Archive for April, 2012

Monday, April 30th, 2012

Dan Clifton and Jason Trennert said;“… roughly one-third of the entire tax code expiring at the end of the year, the spending sequester beginning on January 2, a debt ceiling increase needed in the six weeks after the election and before the end of the year.”

No big deal right……WRONG! The 15% maximum tax on dividends is about to expire. Call the undertaker, because should that occur, part of the floor supporting this market will be removed. Keep an eye out for cash rich companies to pay a special dividend prior to that event. This tax event would be like a guy coming into the pit with an order to sell 10000 contracts in a market that has a daily volume of 100….watch out below.

We have a few market destabilizing events on the horizon one of which is the November elections. We have the FOMC standing down from its position of “Operation Twist,” the FDIC possible rule changes regarding insurance on non-interest-bearing transaction accounts that were implemented as a result of the financial crisis which ends by the end of the year, and inflation beginning to creep in with regard to food costs and energy costs. The current administration remains against the US becoming more energy efficient and has deterred exploration and the use of our natural resources. We have tree huggers milling corn rather than encouraging the use of natural gas, which is in good supply on our shores. We pay farmers not to grow and we encourage the importation of energy by restricting exploration and transportation of products here in our country….something is off here.

As to the markets, we will remain bullish until that time when the market tells us (we do not tell the market anything because it doesn’t listen) that we should change directions. We will turn on a dime should that occur. We are able to say, hey that was then and now the chart is telling us something different. The beauty of technical analysis is that we do not have to wait for earnings or lack thereof, or modeling to change our minds. The charts, which illustrate supply and demand, tell us all we need to know. That said, we do look at fundamentals because it is important to have a business, earn a living at that business and produce something other than a promise. These are lessons we knew but emphasized during the tech bubble when companies were trading on wishes and possibilities rather than on product or services.

We continue to state that we are further into our recession/recovery cycle than are our European brothers but remember that their slowdown or possible implosion will bleed to our shores and hurt, if not halt our recovery. We cannot print out way out of this mess. We need to take action to encourage expansion of industry and employment for our citizens. This could sound a little radical but families with generations living on government subsidies should be terminated. Seriously, generational welfare is not going to help expand this economy or help with the ever growing debt situation.

Monday is the last day of the month so; last minute changes will be made as portfolio managers’fine tune their portfolios. Tuesday money should flow into the markets as 401k money is put to work. Upside bias for two days then, we will have to see. The Russell 2000 is playing catch up to the other financial indices. This index has lagged both the S&P 500 and the NASDAQ 100.

Monday: March personal income/consumption is released at 8:30 and April Chicago PMI is released at 9:45.
Tuesday: March construction spending is released at 10:00 and April ISM manufacturing index is released at 8:30.
Wednesday: March factory orders are released at 10:00.
Thursday: First quarter productivity is released at 8:30, the ECB releases its interest rate decision and makes a statement, and Challenger Grey and Christmas post their job-cut survey.
Friday: April jobs report and unemployment rate is released at 8:30.

The US Dollar Index has broken below one support line resting on another going back to August 29th, 2011, closing the Friday session at 78.757. The candlestick chart has printed a large bearish engulfing pattern following three black crows. All indicators that we follow are issuing sell signals printing lower highs and lower lows. The Bollinger bands are expanding with the upper band at 80.661 and the lower band at 78.633. There is a good deal of support between the index’s current level and 78.128 and while we could see the index moving lower, we imagine it would find support in this range.

Looking at a weekly chart we can see the US dollar index is sitting at a fairly strong support level however it would not be unreasonable to see it move to the 78.139 level. The Index is stuck in a rectangle and all indicators we follow continue to issue a sell signal.

The S&P 500 daily chart clearly shows that the market is in a trading range. The smaller pattern is that of a “W” but we are at the top of the chart and not the bottom . We can call it a double bottom, if that was a bottom, with a projection to 1421.25. We can see that currently the S&P 500 is above the Ichimoku Clouds for both the daily and the weekly time-frames. We believe that this market wants to trade higher and that it will attempt to remove 1419.75, simply because it is there. If it removes the targeted 1421.25 then we will see a significant rally, in the short term, as shorts panic and cover. There is a a doji like candle as a result of the Friday session. Monday will be the last trading day in the month of April and that generally has an upside bias. Then on Tuesday we will see another push to the upside as the 401K money is put to work. The Market Profile chart clearly show that should the market try to take out the high, that it either melts quickly to the upside or retreats to the belly of the curve. The weekly chart is positive, the stochastic indicator and RSI continue to point higher. We see the stochastic indicator curling over on the daily chart and the RSI going flat. Only the stochastic indicator is at overbought levels and as you know that can last for a long time. The 5-day exponential moving average is at 1388.15. The upper Bollinger band is at 1411.33 and the lower edge is seen at 1350.21. Until or unless the market tells us to change, we willl opt for the upside. We understand that there are very dark storm clouds on our horizon so, don’t forget to latch your safety belt for a bumpy ride.

The NASDAQ 100 has clearly “V” bottomed and moved above the downtrend line. All the indicators that we follow herein are pointing higher. The 5-day exponential moving average is at 2705.86. The upper edge of the Bollinger band is at 2785.86 and the lower edge is seen at 2634.78. We are above the Ichimoku Clouds for all time-frames. The weekly chart looks like a pole with a flag and a resumption of the uptrend. The market needs to close above 2790.92 to scare any remaining shorts into covering their short positions. The Market Profile charts tells us that above 2781, the market will either melt to the upside or return to 2754 and then 2700.

We can see the Russell 2000 rallying to 852.15. Yes that is about two handles higher, or two dollars higher than the recent high seen in March. The 5-day exponential moving average is at 811.73. The top of the Bollinger band is at 833.06 and the lower edge is seen at 777.55. We closed the Friday session above the Ichimoku Clouds after having been in the clouds since April 5, 2012. We are above the Ichimoku Clouds for the weekly time-frame. Both the RSI and the stochastic indicator on the weekly charts are issuing a buy-signal. Looks like this market wants to go higher. The Market Profile chart shows that we are in the comfort zone on the chart. It also tells us that as we move higher, things may get a bit dicier. We become less stable as we move higher and once above 850.20, we will likely see a melt to the upside. On the other hand, a move below 777.40 would clearly end any bull aspirations.

A daily chart of Crude oil shows we have been making progress to the upside, with the Friday session touching 105.03 (a fairly strong resistance level). The index continues to bounce around in a triangle however we can see the index breaking to the upside fairly soon. Above the current level Crude will move into the 105.03 – 108.21 range that had defined the box from February 12th – March 12th. The RSI and stochastic are calling for higher prices and the Bollinger bands are expanding from a condensed point. The upper band is at 105.21 and the lower band is at 101.35. The 5-day exponential moving average is at 104.11. The downtrend line is at 104.79 and the uptrend line is at 102.36. As these lines become closer we see the coil forming. The lines intersect at a point of inflection on May 10, 2012 at 103.50. The market is trading inside the Ichimoku Clouds for the daily time-frame and above the clouds for both the weekly and monthly time-frame. Should this market close above 110.55, the market will be in a position to challenge the 114.83 old high seen on May 2, 2011. The Market Profile chart agrees and tells us that at 111.00 we will likely either melt to the upside or retreat back to the comfort zones in which we now reside.

Gold gapped higher in the Friday trading session. We have a mechanical buy-signal in gold. Nobody seems to like gold, we still do. The 5-day exponential moving average is at 1652.89. The top of the Bollinger band is at 1678.16 and the lower edge is seen at 1621.82. 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. Both the stochastic indicator and the RSI continue to issue a buy-signal on the daily chart and I issuing a buy-signal on the weekly chart. Gold traded above and closed above the downtrend line at 1660.79 in the Friday session. The uptrend line is at 1629.60. The Market Profile chart shows us that there is some instability at 1685, which should lead to a move to1705 and more instability at 1725 and even more at 1795. We continue to like gold.