Archive for January, 2010

Sunday, January 31st, 2010

Some pockets of shoppers are returning to the market. We notice that the current flock of shoppers are the more well-to-do shoppers who, had the cash, but who were saving it in case things got worse. Today, they are no longer worried about things getting worse and are again beginning to spend their cash. After all, the government has said that the recession is over, so, we guess they believe the propaganda that the current administration is publishing. Will this be enough to restart the economy? Probably not, because the middle class earners are still under financial waters and struggling to stay afloat. Purchases that are being made are based on need, discretionary spending is limited. Worse yet, those who have been burned by the decline in the wake of the Lehman mess are scared to do anything at all. Thus, they are, for the most part, not investing and sitting on negative returns in CD’s or money markets.

Greece, Portugal and Spain all are having financial problems and, as members of the European Union, are pressuring the Euro. Perhaps this is why the US Dollar has been in rally mode. Remember, as the dollar rises, dollar based commodities and the US equities markets will fall. This is vintage John Murphy stuff. Re-read your Murphy books: The Visual Investor and his book Intermarket Technical Analysis. The market is behaving as he described it and the relationships are holding true.


Monday: December personal income/consumption is released at 8:30, December construction spending is released at 10:00 and January ISM index is released at 10:00.
Tuesday: pending home sales and home vacancies are released at 10:00.
Wednesday: January ISM non-manufacturing index is released at 10:00, and Challenger Gray & Christmas January layoff report is released.
Thursday: Both the European Central Bank and the Bank of England release statements and interest rate decisions, 4th quarter productivity is released at 8:30 and December factory orders are released at 10:00.
Friday: January non-farm payrolls and unemployment are released at 8:30 and consumer credit is released at 3:00.

The US Dollar index has a 9-count on the daily chart. We are overbought as measured by the indicators that we follow. That said, three of the four indicators are pointing to higher levels. Only the Thomas DeMark Expert indicator is curling over and issuing a sell-signal. The 5-day moving average is at 78.630. The top of the Bollinger band is at 79.46 and the lower edge is seen at 76.50. We are above the Ichimoku Clouds for the daily time-frame but are below the clouds for both the weekly and the monthly time-frames. We are overbought on the daily and weekly time-frames but not on the monthly time-frame. When there is a retreat in the US Dollar index, we expect to see support at 78.77 and at 78.22. There is an uptrend line for the Monday session at 77.801; the weekly uptrend line is at 77.752. We closed above the upper edge of the Bollinger band, for both the daily and the weekly time-frame, and likely will retreat from that level. The charts also tell us that it is likely that on a further rally to see the US Dollar index trade at 80.143. We do believe that this index will retreat or go sideways before the 80.143 level is approached.

The S&P 500 tested and bounced off the 1066.50 horizontal line on the chart. We are massively oversold by most measures. The stochastic indicator continues to issue a sell-signal as does the RSI, both are oversold. The Thomas DeMark Expert indicator is issuing a buy-signal and our own indicator is issuing a fresh sell-signal and is not oversold. We closed below the lower edge of the Bollinger band and likely will bounce from this level. Should the market rally, we will see some resistance at 1081 and 1087. The 5-day moving average is at 1100.63. The top of the Bollinger band is at 1169.05 and the lower edge is seen at 1072.04. We are inside the Ichimoku Clouds for the daily time-frame. We are above the clouds for the weekly time-frame but are below the clouds for the monthly time-frame. The monthly indicators are now issuing a sell-signal, finally agreeing with the weekly and the daily indicators. Should the market not rally here and now, we expect to see a visit to the 1026 area of support, below that level is 1012 and 991.25.

The NASDAQ 100 declined in the Friday session ending the week and the month at very oversold levels. The stochastic indicator, the RSI and our own indicators all continue to issue a sell-signal. The Thomas DeMark Expert indicator is issuing a buy-signal from oversold levels. We closed below the lower Bollinger band and we feel that this index will rebound to climb inside the bands again. The lower edge of the Bollinger band is at 1758.80 and the upper edge is seen at 1939.54. The 5-day moving average is at 1812.13. We closed below the Ichimoku Clouds on the daily time-frame. We are above the clouds for the weekly time-frame but are in the clouds for the monthly time frame. All time-frames are issuing continued sell signals with plenty of room to the downside on the weekly and monthly time-frames.

The Russell 2000 remains above the Ichimoku Clouds for the daily time-frame but is dangerously close to moving inside the clouds. This index has be a little less awful than the other indices. The stochastic indicator, our own indicator and the RSI all continue to issue a sell-signal. The Thomas DeMark Expert indicator is issuing a buy-signal at oversold levels. The 5-day moving average is at 619.57. The top of the Bollinger band is at 657.34 and the lower edge is seen at 602.98, a level we closed below. Naturally, we will either expand our volatility or will rally to close inside that level. When reviewing the point and figure chart, it is obvious that 599.20 has to hold or we will see much lower levels. We would expect to see some stability return to the market in the coming week. Just keep your seatbelt fastened.

Crude oil has been sliding and closed below the Ichimoku Clouds on the daily time-frame. We are inside the Ichimoku Clouds for the weekly and the monthly time-frames. The downtrend line for the Monday session is at 74.12, a level which must be removed to turn crude oil from negative to positive. The 5-day moving average is at 75.27. The top of the Bollinger band is at 85.12 and the lower edge is seen at 71.66. All the indicators that we follow herein are oversold and all are pointing lower. This market is oversold enough to expect crude to rally. The quality of the rally will tell us volumes about this market. Wait before taking a position and re-analyze after the bounce.

Gold retreated in the Friday session leaving an inside day on the chart. We held a very import level when gold held 1074.50. The 5-day moving average is at 1098.95. The top of the Bollinger band is at 1161.86 and the lower edge is seen at 1074.50. We are below the Ichimoku Clouds for the daily time-frame but above the clouds for both the weekly and the monthly time-frames. If we do not hold the current lows, we will see the market test 1042 and then1026 on its way to 984. Eventually 865 could be seen. The stochastic indicator is issuing a buy-signal for the daily time-frame. The other indicator are sort of going sideways and not really giving a signal. We will have to wait and see how much lower this market goes before issuing a real buy-signal. We feel that this market has been overdone on the upside and this retreat is a welcome one which will give rise to further rallies in the not too distant future.