Archive for March, 2012

Sunday, March 25th, 2012

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The vultures are out sniffing around the wreck of the MF Global accounts offering to buy them for pennies on the dollar. We received three offers so far this week, all offering to pay real money for the account which was held at MF Global. Something tells us that if they are sniffing then some payment will likely be forth coming and we should just stand pat, after all it has been since September 30 or so that we haven’t had the money. We have adjusted to this restriction and feel that we can wait.

We were sadden to hear, this week that a frequent guest of the talking heads of financial television (CNBC, Fox Business Network, Bloomberg Television and radio), radio and a writer of a column in the financial press got 10 years real jail time in a federal penitentiary for securities fraud. Seriously folks, we are led to believe that these guests on television are credible, somehow this sort of thing encourages the viewer to be more skeptical about what they hear. Well at least we hope so. What really scares us is that the government actually allows TDA’s in IRA’s how that is possible? How can firms allow this? You are putting a tax deferred item in a retirement account which isn’t taxable until the money is withdrawn. The entire advantage of a tax deferred vehicle is that you are removing your investment first, no taxes, and then paying for the earnings later. But in a retirement account, all withdrawals are ORDINARY INCOME when they are removed. There is no first in first out there is no return of investment there is no long term capital gains, it is all ORDINGARY INCOME. Yet people are being sold these investment vehicles in retirement accounts. Is there no accountability? We haven’t even touched on the meager returns these investors are getting.

Don’t give up on the rally yet. Last week’s retreat looks like a normal shallow retreat in a market that is stair stepping its way higher. Yes, we are overbought but we can remain overbought for longer than you can probably fund a short position. Remember, the trend is your friend and right now, those who missed the rally keep snatching the shares up when it retreats. The question we must and do ask is when does the retreat become a serious event. We think that if you embrace the Fibonacci numbers for guidance that they will keep you out of trouble.
For example the recent rally from January 30 to March 1 added 79.25 points retreated 41.25 points taking the high to the low. If we do this from close to close we will get better numbers, 65.50 for the rally and 21.75 for the retreat. The market stayed above the 61.8% retracement of the rally that preceded this retreat. Okay now let us look at the recent data: The S& P 500 gained 72.25 from low to high from March 7 to March 19. (close to close was 57 points) and then the recent retreat was from ling to current low; 24.50 (6 points from close to close) So if we use the absolute low to high we notice that the retreat has been less than 38% and actually was 34%. Had you taken the numbers from the absolute low to the absolute high, this week’s retreat did high 38.2%. This tells us that there could be a further retreat before this adjustment is over. We caution you that should a retreat be greater than 61.8% that it would be a good idea to stand out of the way and retreat to the sidelines. On the other hand, if the retreats remain shallow, there is no good reason to abandon your position and go to cash or reverse.

Monday: Fed Chairman Bernanke speaks.
Tuesday: S&P/Case Shiller home price index is released at 9:00, consumer confidence for March is released at 10:00 and New York Fed President Dudley speaks.
Wednesday: Durable good shipments for February are released at 8:30.
Thursday: 4th quarter GDP is released at 8:30.
Friday: Last day of the first quarter, February personal income/consumption is released at 8:30, March Chicago PMI is released at 9:45 and March Michigan Sentiment is released at 9:45-10:00.

A daily chart of the US Dollar Index shows the short term down trend line established March 15th to still be in full effect. The 79.576 level has proved to be formidable support as the index has started to print ever smaller spinning-top-like-candles around this level. These tests resolved into a break of the level with a probe lower below the horizontal support line leading to a close on that horizontal support line in the Friday session. So, the question is who will win this battle, the down trend line from just last week or the current support level? We shall find out in the days ahead. If the index breaks below the 79.576 we could easily see it moving to the 78.860 support zone that has been so crucial in months past. If however the index were to break above this short term down trend line the next stop would be the March 15th high of 81.160. We are hugging the 20 period moving average and the Bollinger bands are beginning to turn in with the upper band at 81.009 and the lower at 79.325. The RSI, Stochastic and our own indicator are all issuing sell signals from neutral territory.

The weekly chart shows the uptrend line from August 29th 2011 to still be in full effect. So long as we stay above this uptrend line we are long term bullish, however; the doji candle that formed in last week’s session helped validate a down trend line going back to June 7th, 2010. We see a giant triangle forming on the chart. A point of inflection is nine to ten weeks into the future. The price of that inflection point is 80.285. Again, only time can tell. For this pattern to work, we need to stay below the downtrend line and above the uptrend line. We also would love to see the volume retreat. We continue to see sell signals on the RSI, stochastic and our own indicator and believe the index will move back to the down trend line formed August 29th.

The S&P 500 lost a little ground this week but closed with a rally in the Friday session. This week is the last week of the first quarter of this year. As such, we expect to see some portfolio adjustments and a little more volatility than we saw last week. Generally these adjustments are positive for the markets. The Market Profile chart shows that above 1406.25, there is open air and not previous supply to hold the market down. The 5-period exponential moving average is at 1394.69. The stochastic indicator is issuing a buy-signal at overbought levels; the RSI is also pointing to higher levels from the positive side of neutral. Our own indicator is curing to the upside but has not issued a buy-signal. The Thomas DeMark Expert indicator is issuing a solid sell-signal. We are above the Ichimoku Clouds for all time-frames. The chart looks as though we have a bull flag at the moment. The down trending channel lines are 1399.29 and 1379.20. The top of the Bollinger band is at 1415.94 and the lower edge is seen at 1343.95. The market continues to behave in a very positive manner and we are loath to take a contrarian position until or unless the market tells us to. Yes, we watch the market and observe what it does, we do not try to tell the market what to do, that never works.

The NASDAQ 100 continues to have a very positive chart. We must say that it seems to be getting a little tired here. In the past three trading sessions we have seen doji-like candlesticks. Friday sessions printed a higher high, than the Thursday session, and a lower low. The last three days of trading look more like a consolidation than a retreat. We did get a nine on the chart in the Wednesday session. Although the market retreats from these points it doesn’t go very far to the downside and then reverses to the upside. We are above the Ichimoku Clouds for all time-frames. The 5-period exponential moving average is at 2726.57. The top of the Bollinger band is at 2768.66 and the lower edge is seen at 2570.63. This market has been on a steep uptrend with only one noticeable pull-back from March 2 until March 7. The stochastic indicator is overbought and currently looks flattish not really giving us any signal at all. The Thomas DeMark Expert indicator is issuing a continued sell-signal. Our own indicator is flat and has a slight tilt to the downside. The RSI is also bending to the downside but not showing absolute direction. The weekly chart of the NASDAQ 100 shows clearly the steep angle of assent in this index. Still there is no reason to doubt it. Above 2744 there is nothing to hold this market down. Simply put the only action you will see at that level is some profit taking which could put some pressure on this markets ascent.

The Russell 2000 has been stuck in a rectangle since early February. Although the market appeared to break above the resistance line on March 19, it quickly retreated back inside the rectangle. We are above the Ichimoku Clouds for all time frames. The Market Profile chart shows that we have really no overhead resistance to worry about yet; the market stays within a trading range. The 5-period exponential moving average is at 825.48. The top of the Bollinger band is at 843.42 and the lower edge is seen at 791.76. The stochastic indicator, our own indicator and the RSI are all issuing a buy-signal. The Thomas DeMark Expert indicator continues to issue a sell-signal. We are overbought on all time-frames. This is not a signal to sell this index short but just a statement of condition. We can go higher but it will take more volume and more effort to move the market.

Crude oil enjoyed a rally in the Friday session and seems poised to move back to the 110 area. Both the stochastic indicator and the RSI are pointing to higher levels. The 5-period exponential moving average is 106.43. The top of the Bollinger band is at 108.44 and the lower edge is seen at 104.87. We are above the Ichimoku Clouds. Crude oil is trading in a very large rectangle. If this market resolves to the upside, we can expect to see 114.80. Should this market fail to move to the upside, we would see some panic selling under 102.

Gold is in the Ichimoku Clouds for both the daily and the weekly time-frames. The only time-frame that looks good for gold is the monthly time-frame which shows clearly that xx gold still remains in an uptrend. That said, both the weekly and the daily chart clearly show gold in a downtrend with support at its current level. This past week has been very difficult for this market. We have seen a downside probe to 1627.75 with a rejection of that level and a return to the mid-1600. Should this market fail to hold this week’s low, we do have a liability to 1525. The 5-period exponential moving average is at 1655.72. The upper edge of the Bollinger band is at 1766.22 and the lower edge is seen at 1611.68.