Archive for June, 2010

Sunday, June 27th, 2010

Do you believe that the Congressional bill, overhauling the financial industry passed in a rare overnight session, will be beneficial for the US economy? This proposed document will be voted on in the coming week or weeks (the House is to vote on this on Tuesday). It is possible that this proposed bill will spur a constitutional argument regarding the new powers given the government overseeing private industry’s (the banks) use of their own capital (not customer capital) via investments. Should that pass, would it not bring into question a corporation’s investments outside the course of their normal business? How can the government seek to control business investments, isn’t that exactly what they are proposing to do? Can’t a bank invest their own capital in whatever way they deem appropriate?

It is appropriate for the financial institutions to put up good faith margin on their activities, much the way an individual would, and that portion of the legislation is fair. It is also appropriate for regulators to decide how much money must be set aside against unexpected losses; these regulations are not questioned and are for the safety of the public. The good news is that increasing amounts of money that the financial institutions set aside against possible future adversities, is a good thing. It will and could help fund adversities should any arise. Further than that, Federal rules should not tinker in business unless, it is illegal. Congressional meddling into free trade and business flies in the face of the documents our forefathers created. We suggest that each and every member of Congress read THE DECLARATION OF INDEPENDENCE AND THE CONSITUTIION OF THE UNITED STATES OF AMERICA.

This proposed 2000 page missive will not help to encourage business investment and lending but rather will act as a deterrent. Some of the new rules will help the public but most will not. Restrictions and complications for the financial community will neither help securing a future loan nor reduce costs that the consumer will eventually have to pay for that loan. Is anyone naive enough to believe that this new financial reform bill will make any difference to large financial institutions and do you actually believe that you, the consumer won’t pay for it at the end of the day?

If this were indeed a bill or reform bill to cap and control financial institutions, then it is a failure even before it is signed. If this bill is an effort to clean up the industry, it is a failure. What have we created with the reform bill? The reform bill means more fees and less money, at the end of the day, less money to be lent to the consumer and businesses. Again, another windfall and full employment benefit for lawyers, the new Congressional jobs bill. Hooray for Washington, “much ado about nothing.”

Monday: May personal income/consumption is released at 8:30.
Tuesday: June consumption is released at 9:445 and the House vote on the Financial Reform bill.
Wednesday: June Chicago PMI is released at 9:45 and Germany holds presidential elections.
Thursday: May construction spending and June ISM are released at 10:00, US car/truck sales are released, Japan “Tankan” report is released, and Challenger Gray & Christmas report is released.
Friday: June nonfarm employment and unemployment rate is released at 8:30.

Last week we expressed concerns that after an initial bounce in the US Dollar index, that it would roll over to the downside, which is exactly what it did. Although the US Dollar is oversold as measured by our own indicator and the stochastic indicator, there seems to be continued pressure on this index. Neither the RSI nor the Thomas DeMark Expert indicator are oversold and continue to point lower with room to the downside. The market is losing steam as to direction and is going sideways. Yes, this week we have quarterly window dressing and a general holiday bias to the upside. We need to see this index close above 86.15-86.20 to encourage any shorts to cover their positions. Again we notice that the boat is tipped to the long side of the market. This is never a comfortable position when everyone is in agreement. We continue to believe that below 85.36 we could see the longs exit this market. The 5-day moving average is at 86.058. The top of the Bollinger band is at 89.17 and the lower edge is seen at 84.96. We are above the Ichimuko Clouds for the daily, weekly and monthly time-frames. We have some downtrend lines to respect at 87.863 and 86.973 both of which we would need to remove to scare any existing shorts out of this market. With regard to the uptrend lines, there is an important uptrend line at 85.36. Just as the S&P 500 futures contract needs to stay above 1036.75, the US Dollar index needs to stay above 85.36. On the positive side, we would become bullish should the US Dollar index close above 86.71 so long as this index does not trade below 85.52 before removing 86.71.

The S&P 500 futures contract enters this last week of June, the end of the quarter and a Holiday week, poised to rally. These are the seasonal biases we generally see at this time of the year. The good news is that this market is oversold enough to stage a decent bounce. The uptrend line is seen at 1062.14 Last week we saw the market trade lower in four of the five trading days. The rally in the Friday session could have been in part attributed to “get away Friday” trading and the rebalancing of the Russell indices. The stochastic indicator the RSI and the Thomas DeMark Expert indicator all are issuing a buy-signal. Only our own indicator is not ready to say “buy me!” We see this index below the Ichimuko Clouds for the daily and monthly time-frames but above the clouds for the weekly time-frame. The 5-day moving average is at 1086.75. The top of the Bollinger band is at 1129.21 and the lower edge is seen at 1045.68. We need to see this index close above 1079-1080 to inspire further buying. The proposed new financial reform laws will spur new employment in compliance, financial accounting, and regulations in the industry. Here is a trading strategy. So long as the low of1041.25 is not removed and the next rally is able to take this market above 1129.50, we would have a buy signal with an expected target of 1216 or higher. However, should 1041.25 fail to support this market exit all longs and wait for the removal of 1036.75 where you should initiate a short position.

The NASDAQ 100 retreated for a fifth day in the Friday trading session. This is a serious problem for the bulls because this index has led the markets higher and, although the S&P 500 futures contract traded higher in this session, it failed to lead the troops or even go along with the crowd. The good news for the NASDAQ 100 is that it is difficult to maintain this sort of steep retreat without seeing some sideways action or a bit of a rally. The downdraft has been too steep to maintain. There is an uptrend line at 1794.70 which is a long-term uptrend line. The stochastic indicator, the RSI and our own indicator all continue to point lower and are not at oversold levels at this time. The Thomas DeMark Exert indicator is oversold and going sideways. We are below the Ichimuko Clouds for the daily time-frame, above the clouds for the weekly time-frame and in the clouds for the monthly time-frame. The 5-day moving average is at 1868.05. The top of the Bollinger band is at 1936.62 and the lower edge is seen at 1778.55. The top of the trend channel is 1955.50 and the lower edge is 1812.95. We believe that this index will flop between the channel lines for some time and we would be inclined to trade the channel respecting the limits of that channel.

The Russell 2000 followed the rally script in the Friday session. Friday after the close, the index was restocked and again will have 2000 issues in it. As you know, as issues are removed from this index they are not replaced and can only be replaced annually therefore the value had to rise with the increase of issues in this index. Therefore, we would not take this 1.63% rise of the index in the Friday session as anything more than mechanical adjustments to the index. We do not know how to adjust our charts to reflect this so, perhaps our indicators will be wrong and need time to adjust. The RSI, stochastic indicator and our own indicator all are issuing a buy-signal. The Thomas DeMark Expert indicator is oversold and going sideways. The 5-day moving average is at 643.30. The top of the Bollinger band is at 681.37 and the lower edge is seen at 612.27. We are below the Ichimuko Clouds for the daily time-frame but are above the clouds for the weekly time frame. Here are some channel lines for you to use: top of the channel is at 668.83 and the lower edge is at 589.62. We will not invest or trade the Russell indices until we can review the charts post adjustments. We can say that if this index can close above 646, it will go to 648 and above that level you will open the door to 655 and 660.

Crude oil enjoyed a robust rally in the Friday session, perhaps in part due to the weakness seen in the US Dollar. The rally took the product above a recent high and opened the door to levels in the early eighties. We are above the Ichimuko Clouds for the daily and weekly time-frames but are in the clouds for the monthly time-frame. The channel lines for crude are 80.02 on the top and 73.10 on the bottom. We are at mild resistance levels and would expect to see some backing and filling. The 5-day moving average is at 77.35. The top of the Bollinger band is at 79.58 and the lower edge is seen at 70.77. All the indicators that we follow herein are pointing higher with room to the upside.

Gold continues to glitter and it inches higher to challenge the recent highs. The 5-day moving average is at 1243. The top of the Bollinger band is at 1258.82 and the lower edge is seen at 1206.43. We are above the Ichimuko Clouds for all time frames. Remember as we trade higher that there is no resistance above 1260, nothing but free air and nothing to stop gold from trading higher. Greed should kick in above the highs. Right now, the rally has been modest and we have not seen anything that would approach a buying frenzy. We do believe that this is possible but we are not there as yet.