Archive for September, 2011

Sunday, September 11th, 2011

The S&P 500 futures contract is within a defined range, a rectangle. We have two extreme prints one 1229.50 printed on August 31, 201 and one, 1077.00 printed in the overnight session on August 9, 2011. If we chop off the extreme highs and lows we find the boundaries of the trading range and rectangle are at 1206.30 on the top and 1103 on the bottom. While it does feel as though we are in a severe downdraft, in fact we are not, we are range-bound for the moment. As experienced traders know, we eventually break out of these holding patterns to one side or the other. We can tell you that above 1201.50 the shorts are likely to cover their positions and that should push the market higher. On the other side, below 1141, the shorts are likely to press their bets and the longs likely to exit the trade. Just in case you haven’t had enough volatility, this Friday, the September futures contracts expire. While most of the futures positions have rolled to the December expiry, the options associated with those contracts continue to trade and help the volatility factor. Don’t forget your seat-belt and crash helmet.

All of this information is inconsequential when looking at the big picture….life. This is the thought that comes to mind as we look back at events of 9/11 ten years ago. We lost our trading floor on that horrible day. Life since that time has changed dramatically as have the markets. We have changed our views of life and of markets. We continue to enjoy trading the markets like a living thing you can’t seem to catch but know, one day, you will get it. We used to enjoy a certain amount of companionship as floor-traders, now that companionship is a black box with numbers. The world is continuing to change at a very rapid pace. In the recent competition of the computer vs. man; man loses the box wins. We continue to trade in this new and exciting environment which is cold and uncaring. There is no “please let me out of that trade, I didn’t mean to do that.” The box doesn’t care. The human element is gone replaced by blinking trades and trading ladders and grids.

Have a beer on us or a glass of wine; just take the time to reflect on where we came from and where we seem to be going. Our children are always connected to the internet or texting each other. Human conversations, seems to be something of the past.

Tuesday: August import prices are released at 8:30.
Wednesday: August PPI is released at 8:30, August retail sales are released at 8;30 and July business inventories are released at 10:00.
Thursday: September Empire State manufacturing index is released at 8:30, and August CPI is released at 8:30, August capacity utilization/ industrial production is released at 9:15 and The Philly Fed Survey is released at 10:00.
Friday: September University of Michigan sentiment index is released at 9:45-10:00.

The US Dollar Index is the beneficiary of the chaos seen in the Euro and the Swiss currency. We never thought we would see the Swiss bankers throw their currency “under the bus,” which is exactly what they did by pegging it to the Euro. We do understand that they were worried about the strength of their currency and perhaps this action has helped them adjust the currency lower without any further intervention on their part. The overwhelming result was a spike in gold and a rally in the US Dollar. That said, we broke out to the upside this week removing the highs of July 12, 2011. The stochastic indicator is grossly overbought but continues to issue a buy-signal. Our own indicator is less robust that then stochastic indicator is and continues to issue a buy-signal but is losing momentum on the upside. The RSI continues to point higher at overbought levels. The Thomas DeMark Expert indicator is issuing sell-signal. We closed above the upper Bollinger band and we know that either the bands must expand telling you that the volatility will expand or that the market will retreat back inside the band. The upper Bollinger Band is at 76.535 and the lower edge is the band is at 72.713. The 5-day moving average is at 76.099. Naturally we are above the Ichimoku Clouds of the daily chart. We are below the Ichimoku Clouds for the weekly and monthly time-frames. It should be noted that the weekly indicators are overbought and continue to point higher. It is likely that the US Dollar Index will retreat, backing and filling in an effort to digest this past week’s run to the upside.

The S&P 500 futures contract declined in the Friday session but remains above the uptrend line on the daily chart. The up trending channel lines are 1142.06 and 1242.56. The downtrend line is seen at 1194.53. In two weeks, should the market stay inside this trading range, the uptrend and downtrend lines will meet and we will have a point of inflection which will lead to a violent move. Should we trade outside of the rectangular range we now find ourselves in, we will not have the explosive move the chart indicates is possible. We are below the Ichimoku Clouds for both the daily and the weekly time-frames; we are above the clouds for the monthly time-frame. The stochastic indicator, the RSI and our own indicator are all pointing lower. The Thomas DeMark Expert indicator is flat at oversold. The 5-day moving average is at 1173. The Market Profile chart warns us that should we trade much below 1100 we will open the door to much lower levels and likely will test the overnight low of 1077. On the upside, we need to trade above 1209 to inspire the shorts to cover and the longs to feel comfortable enough to press their positions.

The NASDAQ 100 futures contract looks better than the other two financial contracts reviewed in this letter. We are safely above the uptrend line at 2098.50. The downtrend line is at 2232.60.
The stochastic indicator, RSI and our own indicator are all issuing a sell-signal but are on the overbought side of neutral with plenty of room to the downside. The Thomas DeMark Expert indicator is flat just above oversold levels. We are below the Ichimoku Clouds for the daily time-frame. The 5-day moving average is at 2185.65. The top of the Bollinger Band is at 2279.81 and the lower edge is seen at 2049.83. The downtrend and uptrend lines will cross in about two and a half weeks. Should the market stay within the bounds of this rectangle, it is likely that we will see a violent resolution to that at the point of inflection which will occur at that time.

The Russell 2000 fear factor will kick in below 641.30 and 636. All the indicators that we follow herein are pointing lower with plenty of room to the downside. The 5-day moving average is at 687.12. The top of the Bollinger band is at 734.63 and the lower edge is seen at 647.58. This index is also stuck in a range-bound rectangle. Naturally, we are below the Ichimoku Clouds for the daily and the weekly time-frames. While the market feels as though the bottom is falling out, in fact we are simply inside a trading range and, above the uptrend line at665.67 and below the downtrend line at 712.30. The stochastic indicator, the RSI and our own indicators are all pointing lower with plenty of room to the downside. The Thomas DeMark Expert indicator is flat at oversold. Until or unless we break above the downtrend line and then clear 731.60, we will expect to see the upside contained. Equally true are the parameters on the downside of 644.30 and 623.70.

Crude oil is also in a sideways market and until or unless it moves above 90.48 or below 79.17, it is likely to be a boring range bound trade. The uptrending channel lines are at 92.09 and 84.29. We are below the Ichimoku Clouds for the daily time-frame and we are in the clouds for both the weekly and the monthly time-frames. This market needs to close above 91.74 for two days to begin to scare the bears back into hibernation. The 5-day moving average is at 85.442. The top of the Bollinger Band is at 90.81 and the lower edge is seen at 82.02. The indicators that we follow are pointing lower with plenty of room to the downside. It should be noted that the Bollinger Bands are becoming narrow indicating that there could be an explosive move in the not too distant future.

Gold does not look like a market bubbling out of control. Rather it looks like a market with an upside bias that moves, takes a rest and resumes its moves. The 5-day moving average is at 1864.16. The top of the Bollinger Band is 1913.34 and the lower edge is seen at 1743.70. We are above the Ichimoku Clouds for all time frames. The market is in an uptrend and will back and fill as it moves ever higher. We will not chase markets and will buy this market on reasonable retreats. The uptrend lines are at 1811.44 and at 1797.83.