We are in the last two months of the year, now that mutual funds have closed their year and that selling pressure is removed from the market, we are left with those who will want to clean out the portfolios of pound puppies and those who want to protect the thoroughbred winners that they have cultivated. The biggest worry on the Street isn’t what the FOMC will do next or if there is inflation or stagflation in the economy, but rather is the fear of losing the hard won gains in the value of the portfolios that they manage. Not only do the portfolio managers want to make and keep their profits, but they want to keep their bonuses are keyed to those profits. So what can they do? Well, they could buy a bunch of puts, sell calls, use trailing stops, do some pairs trading, or go to cash. With those choices, we believe that the purchase of puts or a combination of a put spread with a call spread, just might be the formula to help get thru the next two months. These options combinations can be placed on individual issues, indices or a combination of both to “buy protection” against an adverse event.
“We want to make sure that we don’t put the taxpayer in a position of having to absorb the costs of a crisis in the future,” Mr. Geithner said after the Sky News interview. “I’m sure the I.M.F. will come up with some proposals.” Does Treasury Secretary Geithner actually believe that the taxpayer didn’t pay for the bail outs and costs of the past crisis? Did money float down from the clouds and plunk itself into the treasury. Where did all this stimulus came from? Ah, he is talking about the future? Well then, get your act together and hold the bandits accountable for the damage that they have done. Don’t try to act like a good guy after fleecing the public; we just aren’t that stupid you know. We do know when we have been fleeced and by whom. Hold the companies such as large investment banks, insurance companies etc accountable for their failure. If not, bail out everyone who lost money in the recent Bear Sterns-Lehman Bros. debacle. Have the bonus toting CEO’s pay for the bail out. The traders earned their money, they are entitled to their bonuses, but the guys and gals at the head should have to pay. The worry about losing talent is ridiculous, they got us into the mess, what talent was it to do that? Throw the bums out, let them become homeless; let them suffer as we do.
As to health insurance, the true worth of this bill would be if the Congress would agree to be covered by the very same plan that they are stuffing down our collective throats. If it is good enough for us, it should be good enough for them. You want this bill and vote it in, you live by it. Make the writers live by their own rules and enjoy the benefits of this health plan, and then and only then will they will feel the burden of their errors.
As the unemployment rate or “jobless rate” insomuch as it does not include people who never were in the job market, like recent graduates, it is grossly under reporting the gravity of this jobless recovery if, in fact, it is a recovery. The government reported that the unemployment rate is 10.2%. We think it is closer to 20% if you include all people LOOKING FOR WORK, those who never were in the work-force, as well as those who had been employed. Another group left out of the calculation is the discouraged worker who has simply stopped looking.
Clearly, this recovery has omitted many. New jobs are cropping up but they are, for the most part, low paying jobs or commission jobs. So what does the recent college graduate do? Go to graduate school and dig the debt hole deeper. Well, this May we should have the first crop of graduate school graduates enter the job market. Those who took teaching as a profession, will probably find jobs, others may join their fellow graduates on the “I can’t find a job” line. Since they didn’t have a job, there are not technically counted as unemployed although, they really are unemployed. There are some who pitched the college degrees and went into the labor force as day laborers you know, construction workers, garbage men, street cleaners….real solid jobs that they went to college to prepare for. These jobs do pay money and that money is needed to pay off the mountain of debt the graduate piled on getting that degree.
Tuesday: Atlanta Fed President Lockhart speaks and San Francisco Fed President Yellen speaks.
Wednesday: Weekly mortgage applications are released.
Friday: October import/export prices are released at 8:30 along with international trade numbers, University of Michigan November consumer sentiment is released at 9:45-10:00 and Chicago Fed President Evans speaks.
The US Dollar index did very little to help the bulls in the Friday session. This market seems to be drifting. We can say that it would be bullish, well within the contexts of a bear market, for the US Dollar index to close above 76.41, although if we were short, we would worry until the US Dollar index closed above 76.73 and was able to stay there for more than two days. On the other hand should the US Dollar close below 75.578 we would believe that the recent lows of 75.08 would be challenged and the door would be open to 74.32, 73.49, 72.30, 71.52, and 70.71. Below 70.71 the market should waterfall lower. We see mixed signals from the indicators that we follow. The stochastic indicator is issuing a buy-signal; the RSI is flat near neutral levels. The Thomas DeMark Expert indicator is oversold and pointing lower, our own indicator continues to issue a sell-signal with room to the downside. The 5-day moving average is at 76.22. The top of the Bollinger band is at 76.781 and the lower edge is seen at 75.123. We are below the Ichimoku clouds for all time-frames. The weekly chart has giving us a sell-signal from oversold levels. Yes, we can remain oversold or overbought for extended periods of time. Until and unless the US Dollar breaks above and stays above the downtrend line, we will opt for the bearish side of the trade. Yes, we understand that the boat is tipped to the bear side but that is what the chart is telling us.
The S&P 500 has been in rally mode for the past 5 sessions regaining almost all that it lost in the last week of October. As such, the indicators have moved from oversold to neutral, for the most part. The Thomas DeMark Expert indicator remains overbought but is pointing higher. If this market can remove the 1069.50 high of the Friday session, it will rally back to the highs seen on October 20 when it traded as high as 1099. The indicators show that there is plenty of room to the upside but they also show that we are losing steam or thrust to the upside, however; most are issuing a continued buy-signal. The 5-day moving average is at 1050.08. The top of the Bollinger band is at 1104.41 and the lower edge is seen at 1029.90. So long as the market stays above 1044.50 and 1026, we believe that it will be range-bound as money is redistributed from small capitalization stocks to large capitalization stocks; you know the kind that have dividends and can withstand a retreat better. We are above the Ichimoku clouds for the daily and the weekly time-frame but we are below the clouds for the monthly time-frame. Most investors are hoping that this market stays positive for the rest of the year. At this point with two months left in the year, it looks as though they might have a slow upward bias for the remainder of the year. The footnote to be wary of are levels like 1044.50 and 1026, if broken would cause a herd run for the exits.
The NASDAQ and the S&P chart do look similar except that the NASDAQ 100 made a lower low on November 2 and the S&P 500 didn’t. We also note that should the NASDAQ 100 remove 1753.25 on a closing basis, the door will be opened to 1779.25. Above that level, thin air and a possible melt up. The point and figure chart looks as though we are consolidating. All the indicators that we follow herein continue to issue a buy-signal with only the Thomas DeMark Expert indicator in overbought territory. The 5-day moving average is at 1694.77. The top of the Bollinger band is at 1785.02 and the lower edge is seen at 1660.92. On the downside, we need to worry about 1650.25. Should this index close below that level we will see some further selling probably taking the index down to 1633, 1600 and 1584. This index behaved better than its peers in the Friday session. We are above the Ichimoku clouds for the daily and weekly time-frames but we are in the clouds for the monthly time-frame, which is about to issue a sell-signal. Remember before you go and sell, both the weekly and the daily indicators are in buy mode.
The prize for the worst performer in the Friday session goes to the Russell 2000. The recent los of November 2 opened the door to 545, 524.50, 516, and the all important 508 level. The Market Profile chart warns us that should this index close below 549.90 we likely will retreat to the 508 level in short order. The 5-day moving average is at 571.16. The top of the Bollinger band is at 635.51 and the lower edge is seen at 550.38. The stochastic indicator is curling over to the downside but has not issued a sell-signal. The RSI is going flat near neutral. The Thomas DeMark Expert indicator is overbought and pointing higher, the MACD looks like it is issuing a buy-signal; our won indicator is neutral and not trending which is supported by the ADX. What is clear from this chart when compared to the others like the S&P 500 and NASDAQ 100 is that money is flowing out of small capitalization stocks and into more stable large capitalization issues. Remember, the Russell 2000 and the NASDAQ 100 tends to lead rallies. We must also remind you that as we approach the end of the year, the small capitalization stocks are in the sell pile for year-end tax and portfolio management. These issues are the same issues that are the beneficiaries of the “January Effect.”
Crude oil seems to be consolidating. The Friday session was a nasty session for the crude bulls. That session came close to but did not remove the recent lows of 76.56. Actually, the uptrend line is at 76.01 on the daily chart. The 5-day moving average is at 78.78. The top of the Bollinger band is at 82.71 and the lower edge is seen at 74.10. All the indicators that we follow herein are issuing a sell-signal however this is coming from below neutral. On the downside, we see good support for the crude market all the way down to 68.50. Below that level, it gets a little muddy with light support. On the upside, above 82, you will see a melt up. We are above the Ichimoku clouds on the daily time-frame. We are in the clouds for the weekly time-frame and above the clouds for the monthly time-frame. If we draw trendlines on the weekly chart, we see that this market can retreat to 70.78 without disturbing the uptrend line.
The gold market looks as though there is a bear flag forming. Yes, we understand that this is not the popular belief but nonetheless it is ours. We are not bears but we believe that this market is grossly overbought and beginning to look like a blow-off. All the indicators that we follow herein are issuing a continued buy-signal albeit at overbought levels. There are two indicators that are not in agreement and they are the commodity channel index and the Thomas DeMark Expert indicator both are rolling over to the downside. The 5-day moving average is at 1062.58. The top of the Bollinger band is at 1094.41 and the bottom edge is seen at 1023.87. Naturally, we are above the Ichimoku clouds for the daily, weekly and monthly time-frames all of which are overbought. Remember as we approach the highs, we will see the shorts cover, that is if there are any left in this market.