The good news about the US stock market is that the average dividend yield is a rip roaring 2% which, by any means of calculation, is higher than the money markets and is higher than short-term investment grade paper. This inspirational fact is driving investors back to the markets. Insomuch as the Fed and in fact some data does not reflect any inflation in the pipeline, interest rates should remain low. The only problem with that theory is that the longer end of the markets and indeed the 10 year bonds are reflecting concern that interest rates will be moving higher. This coupled with the actual fact that things are getting more expensive are making life for the average American more difficult. The bad news is that for the middles class income earner and those in financial distress, increased costs in raw materials is beginning to bleed through to the manufacturers who, are no longer willing to take those costs increases, and are passing them on to the consumers. Did you notice that the food at the grocery store comes in the same size box but weights less. Check you the weight on the products you buy. Apparently, those who measure costs of products don’t shop for groceries, drive their cars or heat their houses, for if they did, they would quickly realize that prices are on the rise. Apparel is cheap unless you would like a designer product then, apparel is expensive. Computers are cheap until you configure them as your needs dictate.
The bottom line is times are difficult unless you are in the upper income level. Then life is good and things are wonderful. Our friend and colleague Bob Fulks recently brought this missive to our attention:
November 21, 2002
“What has this got to do with monetary policy? Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.”
Governor Ben S. Bernanke
Is there any wonder that the 10 year interest rates are on the rise, the US Dollar is dropping and commodities are in rally mode? Unfortunately, it might not work in which case we will be left in worse condition than had the Fed not tinkered with the monetary system.
November 21, 2002
“Because some of these alternative policy tools are relatively less familiar, they may raise practical problems of implementation and of calibration of their likely economic effects. For this reason, as I have emphasized, prevention of deflation is preferable to cure.”
Governor Ben S. Bernanke
Tuesday: 3rd quarter GDP is released at 8:30, October existing home sales are released at 10:00, and the FOMC minutes from its last meeting are released at 2:00.
Wednesday: October durable goods are released at 8:30, October personal income/consumption is released at 8:30, November Michigan Sentiment is release at 9:45-10:00, and October new home sales are released at 10:00.
Thursday: Gobble gobble day!
Friday: Black Friday, retailers are hopeful and the US markets close early.
The US Dollar index had a nine-count on the chart and shown very clear signs of exhaustion this past week. Although it is likely that we will see a bounce in this index, we have plenty of room to the downside. All the indicators that we follow continue to issue a sell-signal. The 5-day moving average is at 78.907. The top of the Bollinger band is at 79.532 and the lower edge is seen at 76.055. We closed just below the Ichimoku Clouds for the daily time-frame and continue far below the clouds for the weekly and monthly time-frames. The market profile chart warns us that below 75.138 we will open the door to significantly lower levels. As a result you can expect to see dollar based commodities rally and well as a rally in the S&P 500. Remember also as we enter December we will again begin to feel the effects of the December roll, in the second week of the month, to the March expiry. We also have end of month adjustment which will be made this week and next week.
The good news for the S&P 500 futures contract is that it has closed above the downtrend line on the daily chart. The bad news is that the Friday session left a doji-candlestick on the chart. We did manage to close above the 5-day moving average which was 1188.80. The top of the Bollinger band is at 1226.29 and the lower edge is seen at 1164.93. We are above the Ichimoku Clouds for both the daily and the weekly time-frames. None of the indicators that we follow are oversold all are at the neutral level and all are pointing higher. The problem is that they are losing force and beginning to flatten out. The market profile chart shows us that we are very comfortable at this level. It also warns us that should we close above 1220.99, we likely will melt to the upside. Seasonality should help the market insomuch as it tends to rally before and after the Thanksgiving Holiday.
The NASDAQ 100 has a doji candle on the chart as a result of the Friday session. As you know, a doji is a candle indicating that the market could be in transition. We have a doji candle for the daily, weekly and monthly time-frames. It many times precedes a change of direction. The NASDAQ 100 closed above the downtrend line. We are above the Ichimoku Clouds for all time frames. The stochastic indicator is curling over just below the neutral level, the RSI is at neutral and flat, the Thomas DeMark Expert indicator is pointing higher and our own indicator is flat just below neutral. The 5-day moving average is at 2116.70. The top of the Bollinger band is at 2200.19 and the lower edge is seen at 2083.12. We would be very concerned should the market close below 2083.50.
The Russell 2000 close just above the daily downtrend line of 722.10. We are above the Ichimoku Clouds for the daily and the weekly time-frames. The 5-day moving average is at 715.30. The top of the Bollinger band is at 741.16 and the lower edge is seen at 691.81. The stochastic indicator is curling over although at the moment it continues to issue a buy-signal. Our own indicator is doing much the same with a slightly better or more positive look. Both indicators are at or near neutral levels. The RSI is slightly above neutral and seems to have a very slight upside bend. The Thomas DeMark Expert indicator is pointing higher and has plenty of room to the upside. The upside channel lines are support is at 712.52 and resistance at 730.38. We are neither bullish nor are we bearish on this index. We are in a wait and see mode.
Crude oil bounced in the Thursday session and fell in the Friday session, however; the low from the Friday session was higher than the previous low seen in the Thursday session and the high of the Friday session again was higher than the high of the Thursday session. This would indicate to us that the market is indeed trying to rally. We are above the Ichimoku Clouds for the daily time-frame, in the clouds for the weekly time-frame and below the clouds for the monthly time-frame. Actually, the monthly chart looks extremely range-bound. We have seen the market sitting in a fixed range for a while. We did see a foray to the upside and probe to the downside both of which didn’t hold and reversed the trade to its range. The current downside boundary is at 80.65. On the upside, 89.12 is the number to close above. The 5-day moving average is at 82.72. The top of the Bollinger band is at 89.17 and the lower edge is seen at 79.91.
The chart of gold and the chart of crude oil look very similar. Both have suffered a steep retreat and a bounce. The downside number for gold is 1315. This is a level which must hold or, the market will retreat to 1298 or so where it will find support. The 5-day moving average is at 1349.82. The top of the Bollinger band is at 1415.77 and the lower edge is seen at 1309.88. We continue to like gold and are willing to buy it on retreats. The long-term uptrend line is at 1333.14.