Archive for November, 2011

Sunday, November 20th, 2011

Of all the global markets available to the investor, the US market is our top pick for short term future. In spite of the US’s “Gomer Pile” world of finance hosted by the “Forrest Gump” school of economics, we do not have the huge downside that looms live in most of the developed world. Naturally, we are not including Asia in this scenario. So, Happy Thanksgiving and thank you to all for having brought to us these two icons of the past , Pile and Gump, who fit so nicely into our current business cycle.

The recent number of articles regarding the MF Global mess and the non-action of most exchanges, except the CME which actually tried to do something, tells you of the depth and severity this mess has on the commodities markets. This is not a NY/Chicago mess, this is a mess to goes to the roots of the very core of risk management. Can you imagine the uproar that would be heard if customer money was missing from Merrill Lynch or Morgan Stanley accounts? Why is MF Global any different? It is not a case of investors investing in a Madoff scandal but a firm holding people’s money, just like the bank around the corner, and when the people wanted to withdraw their money they are told that they can’t. This has nothing to do with leverage but rather the safety of customer deposits!

Where’s the money? To those in charge, you bailed out the big banks why not the CUSTOMERS OF THE firm. Why not take all the assets of all the directors of the firm…..why not put Corzine in jail for robbing the customers. Yes, we are angry and we should be. We didn’t invest in a Madoff scam we simply parked our cash in our accounts for later use. We didn’t invest in MF Global we had our funds in segregated accounts. Where’s the money? Can we give the IRS a voucher for the money we owe stolen by MF Global?

For those of us who had their cash at MF Global, this will not be a very warm and fuzzy Thanksgiving. We are grateful for life and health but a few bucks would not hurt. Many of us had to pay real-estate taxes and other bills and were shut out of access to our funds. This will cause a ripple effect. Firms will go out of business, the farmers will assume greater risk than they had intended, portfolio managers will not be able to hedge their positions etc.

In the midst of this mess, Starbuxs raised prices on coffee products citing the cost of coffee as the reason. Do they really think that the public is that stupid that they cannot look at the price of coffee and notice that it has been going down not up? Tell the story as it is, say your prices are going up because you are redoing all your stores or because health care costs are going through the roof, but don’t blame the beans on this cost increase.

The PIIGS and the US Banks, not such a warm and fuzzy feeling here. Should the PIIGS fail we will feel the pain. It is true that our exposure is not as great as that seen by the Eurozone institutions but there is exposure here especially seen by Bank of America, JP Morgan and Citi. Yes, Morgan Stanley, Wells Fargo and Goldman Sachs also have exposure but to a lesser degree. Perhaps some of the softness seen of late in gold has been caused by some of the European banks liquidating their holdings. Remember also when a margin clerk sells out an account s/he takes whatever asset can be sold for the most money and sells it. There is no care taken as to what the product is, but only how much money can be raised. Also please do not forget that the MF Global mess continues to play into the commodities markets.

Monday: October existing home sales are released at 10:00, and Jefferson County, Alabama goes to back to bankruptcy court for an adjustment (sewer system away from the receiver).
Tuesday: 3rd quarter GDP, FOMC minutes are released, and MF Global court session.
Wednesday: October durable goods, personal income and consumption are released at 8:30, November Michigan sentiment is released at 9:45-10:00, and congressional supercommittee deadline…this should be interesting.
Friday: Black Friday, shop till you drop!

The US Dollar index retreated in the Friday session but still remains above the uptrend line. We do have a 13 count. The US Dollar has enjoyed a robust rally in the past few weeks. We continue to trade inside the Ichimoku Clouds for the daily and the weekly time-frames. The up trending channel lines are 76.884 and 79.218. All the indicators that we follow herein are issuing a sell-signal. Now before you run out and sell the US Dollar, please remember that the market can stay overbought and give sell signals within the context of a bull market. That is exactly what seems to be happening here. We believe that the market will back and fill finding support at the 76.75-77 area. The 5-day moving average is at 77.401. The top of the Bollinger band is at 79.016 and the lower edge is seen at 75.194. The Bollinger bands are expanding indicating to us that the volatility of the US Dollar index is also expanding. The Market Profile chart tells us that as we approach and trade above 78.60, the resistance becomes lighter and there is very little supply overhead. That will increase the ability for the market to rally, should it get to those levels. Further, above 80.25 there is little resistance. The high volume area on the chart is at 77.10.

On Thursday and Friday the S&P 500 mini contract broke below the triangle that was forming. The candlestick left on the chart as a result of the Friday trading session is a doji candlestick. A doji candlestick indicates that the market is in transition and that it could change directions. The downtrend line of the daily chart is at 1264.00. We would need to close above that level to restore the bullish view and scare some of the shorts. The stochastic indicator is curling to the upside or perhaps one could say that the faster line is no longer pointing lower. The Thomas DeMark Expert indicator is pointing lower and is becoming oversold. Our own indicator is curling to the upside but has not given a buy-signal and the RSI is simply going sideways. The 5-day moving average is at 1249.96. The top of the Bollinger band is at 1284.81 and the lower edge is seen at 1206.08. We tested the 50 moving average on Thursday and we were able to stay above it on a closing basis. It looks as though we are again in a trading range. This will be a shortened week of trading and generally has an upside bias. The US markets will be closed on Thursday for Thanksgiving. It is likely that Friday will be a very lightly traded day. We are above the Ichimoku Clouds for the daily time-frame but are in the clouds for the weekly time-frame.

The NASDAQ 100 looks awful. The market looks as though it has a rounding top and wants to continue lower. True we are oversold but there is no reason to believe that we will not go lower. The 5-day moving average is at 2340.38. The top of the Bollinger band is at 2416.94 and the lower edge is seen at 2259.33. We are above the Ichimoku clouds for the daily and the monthly time-frame but are in the clouds for the weekly time frame. This market is showing extreme weakness and is indicating that all is not well in the markets.

The Russell 2000 looks better than the other financial indices in the Friday session. This index has not broken down and continues to trade inside the triangle. We are getting a buy-signal from the stochastic indicator but the Thomas DeMark Expert indicator continues to point lower and the RSI is going flat. Our own indicator is trying to curl up but has not issued a signal. The 5-day moving average is at 734.57. The top of the Bollinger band is at 763.03 and the lower edge is seen at 704.95. We are above the Ichimoku Clouds for the daily time-frame, but below the clouds for the weekly time-frame. The Market Profile chart shows us that above 768 there is very little overhead supply.

Should crude oil trade above 103.04, there is very little supply or resistance and it is likely that we will see the product melt to the upside. Crude close on the up trending channel line and pieced that line during the trading session. The channel lines are 97.29 and 105.79. The 5-day moving average is at 99.07. The top of the Bollinger band is at 101.43 and the lower edge is seen at 89.45. We are above the Ichimoku Clouds for the daily and the monthly time-frames but are in the clouds for the weekly time frame. Right now the chart is okay but this could turn negative quickly. We continue to like crude oil.