Archive for May, 2012

Sunday, May 27th, 2012

We recently viewed a number of docu-films highlighting prisoners in the Indiana correctional facilities. The producers followed these sentenced criminals, and documented the prison system in Indiana, California, Boston, etc. We noticed that the Indiana Correction system was able to calm down disruptive violent incarcerated criminals with cats. No, we are not kidding. They took several of the prisoners; ones that they felt would not kill the felines and gave them kittens and cats to raise. These abandoned animals were found in shelters, so not only did they prevent these felines from being euthanized but they gave them a home, if you would call prison a home. What they found out was that these violent men became care-givers to the cats and that responsibility and the possible loss of the cats kept them from acting out. A really brilliant idea, now, who wants to send a bunch of kittens to the heads of state in the Euro zone? That probably won’t work unless we send along kitty litter and food for the cats.

The globe is getting crazier and crazier alas, it is our globe so we had better learn how to live with the sporadic human volcanos and earth tremors. Clearly, we are becoming dulled to the pain of it all. It generally takes the market about two to four weeks to forget devastating headline news and return to normal trading. In November of 2008 the markets plunged on the week of November 17 and then recovered for the rest of the year. Then in February of 2009 the market began another retreat which lasted about four weeks after which the market rallied, stair stepping its way higher (that means rally then slight retreat, then rally etc.) until the end of April 2010. That retreat in April of 2010 ended in June of 2010 and a rally began anew. Taking the market to about where it rests today. From February 2011 to July of 2011 we saw a very clear head and shoulders top which resolved to the downside with lows seen in November of 2011. Since that time we have rallied to the highs of 1419.75 seen in the last week of March 2012. We have been in a retread from that high in March. The recent retreat seen in the S&P 500 has been slightly less than a 61.8% retracement from the December low to the high of March. The pain in this retreat has not been more than normal pain but we are sure that if it is your cash that is retreating it is very personal and painful.

There is good news this week and some bad news. The bad news is that the euro mess continues and although there is much chatter there is no resolve. Though good intentions are intended, nothing is being done. It is forever tomorrow with the next tomorrow on June 17. The good news is that the US markets do not want to go down. Yes, the S&P 500 broke out of the rectangle and now has significant resistance at 1332-1336, the break-down point, but it held the line at the 1287 support zone. Was this bullish reversal seen on May 21, 2012 a phantom or is it the “line in the sand” to defend.

Before you sell out your portfolio remember the median dividend yield for the overall market is about 2.3%. The three-month yield on government bonds is 0.09% for six months you get a whopping 0.14% and for a full year, 0.18%. Remember that you pay federal income tax on these issues but no state tax. The bank CD rates are a tad better with the six-month rate at 0.22% and the one-year rate at 0.33%. Before you run out the door to buy the bank CDs remember there is a penalty for early withdrawal and……ready for this……you pay both Federal, State and where applicable City tax on that sum you earned in interest. Oh, we forgot to mention that when you calculate in inflation, you are losing money. You buying?

There is some good news, if you would like to buy a Municipal bond from say, California; you might get a decent return on your money, so long as California doesn’t go bankrupt. You will owe state tax on that income should you live in a state that has an income tax that isn’t California. Don’t worry, NY isn’t far behind California! Germany just issued bonds where absolutely no interest is being paid, and yes, they sold them out. People are really scared and this is reflected in these trades. At this point, we believe that high grade corporate bonds just might be the better investment, but that the best investment, until or unless congress changes the Bush tax treatment of dividends, is dividend paying securities. Make sure that the company you are investing in has been paying dividends consistently for years, and that they have plenty of money to cover the dividends. Sorry a little work on that but it will pay off.

Tuesday: S&P/Case-Shiller home price index is released at 9:00, consumer confidence for May is released at 10:00 and Facebook options begin trading….yikes that spread should be big enough for a tractor trailer to get through.
Wednesday: April pending home sales are released at 10:00 and Dallas Fed President Fisher speaks.
Thursday: Challenger, Gray & Christmas issue May job cut index at 7:30, 1st quarter GDP is released at 8:30, May chain store sales, Chicago purchasing managers’ report is released at 9:45 and Dow Jones Sentiment Indicator is released at 9:45.
Friday: May nonfarm payrolls/unemployment rate is released at 8;30, april personal income/consumption is released at 8:30, April construction spending is released at 10:00 and May ISM index is released at 10:00.

The US Dollar Index has been in rally mode for the past 4 trading days and has broken above the horizontal resistance line at about 81.96. The US Dollar index chart reminds me of the chart of gold from December to the end of February. Both charts have pole like qualities. The 5-period exponential moving average is at 82.1513. The top of the Bollinger band is at 82.959 and the lower edge is seen at 78.346. We are above the Ichimoku Clouds for all time-frames. The very steep up trending channel lines are at 82.879 and 81.513. We clearly have signs of exhaustion. We are overbought as measured by all the indicators that we follow herein. We have sell-signals from both the stochastic indicator and our own indicator. We expect to support at 81.43 to 81.93. Remember people who missed this rally will likely be looking for an entry point. This does not mean that they will be correct but rather that they are looking to get long, which could lead to long and wrong. The chart will let us know. For now, the trend is higher and until or unless that changes that is where going. The difficulty with a strong US dollar is that imports become cheap and we are unable to export because our products become more expensive. For the consumer it is a win win in that commodity prices, priced in dollars become cheaper because of the strong dollar and that brings down the cost of things like crude oil and gasoline.

The S&P 500 tried to advance in the Friday session but failed closing near the lows of the session. The good news is that Friday’s high was the high for the week and the low printed on Friday was higher than the lows printed for the week. Bad news is that it was unable to close above the opening price and has left a negative candlestick on the chart. Some of the action seen in the S&P 500 was clearly due to position squaring before the US three-day Memorial Day Holiday. Some of it was just pre-weekend jitters. This market is below the 50 day moving average and just slightly below the 200 day moving average, that isn’t a good thing. We are below the Ichimoku Clouds for the daily time-frame but we are above the clouds for both the weekly and the monthly time-frames. For those loving short-term patterns, we have an upside-down bull-flag, which, is bearish. The Market Profile chart showed us the low last week before it happened. That is one of the beauties of Market Profile charts. We are clearly stuck back into the range. If we can close above 1332-1336, more specifically 1334.80, we will drift higher to the 1346 comfort zone and then, perhaps higher with instability appearing at 1371. On the downside, should we trade below 1286.52, it is likely that we will find support at 1278 and 1268. The 5-day exponential moving average is at 1316.56. The top of the Bollinger band is at 1408.64 and the lower edge is seen at 1279.68. The stochastic indicator has just triggered a sell-signal; our own indicator is curling over to the downside but has issued nothing of value and the RSI is pointing lower. The Thomas DeMark Expert indicator is pointing higher at overbought levels. We seem to captive of all news bites from Europe and trade basis their news until the afternoons when their markets are closed and we trade on our own.

The NASDAQ 100 had an inside day in the Friday pre-holiday session. We are forming a pennant. The uptrend line is at 2518.25 and the downtrend line is at 2547.87. There is a longer-term downtrend line at 2615.30. Where things could get interesting is either a robust rally taking the market above the second longer-term downtrend line where it is likely that the shorts would become nervous or closing below 2465 which could encourage the shorts to press their positions. The 5-period exponential moving average is 2532.30. The top of the Bollinger band is at 2743.77 and the lower edge is seen at 2452.62. We are below the Ichimoku Clouds for the daily time-frame, but above the clouds for both the weekly and the monthly time-frames. If you take a measurement of Fibonacci retracement numbers from the November 2011 low in the NASDAQ 100, we have held the 50% retracement number. If, on the other hand, you use the December low, we violated the 50% level but we are above the 61.8% level. Both the stochastic indicator and our own indicator are curling over and about to cross which would lead to a sell-signal. The RSI continues to sort of slope lower and the Thomas DeMark Expert indicator is flat at neutral.

The Russell 2000 managed a high for the week in the Friday session. We saw that the low was higher than the previous low’s seen this past week, generally that would give us a bullish feel about the market. We are below the Ichimoku Clouds for the daily time-frame and above the clouds for the weekly time-frame. We did have an up week this past week. The 5-period exponential moving average is at 775.25. The top of the Bollinger band is at 821.41 and the lower edge is seen at 740.01. The stochastic indicator is curling over and looks as though it will issue a sell-signal in the next session. Our own indicator continues to bend to the upside. The Thomas DeMark Expert indicator is pointing higher and is approaching overbought levels. The RSI is tilting to the downside on the negative side of neutral. We see what might be an upside down bull flag. We are clearly below both the 50 and the 200 day moving averages. The line in the sand for the Market Profile chart is at 741.00.

Crude Oil has left a doji on the chart as a result of the Friday session. We also have an inside day. The downdraft looks like a waterfall and is trying to stabilize at this level. We do see a liability to the 87.90 level. The 5-period exponential moving average is at 91.20. The top of the Bollinger band is at 105.99 and the lower edge is seen at 86.15. 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. All the indicators that we follow are oversold and on the daily chart they are beginning to curl to the upside. The Market Profile chart shows a steep slide to the downside. It also warns us that should this market get to the 98.94 level that it could begin to rally back to the break-down area of 103. Keep your eye on the US Dollar. It certainly will help you with your crude oil trades.

Gold rallied in the Friday session but remains below the downtrend line. This market needs to close above 1578.41 to begin to annoy any concern from those who are short. The uptrend line is at 1536.05 and that is a level that will be watched. Violating that line will open the door to 1526.70. We are below the Ichimoku Clouds for the daily and the weekly time-frames. The 5-period exponential moving average is at 1568.78. The top of the Bollinger band is at 1674.22 and the lower edge is seen at 1518.39. The market Profile chart indicates that below 1525.20 we will enter a fast movement area with support not found until 1493. On the upside there is supply all the way up however; once we clear 1599, there should be little if no difficulty for use to rally to at least the 1638 level.