Archive for November, 2011

Sunday, November 27th, 2011

This is serious; we really need to adjust the benefits of all elected officials so that they are forced to live with the restrictions and costs that the public, who elected them, must live with. This is the season for good feelings and kindness. It is time for the US Congress and the US Senate to say to those who have elected them to office; live as I live and do as I do; we will no longer behave as privileged people and will subject ourselves to the exact same rules that we have voted on. We will live with the same health insurance, pension’s et al that you, the people, have to live with. Enough is enough. Times are tough, the only way we will affect change is to force this onto those who can make change. If we the public do nothing, it is our fault not those who we elect. Now is the time to take a stand, now is the time to tell our elected representative, “change or get out.”

We remember a time in our not too distant past when the result of the US markets catching a cold was pneumonia in Europe and intensive care in the emerging markets. Now, we awake daily and play catch up to the Eurozone. The good news is that we are further down the road on the debt crisis than they are. The bad news is that their mess will have an effect on our markets and yes some of our banks who have some exposure to the European debt market.

We did not have the pre nor post-Thanksgiving rally usually enjoyed. We did have a continued sell-off into the weekend with concerns over the European debt problems and to a lesser extent our own debt problems. This week should bring some relief in the markets, early in the week, as we see a bounce from the 61% Fibonacci retracement level of 1152.48. Actually, if you look at various charts, you will notice that this market needs to stay above 1148 for the bull to survive. That number is a closing basis number with a two day confirmation required. The worst performing index was the Russell 2000, the home to small capitalization stocks. This sector is generally the source of funds when funds are needed. You might ask why and that is because for the most part, these securities do not pay dividends and if they do, those dividends are woefully small. This is the sector which behaves best in January. The tax lose victims of 2011 become the purchases of 2012. The scary number for this index is 660.80, a level that needs to hold.

Monday: October new home sales are released at 10:00.
Tuesday: Italy and Belgium issue bonds, November consumer confidence is released at 10:00, and S&P/Case Shiller home price index is released.
Wednesday: 3rd quarter productivity is released at 8:30, November Chicago PMI is released at 9:45 and the Fed issues the beige book.
Thursday: Spain and France issue bonds, October construction spending is released at 10:00 and November ISM data is released at 10:00.
Friday: Nonfarm payrolls and unemployment numbers are released at 8:30.

The US Dollar Index is in a steep well defined uptrend. The last candle on the chart was a strong bullish candle opening near its low and closing near its high, inching us closer to previous resistance at 79.937. The RSI and Stochastic are pointing higher however there is some divergence with the fast stochastic pointing down and about to cross below the long stochastic while the DeMark indicator is moving sideways. We take this as a sign that the US Dollar index will likely retest that high at 79.937 and then back and fill within the trading range eventually retesting the high of 80.43. The 5-period moving average is at 78.135 meaning the dollar index is above it and at this time we would remain long. The upper edge of the Bollinger band is at 79.738 and the lower edge is 76.086. We are above the Ichimoku Clouds for the daily time-frame and in the clouds for the weekly.

The S&P daily chart shows the index is riding the lower Bollinger band, having currently broken below it. The chart shows a market in a very steep and narrow decline. This waterfall like decline cannot last and will lose momentum to the downside. The RSI continues to issue a sell-signal breaking into oversold territory. The stochastic indicator is turning up from an oversold level and has issued a buy-signal. The downtrend line is at 1247 a level that must be removed to cause the most tentative bear to become slightly annoyed and possibly concerned. We are in Bear territory with crucial levels seen at 1148 and 1128. A break of the 1148 level will cause the bears to press their positions and to lever up on the trade. Should the market break the levels then the door will be open to 1096 and then1062. We expect to see a rally within a day or so. Should that rally carry the market to the 1208 area we will see supply, if that can be overcome the door will be open to1228 and 1241 area where there will be enough supply to keep the market from advancing without difficulty. The 5-day moving average is at 1227.90. The top of the Bollinger band is at 1295.73 and the bottom edge is seen at 1152.53. Please note that this market has been hugging the lower edge of the Bollinger band. We are inside the Ichimoku Clouds for the daily time-frame, below the clouds for the weekly time-frame and above the clouds for the monthly time-frame. This week is a full week of excitement ending with the “Jobs data.” This certainly not a week to miss, trade with caution please.

The NASDAQ 100 has had a rather nasty sell-off in recent days retreating in seven of the past eight days. Yes, it seems to be losing momentum to the down-side. All the indicators except the RSI are issuing a buy-signal. The RSI continues to drift lower below oversold levels and continues to point lower. The chart is interesting insomuch as it shows a congestion area on the chart between October 14 and November 15. For that period of time the NASDAQ 100 traded between 2268 and 2408.75. On November 16th it continued in that range but broke out of the range on the 17th and since that time has been declining. The 5-period moving average is at 2292.11. The top of the Bollinger band is at 24441.70 and the lower edge is seen at 2142.59. The down-trending channel lines are 2184.41 and 2088.83. 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 uptrend line on the weekly chart is at 2092.06, where we would expect to see the market defend that level. It has been ugly and Christmas is around the corner, you know good will to man and peace on earth….maybe on Broad and Wall?

The Russell 2000 has retreated for five of the past six trading days. The retreat seen in the index was not as severe as the retreats seen in the NASDAQ and the S&P 500. That said, one must remember that this index never did run as high as the other in October so it had less ground to give up. We are below the Ichimoku Clouds for the daily and weekly time-frames. The 5-day moving average is at 724.88. The top of the Bollinger band is at 771.29 and the lower edge is seen at 668.04. The downtrend line is at 737.23 and represents the very first area where the bears will become uncomfortable with their short positions. The down trending channel lines are at 704.83 and 657.90. We are losing momentum on the downside and will likely bounce within a day or two. This market has been hugging the lower edge of the Bollinger band, frequently trading below that line. The stochastic indicator is grossly oversold and seems to be issuing a buy-signal then a sell-signal and now possibly a buy-signal again. The Thomas DeMark Expert indicator is issuing a continued buy-signal and our own indicator is issuing a buy-signal albeit a weak one. The RSI continues to point lower at oversold levels. We do expect to see a bounce in this index that could carry the market to the 703 level. The market profile chart warns us that below 639.20 we could have a violent down-draft. The level of stability begins at 714.40.

Could there be a bull flag on the crude oil chart? Could be! We are above the Ichimoku Clouds for the daily and monthly time-frames and in the clouds for the weekly time-frame. The weekly chart clearly shows that crude oil has broken to the upside. The 5-day moving average is at 985.34. The top of the Bollinger band is at 101.43 and the lower edge is seen at 917.16. We will believe that it is a flag pattern unless the market closes below 94.54. Should that occur, then we will simply retreat back to the early 90’s. We are losing momentum as measured by the ROC. We have a very interesting candle on the chart from the Friday session. We traded higher than the Thursday session and lower than the Thursday. We also opened higher than the close of the Thursday session. This is an outside day and can be a bullish candlestick. The downtrend line is at 97.52, a level which we must close above to restore the bull’s confidence in the trade.

Gold is in a downtrend although the action in the Friday session was more of consolidation than of downdraft. We are inside the Ichimoku Clouds for the daily time-frame and comfortably above the clouds for both the weekly and the monthly time-frame. The 5-day moving average is at 1745.82. The top of the Bollinger band is at 1816.59 and the lower edge is seen at 1665.44. The horizontal resistance line is at 1795.80 and the horizontal support lines are at 1668.10 and of course, at 1535.20. We would expect to see support at 1607.80 before retesting the low seen in September. The down trending channel lines are at 1729.35 and 1637.05. We continue to like gold on pull-backs. Gold trades as a currency these days rather than the hedge against inflation. So long as currency instability abounds this will be a hiding place for cash. That said you should be aware that banks will sell their hoard of gold when they need their cash for other adjustments. The indicators are oversold and pointing lower. The RSI is not oversold and is pointing lower.