Archive for December, 2011

Monday, December 26th, 2011

We are looking forward to a quiet post-Christmas week leading up to the last trading day of the year, Friday. Take the time to review your portfolio and remove some of your pet looser from the pile of securities and start making a plan for the coming year’s investment theme and objectives. Yes everybody wants to make money but it is always easier if you have a plan. Even bad plans are better than no plans.

Here is an idea for the lawmakers in DC for the New Year, tighten up policy and forbid the over hypothecation of customer funds. Make agreements with brokerage firms easy to read and allow the clients to opt out without being booted out of that firm. Stop firm excess charging like ticket charges and non-trading fees. Pay brokers a decent wage for their fiduciary responsibilities. Shut down big firms that break the rules, fines are nice but have not stopped these firms from breaking the rules. Goldman Sack’s fine, earned back in four trading days. Wow, that was some fine! Small firms are being chased out of the business. This is still American and they should have and enjoy the same rights and privileges as big firms. Tell FINRA to look at Goldman, Morgan Stanley, and Merrill Lynch et al.

As to next year: we continue to believe that the USA is the place to invest. Find companies that pay a decent dividend and invest in those securities then, sell covered calls to add some more income to goose up the returns. Take care if investing in financials, the worst for these companies, is not over yet. We do see some green shoots but remember winter has just started and these shoots will have to wait for the spring to appear.

2012 is an election year and the incumbent will try to goose the economy by talking his book. In other words the re-election campaign will focus of how well we are doing especially when compared to countries that are facing difficult times. Believe half of what you hear from both sides and always check the spin doctor’s quotes. They only lift the good ones and take them out of context. Enjoy the politics, the flubs, the mudslinging and the many jokes that will be spurned by this upcoming 2012 election. As far as we are concerned, we continue to believe that we should throw all of them out and start anew with representatives that are willing to live by the laws they help craft. Our system is broken and it is up to us, the public to fix it. Stop blaming Washington and start taking responsibility for having elected this people. If you don’t like it, don’t vote for them.

Tuesday: December consumer confidence is released at 10:00 and Case-Shiller October home prices are released at 9:00.
Wednesday: Chain store sales snapshot.
Thursday: October pending home sales are released at 10:00 and December Chicago PMI is released at 9:45.
Friday: December Chicago purchasing managers’ report is released at 9:45.

Friday’s session in the US Dollar index left a doji candlestick on the chart. The session was an inside day still remaining above the uptrend line and below the downtrend line. The 5-day moving average is at80.274. The top of the Bollinger band is at 81.085 and the lower edge is seen at 77.922. We do not expect to see much in the way of activity in the US Dollar index because it is the end of the year and most have already closed their books for the year. The Market Profile chart clearly shows that above 81.120 there is very little if any resistance. We are above the Ichimoku Clouds for the daily and weekly time-frames but remain below the clouds for the monthly time frame. The indicators are mixed, with all but the Thomas DeMark Expert indicator, pointing lower. Rather than a plunge in the indicators it looks like a gentle drift lower.

The S&P 500 enjoyed a four-day dynamic rally this past week taking this index to the downtrend line. Yes, there are two downtrend lines depending on where you want that line to originate. There are also two uptrend lines one short and the other a little bit longer. The S&P is comfortably about both of those lines. The 5-day moving average is at 1236.10. The top of the Bollinger band is at 1276.72 and the lower edge is seen at 1191.94. The stochastic indicator, our own indicator and the RSI are all pointing to higher levels. The Thomas DeMark Expert indicator has curled over to the downside at overbought levels. As to the rally, it can continue further into the end of the year as portfolios are adjusted and funds paint a rosy picture for the end of year reports. The Market Profile chart shows that above 1275-1280 there is not much supply and there would be little resistance seen overhead. While this is not always a great reason to rally it is a point where you might expect to see money flowing into the market in an effort to coat tail the rally. The S&P 500 is above the Ichimoku Clouds for the daily and the monthly time-frames and in the clouds for the weekly time-frame.

The NASDAQ 100 is underperforming the S&P 500. Yes, the index rallied 17.75 in the Friday session but the index only rallied two of the five trading sessions while the S&P 500 rallied for four of the five sessions. We are inside the Ichimoku Clouds for the daily and the weekly time-frames. We are above the clouds for the monthly time-frame. The 5-day moving average is 2251.50. The top of the Bollinger band is 2347.83 and the lower edge is seen at 2193.06. The Bollinger bands are beginning to contract indicating that the volatility is beginning to decrease. This is logical for the end of the year as people close out their positions. So long as 2204.25 is not removed, we believe that this index will try to play some catch up in the coming days and weeks. If the NASDAQ 100 breaks below 2204.25, then 2135.75 will be the next level of support. All the indicators that we follow herein continue to issue a buy-signal with plenty of room to the upside.

The Russell 2000 performed well in the Friday session making a new high for the week and a higher low for the week. Unfortunately, a doji candlestick was left on the chart. This warns us that this market could be in transition. We did see the market close above the downtrend line. The stochastic indicator, RSI and our own indicator all continue to point higher. The Thomas DeMark Expert indicator is curling over and has issued a sell signal. The 5-day moving average is at 732.22. The top of the Bollinger band is at 760.36 and the lower edge is seen at 695.80. We are clearly above the Ichimoku Clouds for the daily time-frame but in the clouds for the weekly time-frame. Although we closed above the downtrend line for the daily time-frame, we closed on the downtrend line for the weekly time-frame. If there is to be a January effect this is the index where buying should be occurring. Some of the speculation has been sapped from the market by dividend paying issues. With interest rates so low, money is seeking yield and buying issued that pay dividends. Growth stocks found in the Russell 2000 generally do not pay dividends and may not be bought to the extent seen in past years.

Crude oil rallied for all five trading days this past week and is approaching the downtrend line at 100.52. We are above the Ichimoku Clouds for the daily time-frame but is inside the clouds for the weekly time-frame. All the indicators that we follow herein are pointing higher with plenty of room to the upside. The 5-day moving average is at 97.9120. The top of the Bollinger band is at 103.38 and the lower edge is seen at 93.50. Clearly 103 is a formidable resistance area for crude oil. The Market Profile chart also shows us that there is little resistance above 103.60.

Gold is the only chart that we have reviewed that really doesn’t look all that well. We like gold but will hold off on a recommendation until it tells us which way it is going to travel. We are below the Ichimoku Clouds for the daily time-frame but remain comfortably above the clouds for both the weekly and the monthly time-frames. The 5-day moving average is at1604.94. The top of the Bollinger band is at 1794.00 and the lower edge is seen at 1540.6.