Archive for December, 2009

Sunday, December 27th, 2009

We are starving our seniors while stimulating banks and businesses. Why? Just look at the income you earn on cash in the money markets or in short-term treasuries or CD’s. Seniors, who have been taught that as we grow older our tolerance for risk decreases, are keeping their cash in safe investments and are getting less than the rate of inflation on their investments. In other words, investor’s in short safe securities are getting a negative return on their investment. It is literally costing them money to keep their money safe. Why do we stress safety as we get older? Logically, should the investment lose money, you will have less time to make that money back, simply because your age is working against you.

Here is a remedy, although seniors don’t qualify for TARP money or other stimulus money, why not force the banks to reward seniors with participation in the spread that the bank makes on that free money from the government. (Spread is the loan value of money minus its cost.) For banks, they are borrowing money at 0.5% (The broker call rate is a measly 2%, how much are you paying in margin?) and loaning that money out at more than 5% that makes that sample spread 4% plus points. Why not take half of that and pay it to qualifying seniors (those over 65 and in retirement) rather than paying the officials that run the bank a huge bonus. Why not pay good citizens a retention bonus for years of faithful investments. After all, it is our tax money not the bank money, that is being loan to the banks and that money needs to find its way back to help those, such as seniors, who cannot get jobs, because of their age, and are living on fixed incomes. Do you really believe that we should just plunge our seniors into poverty while the bank executives earn zillions of dollars? How about the insurance companies which have been fleecing these seniors for years, make them pay the seniors. Do we really need to give car companies that much money when our seniors are impoverished? This could go on and on, but you get the picture.

The last week of the year is about as exciting as watching grass grow. This is a perfect time to be off and out of the market. Don’t expect to see anything eventful during this, the final week of the year. Portfolio managers still keeping their fingers cross that the market doesn’t go very far. They are already counting on those bonus checks for a great performance year.

Monday: The Bank of Israel announces its interest rate decision. This bank was the first bank to begin raising interest rates. Tuesday: December consumer confidence is released at 10:00, and October Case/Shiller home-price index is released at 9:00. Wednesday: December Chicago PMI is released at 9:45 and weekly mortgage applications are released. Thursday: last day to take any loss you might have earned during the year. The market will be open for a full day of trading.

Were it not for the relatively light volume in the Thursday session, we might worry about the “Hangman” seen on the chart of the US Dollar index. The US Dollar index is clearly overbought as measured by most of the indicators that we follow but continues to issue a buy-signal. That said, the buy signal is flattish and has lost some of its thrust to the upside. The 5-day moving average is at 77.862. The top of the Bollinger band is at 79.297 and the lower edge is seen at 73.837. The pole formed in the US Dollar Index began on December 3, 2009 when, we received a mechanical buy-signal using the DeMark indicators. The distance in the Bollinger bands clearly shows that the volatility on the US Dollar index has blown up. At this time, that volatility seems to be receding slightly and we would expect to see more normal behavior as we enter the New Year 2010. While the fear of the near collapse of Greece, Spain and other Euro land countries has been immensely helpful for the US Dollar index, it will take more that this continued fear to keep the US Dollar on its upward trajectory. Naturally, we are above the Ichimoku clouds for the daily time-frame but we are below the clouds for both the weekly and the monthly time-frame. We shall see how this consolidation of the US Dollar index progresses. Are we going to back and fill and then move higher or simply retreat. Time will tell.

The S&P 500 March futures contract pushed against the upper edge of the trading range making a slightly higher high in the lightly traded Thursday session. We do have signs of exhaustion and we are extremely overbought as measured by most of the indicators that we follow. Not one of the indicators that we follow is curling over or giving the impression of a sell-signal. The RSI is not yet overbought, but nearing that level. The 5-day moving average is at 1110.37. The top of the Bollinger band is at 1121.70 and the lower edge is seen at 1088.23. We are pushing against the upper edge of the Bollinger band. The Bollinger bands are beginning to expand ever so slightly. We are above the Ichimoku clouds for the daily and weekly time-frames, but we remain below the clouds for the monthly time-frame. Even the monthly chart is overbought. Again, there are no signs of a curl or a bend in the indicators that we follow herein. The next upside target for the S&P 500 March future is 1136.25 above that is a melt to the upside taking the futures to1180.25 with a stop along the way at 1144.95.

The NASDAQ 100 actually broke out to the upside on low volume. We have been in rally mode for the past 5 sessions, three of which seem to have signs of exhaustion. We close well above the upper edge of the Bollinger band and the nicest thing we can call this chart is grossly extended to the upside. As to the indicators; the stochastic indicator has issued a sell-signal at grossly overbought levels, the RSI continues to point higher at overbought levels, the Thomas DeMark Expert indicator is flattish at overbought levels and our own indicator is going flat at overbought levels. The 5-day moving average is at 1819.68. The top of the Bollinger band is at 1854.10 and the lower edge is seen at 1746.06. The Bollinger bands are expanding showing us that the volatility is returning. Naturally, we are above the Ichimoku clouds for the daily and the weekly time-frame. We are in the clouds for the monthly time-frame. The monthly chart shows us that we have rallied thru the 62% retracement level and that we are in place to rally to 1977 and 2062. We do expect to see some backing and filling. It certainly looks as though the January affect had an early start in December.

The Russell 2000 looks like a mini version of the NASAQ 100’s rally. For the past 5 days, this index has been on an upside tear, trying to keep up with the NASDAQ 100, but failing to do so in the Thursday session. Both the NASDAQ 100 and the Russell 2000 are prime indices for the January effect. Both of these indices have stock that might have been sold for tax reasons and are now available to repurchase. The 5-day moving average is at 615.91. The top of the Bollinger band is at 632.49 and the lower edge is seen at 573.87. We are above the Ichimoku clouds for the daily and the weekly time-frame. We are overbought as measured by the stochastic, RSI and our own indicator. The Thomas DeMark Expert indicator is at neutral with a slight upside bend. Our own indicator has just issued a sell-signal and it looks as though the stochastic indicator might as well. The RSI continues to point higher at overbought levels. So far so good for the bulls. We shall see how the backing and filling goes. Right now, we see a large “W” on the chart with what looks to be a completion of that pattern.

Crude oil has been enjoying a rally in recent days and looks as though it is about to break out of the Ichimoku clouds on the daily chart. We are overbought as measured by the stochastic indicator and approaching overbought as measured by the RSI. We are bumping up against the downtrend line at 77.93. It seems likely that we will back and fill before trying to rally above that line. The 5-day moving average is at 73.38. The top of the Bollinger band is at 79.43 and the lower edge is seen at 68.40. One more push to the upside will push crude oil above the Ichimoku clouds on a daily time-frame. We are deeply inside the weekly Ichimoku clouds. The indicators on the weekly chart are pointing higher and are not overbought. We see little resistance above 77.48 on the Market Profile chart. The point and figure chart tells us the number is really 78.25.

You should have read last week’s letter on gold! We nailed it. Gold put in a nice low on December 22, 2009. The only problem with gold is that the boat is really heavily weighted to the bullish side with nobody on the other side. This means that gold is both in weak and strong hands. Right now, it looks as though it is going to rally but we are concerned that on any pull-back we could see some weak players bail out of the trade. The 5-day moving average is at 1108.60. The top of the Bollinger band is at 1218.66 and the lower edge is seen at 1061.50. We are inside the Ichimoku clouds on the daily time-frame but will above the clouds for the weekly and monthly time-frames. We are overbought on the monthly time-frame but pointing lower on the weekly time-frame. We continue to believe that we could see a decent pull-back after the next rally which we expect to see this week. Above 1106.60 we should see a move to the upside.