our elected officials are just over paid.  They have run this country into the ground and nobody is squawking about it.  Well, we are.  Throw the bums out!  We have the fox watching the hen house; this is the formula for disaster.  We, the citizens of the USA, are suffering like the serfs in Merry Ole England did, while the ruling class, elected officials, feasting.  It is time for a change, and we mean change.

Another welcomed change would be to have our elected officials live as we do, on social security and retirement.  Congress people should be compelled to live with the health insurance that we have to live with including all the little annoying cost increases.  If we do that, the Congress will fix the system.  We are just perpetuating bad behavior by not forcing Congress to live as we have to live.

Here is the problem as we see it:  Municipal governments will have to cut back or hike rates, consumers remain tapped out, businesses are now merging to improve their bottom lines which will result in employment reductions, costs for food and other commodities are marching higher, incomes are either flat or slightly lower, underemployment is high and we are entering the most important season for retailers.  Doesn’t sound good, yet the market continues higher.

Tuesday:  September consumer confidence numbers are released at 10:00.

Wednesday:  September durable goods are released at 8:30 and September new home sales are released at 10:00.

Thursday:  3rd quarter GDP is released at 8:30.

Friday:  September personal income and consumption is released at 8:30, October Chicago PMI is released at 9:45 and October Michigan Sentiment is released at 9:55.

The chart of the US Dollar index looks as though it is going to make a stand here at the 75.085 level, which was the low of the Wednesday session.  The chart, although deeply oversold looks like it would like to rally.  We will consider those rallies a reaction to an oversold condition more than a buying opportunity.  We believe that until and unless the US Dollar index is able to cloud above 76.047, 76.85 and the downtrend line of 76.91 that the shorts will maintain their positions.  Should we close above 77, we believe that the shorts will move in and cover their positions, or at the very least, begin to cover those positions.  All the indicators that we follow herein are issuing a buy-signal for the US Dollar index basis the daily chart.  We remain below the Ichimoku clouds for the daily, weekly and monthly time-frames.  All time-frames are oversold.  The 5-day moving average is at 75.611.  The top of the Bollinger band is at 77.701 and the lower edge is seen at 74.864.  We continue to believe that we have opened the door to the lower levels and we would not be at all surprised to see this index at or near 70.805.

For the past eight days the market as measured by the S&P 500 has really gone nowhere.  Yes, we have had gyrations up and down but in the end, the chart looks as though we are consolidating.  All the indicators that we follow herein are issuing a continued sell-signal; none of the indicators are oversold.  The 5-day moving average is at 1083.83.  The top of the Bollinger band is at 1106.86 and the lower edge is seen at 1024.35.  We are above the Ichimoku clouds for the daily and weekly time-frames but below the clouds for the monthly time-frame.  We are entering the last week of the month and a time when most portfolio managers will need to take any, if at all, loses for the year.  Once we get thru this period, it is likely that the market will feel some relief and try to rally.   Yes, we are closing in on the last two months of the year but the small investor is not constrained to take loses until the last day of the year.  Therefore, they will likely watch and wait before adjusting their portfolios.  The Market Profile chart tells us that if this market can get above 1096.50, it will likely “melt up.”

The NASDAQ 100 futures contract’s chart looks less toppy than does the S&P 500 futures chart.  We do have a 9-count on the chart and we seem to be topping out but this could resolve to the upside.  The stochastic indicator, our own indicator and the RSI are all issuing fresh new sell-signals.  The Thomas DeMark Expert indicator continues to point higher albeit at overbought levels.  We are above the Ichimoku clouds for the daily and weekly time-frames but are in the clouds for the monthly time-frame.  All time-frames are overbought.  The Market Profile chart shows that there isn’t a lot of supply overhead so, we could have a “melt up.”    So long as the market stays above 1723.25, we will give it to the bulls.  The 5-day moving average is at 1747.86.  The top of the Bollinger band is at 1780.80 and the lower edge is seen at 1666.37.

The Russell 2000 future chart had a very ominous candle in the Friday session.  This is the worst looking of the indices.  It actually makes sense that this would be the worst performer.  Why?  Because, this is an index of small capitalization stocks and they are usually the ones unloaded at the end of the year for tax loss selling.  That said, these are usually the beneficiaries of the January effect and are the first to rally in the New Year.  The 5-day moving average is at 612.42.   The top of the Bollinger band is at 627.90 and the lower edge is seen at 601.30.  We would be concerned if this index closes below 595.80.  We are above the Ichimuko clouds for the daily and weekly time-frames.  We are overbought on the weekly and monthly time-frames and getting oversold on the daily time-frame.  The stochastic indicator and the RSI continue to issue sell-signals on the daily chart.  The Thomas DeMark Expert indicator is issuing a buy-signal and our own indicator is curling to the upside but not issuing a buy signal at this time.   This index really looks as though it has rolled over to the downside.

Crude oil retreated in the Friday session but did no damage in that retreat to the bullish look of the chart.  The 5-day moving average is at 78.57.  The top of the Bollinger band is at 83.32 and the lower edge is seen at 64.64.  All the indicators that we follow are overbought and all are issuing a sell-signal.  If crude oil returned to the uptrend line it would retreat to 74.90.  This would not negate the positive look of the chart but would rather remove some of the excesses seen in recent days as short covered their bleeding positions.  Crude oil is above the Ichimuko clouds on the daily time-frame and is in the clouds on the weekly time-frame.  The weekly chart continues to look bullish.  The bottom line is; we expect to see crude, at the very least, back and fill before trying to venture higher.  This market continues to look good although for the shorter term, we would expect to see a retreat.

The Gold chart and the S&P 500 chart look very similar and both look as though they are topping out.  Gold seems to be stuck in a trading range.  At the moment, we have sell-signals from all the indicators that we follow herein.  We are above the Ichimoku clouds for the daily, weekly and monthly time-frames.  There is no overhead resistance and every rally above the old high causes some shorts to cover.  This market will retreat so don’t chase after it.  No, we are not going to go back to $250 or even $600 anytime soon.  The 5-day moving average is at 1012.76.  The top of the Bollinger band is at 1057.48 and the lower edge is seen at 890.30.