Archive for July, 2010

Sunday, July 25th, 2010

Although this is a market letter, we just couldn’t pass on Congressman Charles Rangel’s settlement talks. The fleecing of the American tax payer continues right here under our noses. Here as in the case of Goldman or any other high profile case, settlement talks are underway allowing the accused to opt for a punishment, say resignation, without admission of wrong-doing. Yes he will still get his pension and benefits. Did the founding fathers of this country expect to see this? Is this fair? No, but unfortunately until there is a public uproar, these practices will continue…..

Back to the real world, you remember, that world where we the public pays taxes… We have some looming bad news on the horizon. Coming to your bottom line, at the beginning of next year, a tax increase via expiring tax cuts on death taxes (automatically reinstates the 55% rate for estates larger than one million) capital gain, AMT and even dividends will be taxed at an increased rate bonding your income in a greater partnership with Uncle Sam. Although the electorate says that it doesn’t want to increase taxes on the middle class, unless a new patch is written for the alternative minimum tax and the Bush tax cuts are renewed, these tax increases will affect everyone earning a middle class income. Oh by the way, the child tax credit would be reduced should the Bush tax cuts expire. So who would that tax increase hurt, the millionaires or the middle income earners? Would the expiration of the Bush tax cuts mean a tax savings for the rich or a tax break for the general population?

This week is that last week of July which tells you that some portfolio adjustments will be made before the end of the week. This should add some volume to this volume skinny market. Pay close attention to where the volume flows. Is the volume going to be seen on the downside or on the upside? Remember also as we enter August, much of Europe is takes a summer vacation. So the adjustments this week should have more volume as positions are closed for the August vacation.

Monday: June new home sales are released at 10:00.
Tuesday: July consumer confidence numbers are released at 10:00 and S&P-Case-Shiller May home prices index is released at 9:00.
Wednesday: June durable goods are released at 8:30 and the Beige Book is released at 2:00.
Thursday: June mutual funds sales and redemptions are released.
Friday: 2nd Quarter GDP is released at 8:30 and July Chicago purchasing managers’ report is released at 9:45

The US Dollar index continued its slide thus opening the door to 81.69 and possibly 79.94 in the not too distant future. The US Dollar index seems to be stair-stepping its way lower. The stochastic indicator is going sideways actually with the lines going sideways in a sell-position. The RSI is teasing the oversold line going sideways just above it. The Thomas DeMark Expert indicator is issuing a sell-signal and our own indicator is just going sideways. We are below the Ichimoku Clouds for the daily time-frame but are above the clouds for both the weekly and monthly time-frames. The 5-day moving average is at 82.927. The top of the Bollinger band is at 86.381 and the lower edge is seen at 81.76. The trend channel lines are at 83.515 and 81.479. We have a small bodied doji-like candle on the chart as a result of the Friday session. There seems to be some indecision in this market which will be resolved in the near future. Until or unless we close above the upper channel line for two days, we would continue to trade lightly and cautiously.

The S&P 500 futures contract clearly closed above the downtrend line in the Friday session. Now, it needs to stay above that line to convince the bears to shed their costumes and join the bull crowd. We continue to see some resistance at 1110 and further resistance at 1135.19. Once these levels are cleared, the bulls will have won the tug of war and we will again resume the bull phase of this market. We closed inside the Ichimoku Clouds in the Friday session. We are above the clouds for the weekly time-frame and below the clouds for the monthly time-frame. We are overbought and pointing higher for the daily, pointing higher for the weekly and pointing lower for the monthly stochastic indicators. The RSI, our own indicator and the Thomas DeMark Expert indicator all have more room to the upside for the daily time-frame. We will soon see if the public and portfolio managers jump to the market. The 5-day moving average is at 1079.20. The top of the Bollinger band is at 1115.46 and the lower edge is seen at 1005.58. Stay nibble and watch the volume.

The NASDAQ 100 is overbought and pointing higher! We have signs of exhaustion but we would not fight this trend. We came within a sneeze of the 50% retracement number of 1878 in the Friday session. We closed inside the Ichimoku Clouds for the daily and monthly time-frames and above the clouds for the weekly time-frame. We are trading in the middle of the uptrend channel lines which are bounded by 1814.25 on the bottom and 1917.98 on the top. We closed well above the downtrend line. The 5-day moving average is at 1837.45. The top of the Bollinger band is at 1895.69 and the lower edge is seen at 1703.57. The stochastic indicator is overbought and pointing higher, the RSI is pointing higher approaching overbought levels, the Thomas DeMark Expert indicator is pointing higher and our own indicator is in agreement with the other indicators. When you look at the point and figure chart, you clearly see that this market has broken to the upside. Stay nibble and stay tentative!

The Russell 2000 enjoyed an amazing 3.08% rally in the Friday session tacking on 19.50 points. We closed the session just below the Ichimoku Clouds for the daily time-frame and remain above the clouds for the weekly time-frame. The stochastic indicator is overbought and continues to point higher. The RSI, the Thomas DeMark Expert indicator and our own indicator are all pointing higher and not overbought. We see resistance at 664.35 and at 683.38. The 5-day moving average is at 625.02. The top of the Bollinger band is at 650.68 and the lower edge is seen at 585.58. Friday’s rally took this market above the downtrend line. We see support at 606.30 and resistance at 659.76. The chart pattern looks like an inverse head and shoulders pattern. Time will tell if it is, right now, it certainly could be one.

Crude oil didn’t do much in the Friday session, probing the 79.60 area and retreating to its opening level. We have a very narrow range for the session. The indicators are curling over and could, in a day or so, issue a sell-signal. We are above the Ichimoku Clouds for the daily and the weekly time-frames and below the clouds for the monthly time-frame. The 5-day moving average is at 77.76. The top of the Bollinger band is at 80.04 and the lower edge is seen at 71.43. Should this market remove the highs of the Friday session, we will return to the mid 80’s levels. Although the indicators are flashing warning signs, we would trade this market from the long side until and unless we close below the 5-day moving average.

Gold had a difficult day in the Friday session closing inside the Ichimoku Clouds. Between Wednesday and Thursday of this coming week, we should see some explosive moves in gold. We cannot tell you if the move will be to the upside or the downside. We simply will tell you to go with the trend and not to fight it. The indicators that we follow are issuing a sell-signal near oversold levels. The 5-day moving average is at 1189.76. The top of the Bollinger band is at 1240.68 and the lower edge is seen at 1170.78. The downtrend channel is 1203.36 and 1154.48. The uptrend line is at 1183.80. So long as this market remains above 1175.10, we will give it to the bulls.