Archive for May, 2011

Sunday, May 22nd, 2011

May 21, 2011 came and went and thankfully did not usher in the end of the world. We continue to see chaos in the Middle East and disagreement with our longtime friend Israel. What did President Obama think the response was going to be? Was this a political ploy, to show the Arab world that the USA is Arab friendly and anti-Israel? Whatever the idea was, it failed miserably and perhaps illustrates that conversations like this should be kept behind closed doors rather than to be played out in the media circus.

We read an interesting article “The Twitter Trap” by bill Keller this past week in our on-line version of the Sunday NY Times. In this article Mr. Keller examines well, sort of examines, the effects that social media outlets like Twitter have had on the younger generation. It is our experience that many of the younger generation no longer know how to interact with each other socially. We see the “ole bar” where singles go to pick up that perfect date of the husband/wife of the future, populated by people using text messaging to correspond with each other. What happened to “what is your sign” and “hi, my name is _____what is yours?” Today it is Facebook and Twitter rather than conversation. Vocal conversations are clumsy and scary for this new “hooked up” generation. Maybe we should throw out the cell phones and have a bar that is “cell phone free” and that only allows entry to people that would like to speak with each other, laugh, and cry together. Can you image Animal House’s Toga party with Facebook and Twitter? Can you imagine the next generation of “social media” where the appliance can read your mind? Wow, we can just see it now, one gal saying to another, “that guy is a dirt bag” and the guy reading her mind back “well, you are no beauty queen you fat slob!” We are glad that we grew up in an era where people spoke to one another and flirting was a verbal body-language thing rather than a Tweet.

Clearly, the stock market isn’t up to the social media thing and retreated in the Friday session. We see a market that seems to be confused with the facts. While interest rates remain low, investors plow money into the market because they simply are losing money if they invest in debt securities (after taxes and accounting for inflation). Yes, we understand that the Fed doesn’t really see inflation and acknowledges that it merely is a transitory annoyance, but we really aren’t that sure about that. As the Fed removes its QE2 purchases from the market, we will see the money flow, a result of these Fed’s purchases, dry up. We really doubt that the Fed will withdraw on a date certain and believe that the withdrawal will be more gradual. There are those who are waiting for QE3 to appear (they also believe in the tooth fairy and fairy dust).

The US Stock market as measured by the S&P June futures has retreated for the past three weeks. Most of the retreat, save the first week, has been very shallow indicating that there continues to be a bid (support) under the market. Perhaps those who have missed the initial rally are joining the bullish crowd. While we do not see doom and gloom ahead, we would become more bearish should the S&P 500 June futures close below 1289 or so. Should that occur, the door will be opened to a visit to the 1241 level, below that……don’t ask but it will be ugly.

Tuesday: April New home sales are released at 10:00 and Kansas City Fed President Thomas Hoenig speaks.
Wednesday: April durable goods are released at 8:30.
Thursday: 1st quarter GDP is released at 8:30.
Friday: April Personal income/consumption is released at 8:30 and May Michigan Sentiment is released at 9:45 to 10:00.

The US Dollar Index rallied in the Friday session closing on the downtrend line. The market needs to close above 75.94 to convince us that the tides have turned for this index. The downtrend line for the weekly chart is at 75.90. Although the index has not become overbought on the weekly chart, the indicators that we follow are curling over to the downside. We are below the Ichimoku Clouds for all time-frames. The 5-day moving average is at 75.53. The top of the Bollinger band is at 76.52 and the lower edge is seen at 72.63. The stochastic indicator on the daily chart is overbought and has just given a buy-signal. The Thomas DeMark Expert indicator is pointing lower, our own indicator has just given a buy-signal and the RSI is pointing to higher levels. The down trending channel lines are 77.25 and 76.00. The uptrend line taken from the recent low is at 74.497. We definitely would advise caution in trading this index.

The S&P 500 June futures contract retreated in the Friday session giving back all of Wednesday and Thursday’s gains. The downtrend line is seen at 1340.90 for the Monday session. The stochastic indicator our own indicator and the RSI all are issuing sell-signals from just below the neutral level. We remain above the Ichimoku Clouds for all time-frames. The 5-day moving average is at 1331.80. The top of the Bollinger band is at 1362.50 and the lower edge is seen at 1321.04. The trend at the moment is down and the channel lines are 1344.07 and 1310.12. There is a very weak uptrend line at 1320.11. The market looks as though it is consolidating and so long as it stays above 1316; there will be little reason for concern. Should 1316 fail to support the market, we believe that the next real level of support will be seen at 1290 and then at 1241.25. As Art Cashin says; “stay very nimble.”

The NASDAQ 100 June future’s contract retreated in the Friday session giving back 25.50 points on the day. The 5-day moving average is at 2349.15. The top of the Bollinger band is at 2425.35 and the lower edge is seen at 2335.99. We are above the Ichimoku Clouds for all time-frames. All the indicators that we follow herein continue to issue a sell-signal with room to the downside. For the bulls, there is an uptrend line at 2324.78. Should the market decline and close below 1218.25, the door will be opened to 2250.25 and then…..2185.75. The down trending channel lines are 2372.75 and 2292. For the bulls, we need to see a two day close above 2372.75 to reignite interest in this market.

The Russell 2000 declined in the Friday session along with the other financial indices. The retreat was in line with the NASDAQ 100’s retreat. The daily chart closed right inside the upper edge of the Ichimoku cloud. Both the weekly and the monthly charts are above the Ichimoku Clouds. The 5-day moving average is at 826.46. The top of the Bollinger band is at 865.19 and the lower edge is seen at 814.75. The market is trending down and the channel lines are at 841.46 and 806.55. The stochastic indicator, our own indicator and the RSI are all pointing lower. The Thomas DeMark Expert is sort of bending higher, just marginally from an oversold level. The other indicators are not at oversold levels and have plenty of room to the downside. Should this market close below 813.10, the door will be open to 795 and 770.20. Investors should use extreme caution when trading this market.

Crude oil is in consolidation trading between 104.56 and 95.06. We are inside the Ichimoku Clouds on the daily chart and above the clouds for both the weekly and the monthly time-frames. The indicators are pointing higher and it looks as though we are going to stay in this trading range for a while. The 5-day moving average is at 98.46. The top of the Bollinger band is at 117.61 and the lower edge is seen at 91.42.

Gold rallied in the Friday session. We are above the Ichimoku Clouds for all time-frames. The 5-day moving average is at 1495.96. The top of the Bollinger band is at 1553.41 and the lower edge is seen at 1467.32. We seem to be forming a rectangle with the upper ledge at 1526 and the lower edge at 1471 and 1462. We continue to like gold however would caution that unless and until it closes above 1526, it likely will remain in the trading range. On the other hand, should the market close below 1471 and then 1462, the door will be opened to 1410 and 1380.