Archive for January, 2011

Sunday, January 30th, 2011

As our Federal Government and State Governments begin some overdue belt-tightening, it occurs to us that this scaling back of spending will affect employment. Why you might ask, well, if the states and local governments must balance their budgets and as the tax receipts decrease, it would appear that the natural recourse would be to cut spending and thus, cut back on employees and services. We are at the point in this economic cycle where either business begin expanding and start hiring or, we fall into the deep abyss. The middle class earner is having a difficult time earning enough to keep up with living expenses and creeping inflation that can be found almost everywhere one looks. Unless these earners get a raise or a second or third job, they have little money to spend on discretionary goodies. Our government’s spending spree has flushed the markets with money but that money has not been going to the people who need it.

Meanwhile in the globe there is unrest. Generally unrest begins as an outgrowth of people who want to work and can’t find work. Rarely is it found when an economy is thriving and doing well. That said, we have plenty of hot spots to watch for in the globe today.

It seems that the most boring economies like the USA, Canada, Australia, New Zealand and Euroland will become the object of investments. The emerging markets will be viewed as too risky for safe investments. Again, we continue to like the precious metals because they can be used as currency alternatives.

Monday: December personal income/consumption is released at 8:30 and January Chicago PMI is released at 9:45
Tuesday: December construction spending and December ISM index both at 10:00.
Wednesday: Challenger, Gray & Christmas January job-cut report.
Thursday: 4th quarter productivity is released at 8:30, the European Central Bank releases its interest rate decision and makes some comments regarding that decision, Fed Chairman Bernanke speaks, and December factory orders are released at 10:00.
Friday: January non-farm payrolls are released and the unemployment rate are both released at 8:30.

The Egyptian unrest helped lift the beleaguered US Dollar index in the Friday trading session. Although we have not broken above the downtrend line on the daily chart, this rally was a welcomed relief for the bulls. All the indicators that we follow are issuing a buy-signal from grossly oversold levels and have plenty of room to the upside. Monday will explain if this was a one-day-wonder rally or if this rally will have some teeth and some staying power. The 5-day moving average is at 78.10. The upper edge of the Bollinger band is at 81.66 and the lower edge is seen at 77.20. We are below the Ichimoku Clouds for all time-frames. The downtrend channel lines are: upper 78.83 and lower 77.03. So long as the market stays above 77.71, we believe the next move will be a continuation of the Friday rally.

The S&P 500 March futures printed a new high for this upside move and then closed near the low of the session leaving an extremely bearish candlestick on the daily chart, a key reversal day. The good news for the bulls is that we did not remove 1267.50 which defines the lower edge of our recent trading range. The bad news is that we are vulnerable for bear raids similar to the one seen in the Friday session. All of the indicators that we follow continue to uniformly issue a sell-signal with plenty of room to the downside. We also have a sell-signal on the weekly chart. The S&P 500 is above the Ichimoku Clouds for all time-frames. The 5-day moving average is at 1289. The top of the Bollinger band is at 1299.25 and the lower edge is seen at 1258.90. The action of the Friday session could be a one or two day wonder or something more serious. Time will tell us the story. Right now, we would proceed with extreme caution.

The NASDAQ 100 futures contract had a steeper retreat than did the S&P 500 contract. The ledge of support was violated and if the NASDAQ 100 does not close above 2268, the close of the Friday session, we will have deep dark thoughts about this index. The stochastic indicator, the RSI and our own indicator all continue to issue a sell-signal. The Thomas DeMark Expert indicator is pointing higher. The weekly indicators are also issuing a sell-signal. The 5-day moving average is at 2301.75. The top of the Bollinger band is at 2341.44 and the lower edge is seen at 2229.63. Unless or until the market closes above 2275, we will remain bearishly concerned about the market. We are above the Ichimoku Clouds for all time-frames. We have opened the door to 2238 and 2207.50.

The Russell 2000 retreated in the Friday session shedding 2.38% for the day. All the indicators that we follow are issuing a continued sell-signal. The 5-day moving average is at 782.78. The top of the Bollinger band is at 811.13 and the lower edge is seen at 768.65. We do have a red 13 count on the chart. These signals are generally early so, unless other signals or the chart pattern confirms, they should be regarded as an indication of an impending change of direction. We are above the Ichimoku Clouds for all time-frames. We need to see the Russell stay above 769.40 or risk a return to 738.90. This chart looks much better than that of the NASDAQ 100.

Crude oil opened the Friday session at 85.28 traded to 85.11 and then took off to the upside leaving a bullish reversal candlestick on the chart. This rally was in the face of a US Dollar rally which tells the observer that it was a crude based rally and not a currency play. All of the indicators that we follow herein are issuing a buy-signal. The 5-day moving average is at 87.27. The top of the Bollinger band is at 94.55 and the lower edge is seen at 85.95. We are above the Ichimoku Clouds for all of the time-frames. If crude oil can close above 89.70 we will see it trade to the 91 area. The trading was dramatic, can it continue or is this of the one-day wonders seen in the Friday market. Stay tuned for the next episode.

Gold rallied in the Friday session but simply took back some of the losses seen in the Thursday session. All the indicators that we follow are now issuing a buy-signal. The 5-day moving average is at 1333.68. The top of the Bollinger band is at 1413.60 and the lower edge is seen at 1315.50. We continue to like gold but will wait to see if this is a good tradable bottom. We are not convinced of that as yet.