Archive for August, 2011

Sunday, August 14th, 2011

We are sure that your interest is more in where the markets are heading than in what we believe about the economy and the political scene. So, we will answer that question post haste and tell you that the markets are somewhat oversold. Yes, we will bounce a bit further, but once the markets have stabilized they will re-test this recent low, likely undercut that low with bullish divergences and then, it will be a good time to bottom fish. Bottom line; keep the wallet on the hip. We must admit that there are some compelling cheap stocks out there, but unless you are buying the dividend, just wait. The worst case scenario will be that you might be just a little bit late to the Bull’s party. During times of high volatility and questionable direction, it is always wise to keep your positions manageable and smaller than usual. In other words, keep your powder dry! Remember you need capital to trade and if you lose it all you not have anything to trade with tomorrow. The mantra of the floor is always preservation of capital, always.

The problem we see is that the market is acting as though a major financial institution is going to fail or has failed. So far, it is like “Where’s Waldo” of banking. We know the general area of the globe have even probed to see is some of our favorite choices are in trouble and so far, we have nothing to report. Can the officials actually cover up this sort of thing? It likely will be a European Bank that is in trouble not one on our shores. This makes the problem a little sketchy because we won’t have Geithner or Bernanke available as the helicopters are in the shop and cannot make the trip over the Atlantic anyway.

As to the riots in England; many people here on our shores do not believe that it is possible for that to happen in the USA. Our comment is; think again. When people are unemployed, hungry and angry they do strange things. The people are getting more and more upset and something will trigger the event yes, even here in the USA. We are not isolated; it happened in the Middle East and now in Europe why don’t you believe it can happen here?

Monday: Empire State index for August is released and Atlanta Fed President Lockhart speaks.
Tuesday: July import prices and housing starts are released at 8:30; July capacity utilization and July industrial production are released at 9:15.
Wednesday: July PPI is released at 8:30 and Dallas Fed President Fisher speaks.
Thursday: July existing home sales, July leading indicator and August Philly Fed Survey are all released at 10:00 and New York Fed President Dudley speaks.

The US Dollar index is stuck in a trading range between 75.63 and 76.61 on the upside and 73.59 and 72.84 on the downside. Actually the inside number are more valid for this current trading range. The market is trading below the downtrend line of 75.345 and above the uptrend line of 73.958. We are inside the Ichimoku Clouds for the daily time-frame and well below the clouds for both the weekly and the monthly time frames. All time frame oscillators that we follow are issuing a sell-signal. The 5-day moving average is at 74.826. The top of the Bollinger band is at 75.684 and the lower edge is seen at 73.639. So long as the US Dollar index remains in this range, there is nothing much to do other than to play with the range itself by selling as it approaches the top and buying it as it stays above the uptrend line. If you do trade in this manner please keep your stops close and very near the trend line to prevent large loses.

Just to be funny we drew parallel lines with an upward tilt on the action of the S&P 500 futures contract this past week and we have what looks like a bear flag. The channel lines for the flag are 1186.18 and 1103.68. The downtrend lines for the S&P 500 are 1232.09 and 1276.50. At the time of this writing we are not oversold washout levels and although we are on the oversold side of neutral we are not classically oversold. The indicators are sort of pointing to the upside but direction could change almost immediately. We did have a nine count in the Monday session. The good news is that we do have a buy-signal, as measured by the stochastic indicator, for the weekly chart. We are below the Ichimoku Clouds for the daily time-frame but are in the clouds for the weekly time-frame and above the clouds for the monthly time-frame. The 5-day moving average is at 1150.35. The top of the Bollinger band is at 1401.67 and the lower edge is seen at 1108.35. The bad news is that we have closed below the uptrend line for both the weekly and the monthly time-frames. Keep your trades small and your stops tight.

The chart of the NASDAQ 100 futures contract looks very similar to that of the S&P 500. Both chart show what looks like a bear flag, both chart had a nine count and have enjoyed a two day rally. The Market Profile chart warns us that if we close below 2021 we will be in a world of pain for the bulls. There will likely be a melt down below that level as stops become elected and markets sink. The stochastic indicator and our own indicator continue to issue a buy-signal but both are losing momentum to the upside. The Thomas DeMark Expert indicator is flat a neutral and the RSI is slightly below the neutral area is almost pointing higher. We are below the Ichimoku Clouds for the daily time-frame, in the clouds for the weekly time-frame and above the clouds for the monthly time-frame. The upward trending flag’s channel lines are 2188.81 and 2066.68. The downtrend line is at 2295.02. The 5-day moving average is at 2122.70. The top of the Bollinger band is at 2527.96 and the lower edge is seen at 2055.28. Proceed with caution.

The Russell 2000 futures contract rallied in the Friday session and looks much like the other financial indices. The Russell is a little bit flatter than the other indices and a little bit more on the oversold side of neutral. The stochastic indicator and our own indicator are still positive although both are losing momentum. The Thomas DeMark Expert indicator is flat at neutral and the RIS is also flat but on the oversold side of neutral. The 5-day moving average is at 677.28. The top of the Bollinger band is at 892.17 and the lower edge is seen at 642.25. The channel lines seen on the flag consolidation formation are 704.62 and 647.30. The downtrend lines are 794.60 and at 811.18. We are below the Ichimoku Clouds for both the daily and the weekly time-frames. Remember this index will exaggerate any action seen in the other indices. If the market rallies on growth expectations, this index will give you the best action. That said, if the markets expect to see sub-par economic expansion this is not the place to be long and a better place to stay away from any long positions. You could use it as a trade with the S&P 500 long the S&P and short the Russell 2000. If that is done, the position must be monitored closely for possible changes in direction.

Crude oil had a very difficult week ending the Friday session slightly negative. We see a small bodied doji-like candle. The range in the Friday session was less than had been seen for most of the week. The 5-day moving average is at 82.76. The top of the Bollinger band is at 105.79 and the lower edge is seen at 78.98. We need to see this market stay above 75.71. We are below the Ichimoku Clouds for both the daily and the weekly time-frames. The Market Profile chart tells us that under 78 we will melt to the downside and above 89 we will melt to the upside. This should be an interesting week for crude oil.

We like gold but not at these levels, the footnote here is that should we remain at these levels for a period of time, we will like the price a lot better. We would like to be buyers at say 1675 or so, certainly not here and now. The 5-day moving average is at 1751.88. The top of the Bollinger band is at 1776.99 and the lower edge is seen at 1532.11. We are above the Ichimoku Clouds for all time-frames. The market is overextended to the upside and we have sell-signals from all the indicators that we follow herein. We are and have been overbought for some time and we can remain in this condition until the market changes directions. It is not necessary for a market to reverse course just because it is somewhat overbought. That is the mistake the novice technical analyst makes when using chart package software. The uptrend line is at 1666.60. The market can retreat to that level without changing the trend of the market.