Archive for July, 2011

Sunday, July 31st, 2011

The debt ceiling will be extended. That is not the problem, the problem remains that we have a budget mess and no solution on hand. We need to insist that all elected officials concentrate on fixing this problem and get it done once and for all. Run a tight ship close the loop holes, tax people who don’t pay taxes. We have heard enough about taxing the rich, they pay their fair share! Do you realize that more than 50% of the population does not pay any tax at all? Wonder why we are in this mess? Keep taxing the “rich” and see what happens. Maybe they will leave. Then who will carry the burden of the poor and where will the government find the funds to “redistribute the wealth.”

We suggest that each and every politician in Washington read Ayn Rand’s Atlas Shrugged. Learn from that book what can happen here in your own backyard. Yes the book was fiction but it is looking like a plan rather than a story.

Keep your eyes on Marco Rubio, Senator from Florida. If the Republicans are looking for a rising star, I think we have just seen the very person that they should be grooming for the future. He made an impassioned plea to fix the budget mess and get on with the that work needs to be done. He clearly illustrated that this eleventh hour panic should have been addressed months, if not years ago and that the entire elected body in D.C. knew that this mess was on the horizon and purposely did nothing about it.

The markets will rally with the news that the debt ceiling has been raised. We very much doubt that the egos in congress will let this country default. Perhaps the elected officials should take a class on bonds and understand that this sort of action causes ratings problems. Further, they should be made to understand that ratings problems result in higher costs to borrow money. Thus the very action or inaction in this case is causing a higher cost and thus a higher amount of debt that the USA will have to deal with, if not now, certainly in the future.

The US Dollar isn’t looking all that good these days. We suggest that there will be a bounce in that index after the debt ceiling is address but that the bounce will be temporary. What needs to happen to support the currency is a plan to reduce spending and address our problems here in the USA.

Monday: June construction spending and July ISM index are released at 10:00.
Tuesday: June personal income/consumption is released at 8:30, and debt ceiling drop dead date.
Wednesday: Challenger, Gray & Christmas issues July Job-cut survey, and June factory orders are released at 10:00.
Thursday: the Bank of England and the European Central Bank issues their interest rate decisions.
Friday: July nonfarm payrolls and unemployment rate is released at 8:30 and June consumer credit is released at 3:00.

The US Dollar index had a bad day in the Friday, end of the month, session leaving a candle on the chart that took out the previous day’s high and then printed a lower low and closed below the previous day’s low. That is a bearish pattern and there is no way to spin that pattern into a positive read. The good news is that we did not remove the 73.51 low seen on June 7, 2011. We did see the market approach that low but it only printed 73.58 as the low. The door is open to the low of 72.86 seen on May 4, 2011. Below that level is the great unknown and real trouble. We are below the Ichimoku Clouds for all time-frames. The 5-day moving average is at 74.116. The top of the Bollinger band is at 76.52 and the lower edge is seen at 73.54. The point and figure chart looks dreadful. All the indicator that we follow herein are pointing lower for the weekly time-frame, however; the daily time frame shows the Thomas DeMark Expert indicator pointing higher while all the others are pointing lower.

The S&P 500 future’s contract closed lower in the Friday session. We did see the contract open lower and then rally taking the contract positive as the shorts covered prior to leaving for the weekend. The market traded above 1300 and just before noon began its retreat holding steady and just negative and just positive levels then, at about 2:00 the trading became very light and drifted lower into the close. We traded below the Ichimoku Clouds but closed inside the clouds for the daily time-frame. We are above the clouds for both the weekly and the monthly time-frames. The stochastic indicator is actually giving us a buy-signal. All the other indicators are pointing lower with room to the downside. The 5-day moving average is at 1308.80. The top of the Bollinger band is at 1356.36 and the lower edge is seen at 1286.98. There is an intermediate term uptrend line at 1279.76 and a short term uptrend line at 1282.75 both levels for the Monday trade. There is a very steep downtrend line is at1322.44 for the Monday session and a longer term downtrend line at 1348.37. Until or unless we break some of these levels, it is likely that we will remain range-bound.

The NASDAQ 100 future’s contract traded lower in the Friday session. The short term uptrend line is at 2340.65 for the Monday session. The short term downtrend lines are at 2341.35 and 2399.35. All the indicators that we follow herein continue to issue a sell-signal with room to the downside. The 5-day moving average is at 2386.80. The top of the Bollinger band is at 2437.26 and the lower edge is seen at 2319.21. The channel lines are 2406.25 and 2333.25. This market really looks awful until you look at the point and figure chart. This chart does not look awful it actually looks okay. The Market Profile chart shows that we are in the comfort zone for this index and that unless or until we close below 2328 and 2316 that nothing much will push this index out of its trading range. There are number on the upside and a push above 2430 will likely cause a melt to the upside. This index looks better than the S&P 500 does.

If you want to see a strange looking chart, please look at the chart of the Russell 2000. This chart shows two long-legged doji candles. Clearly both the bulls and the bears are having trouble winning this battle. The 5-day moving average is at 808.70. The top of the Bollinger band is at 861.31 and the lower edge is seen at 795.78. We are below the Ichimoku Clouds for the daily time-frame but are above the clouds for the weekly time-frame. The stochastic indicator and our own indicator have given a buy-signal. The Thomas DeMark Expert indicator and the RSI are flat going nowhere. We closed on the lower Bollinger band and either the bands expand or we will trade back inside the bands. The channel lines are at 819.79 and 780.55. When we look at the point and figure chart for the Russell 2000 it doesn’t look that awful actually looks as though it is trying to stabilize and perhaps rally. Trade wisely and carefully, these are strange times.

Crude oil traded lower in the Friday session. The 5-day moving average is at 97.68. The top of the Bollinger band is at 100.19 and the lower edge is seen at 94.48. All the indicators that we follow are pointing lower. We closed inside the Ichimoku Clouds for the daily time-frame but are above the clouds for both the weekly and the monthly time-frames. The downward sloping channel lines 97.34 and 94.09. So long as this market does not remove 93.55, we should be fine. Should that number fail to support this market, expect to see a test of 89.61. We expect to see this market trade sideways and not to break either to the upside or the downside.

Gold rallied in the Friday session and seems to be attracting scared money. We are above the Ichimoku Clouds for all time-frames. The indicators are overbought and giving fresh buy-signals. The 5-day moving average is at 1618.48. The top of the Bollinger band is at 1653.24 and the lower edge is seen at 1505.45. Although it feels as though this market is bubbly, the chart tells us a different story. The rally has been very organized and very moderate. We like gold on retreats but will not chase the product.