Archive for June, 2012

Sunday, June 17th, 2012

Inflation may be dead and deflation might be on the tip of the FOMCs tongue, but nobody told the insurance companies, drug makers, food suppliers, tax-man, transportation people, colleges etc. that information. Clearly, they were out to lunch or absent the day when that information was given. We just opened a letter from our health insurance company……17.7% increase in premiums for both health care and prescription costs. “Rising medical expenses are the main reason for the requested increase.” Now, that said, we have a slight problem with that. Seriously while physicians used to earn a great deal of money, today, this group as a whole does not. So where is the increase in costs? The average ER doctor makes slightly more than a legal secretary and the resident makes less than a garbage man. We would agree that the plastic surgeon makes piles of money but that isn’t covered by health insurance. Then there is the cost to feed the family; unless you opt for unhealthy foods, your costs have not come down but rather have gone up. Fresh fruits and vegetables are more expensive today than they were a year ago. The cereal you buy today has less content in that huge box than it did a year ago. So here we are, middle class earners getting pounded with cost increases and wage stagnation. In the New York Metro area we have been bombed with cost increases in such minor thing such as toll roads; Lincoln Tunnel went from eight bucks to twelve bucks, what is that? Then take the turnpike in NJ or the Garden State Parkway and you will be broke before you get to your destination. The NY Thruway and Tri-Borough Bridge and Tunnel Authority are on board with these huge increases. The bus to NYC increased 20%. Try parking your car in NYC……minor war debt, and scratches and dents, well those are on the house. We are speaking about a clear disconnect that our government seems to have regarding the real costs of living, not their costs which, naturally does not include the entire above mentioned group. After all, if you work for the government, your health care, pension, etc. are all covered by us, the US Tax payer. What is wrong with this picture?

Meanwhile the markets here in the USA keep rolling higher, as they should. Why should they? Simply put, you lose money by not investing so why not invest in well-known old companies with a good history of paying and increasing dividends. Pick companies that will have increased demand like drug companies and companies that supply products at a reasonable cost markup sensitive to the public’s needs. There are lists and lists of these companies available. We suggest that you look at Value Line where you can find a list of high dividend paying companies along with the company’s financial status and other relevant facts that will keep you out of trouble. As a technical analyst, we noticed that these companies, for the most part, have strong positive charts.

This week we will see a two-day FOMC meeting which will yield no change in policy. We expect to see a possible reintroduction of something like “Operation Twist” at this meeting or at the very latest next meeting. We believe that the Fed want to maintain a non-political bias and will avoid making decisions, unless absolutely necessary, before our fall elections. They will try to avoid finger pointing and politically viewed decisions.

Monday: The results of the Greek and French elections will play out in the markets and Microsoft will have a major announcements, speculation is that it is a tablet, better late than never.
Tuesday: May housing starts are announced at 8:30.
Wednesday: the FOMC announces its interest rate decision and a statement will be issued.
Thursday: May existing home sales are released at 10:00, May leading indicators are released at 10:00 and June Philadelphia Federal Reserve Survey is released at 10:00.

The US Dollar index continues to be in an uptrend, having traded sideways for the past two weeks after retesting the old 83.67 high on June 1st. This level has acted as resistance since July 15th 2010, and breaking above it will be no easy feat. In the event that the Index does push through this level (perhaps on the heels of some less than stellar news from Europe), the doors would swing open, conservatively to 84.425, but likely egged on by the emotion of the market to 86.545. On the down side, we see the 81.692 level acting as formidable support having held the index up three times in the past month. Should the index break through this level and through the 81.512 mark the Index would likely push down to 81.085. We are below the 5 period exponential moving average which is at 82.2305 and below the 20 period moving average is at 82.349. The Bollinger Bands are contracting with the upper band at 83.278 and the lower band at 81.4691. The RSI and our own indicator are issuing sell signals with lower lows however the fast stochastic is on the verge of crossing the slow.

The weekly chart continues to show the US Dollar index stuck in a trading range marked by 83.636 on the top end and 73.623 on the lower end. The last candle on the weekly chart is a doji and it appears the index has taken a break after a strong move to the upside. The levels on the weekly chart confirm the conservative upside level of 84.74 and 81.652 as major support.

Looking at a .2% x 3 box Point and Figure chart we see there should be some concern if the chart breaks below the 81.58 level. This would also mark a level dangerously close to a 50% retracement of the last up column (a move that would indicate a pole). Should the Index break above the 83.06 level a double top buy signal would be generated and the doors would be open to 84.91.

The S&P 500 is in position to challenge the recent high level seen on June 11, 2012 at 1342. We continue to believe that this level and the 1352 area will offer difficult resistance and may take a few attempts to clear this level. We seem to be possibly forming an inverse head and shoulder. We are below the Ichimoku Clouds for the daily time-frame, but above the clouds for the weekly and the monthly time-frames. The stochastic indicator, our own indicator and the RSI all continue to point higher. The Thomas DeMark Expert indicator is flat at overbought levels. The top of the Bollinger band is at 1348.03 and the lower edge is seen at 1278.79. This market needs to close above 1341 to begin to annoy the shorts and we need to remove 1342 to get the short covering ball moving. The Market Profile chart indicates that we will enter a fast movement zone at 1339.20. On the flip side of this coin, if we remove 1297 on a closing basis, we will reopen the door to the lower areas and a possible retest of the recent low of 1262.

The NASDAQ 100 enjoyed a robust rally in the Friday session tacking on 29 points for the day. All the indicators that we follow herein continue to issue a buy-signal. The 5-day exponential moving average is at 2541.50. The top of the Bollinger band is at 2584.57 and the lower edge is seen at 2463.70. We seem to be in a rectangle or trading range, pushing on the upper edge of that zone. We did see a piecing of that trading zone on June 11, 2012 when we traded as high as 2598 then reversed and closed lower on the day leaving a very bearish looking candlestick on the chart. We are below the Ichimoku Clouds for the daily time-frame, but remain above the clouds for both the weekly and the monthly time frame. The Market Profile chart shows us that above 2592.50 we will likely move higher, on the other hand should the market trade below 2439.50 we could go considerably lower. The point and figure chart shows that there is excellent support at 2325. It should be a very interesting week.

The Russell 2000 rallied in the Friday session sending this index above the downtrend line on the daily chart. We are below the Ichimoku Clouds for the daily time-frame but remain above the clouds for the weekly time-frame. The Russell 2000 is stuck in a trading range or rectangle. There have been two distortions; one to the up and one to the downside of this rectangle. We are trading below the 50 and the 200 day moving average and currently, those averages are extremely close with the 50 day moving down and the 200 day moving sideways. The 5-day exponential moving average is at 761.97. The top of the Bollinger band is at 780.90 and the lower edge is seen at 738.14. All the indicators that we follow herein continue to point to the upside. The Market Profile chart shows that above 780 we will melt to the upside and below 720.20 we will melt to the downside. The point and figure chart is not so friendly as the other chart are and indicates that we could be in trouble if we don’t move to the upside fairly soon.

Crude oil continues to look rather ugly. The good news is that we have been able to stay above 81.11; the bad news is that we haven’t gone far above that level. We have a doji candlestick as a result of the Friday session. As you know, a doji is a candlestick which indicates that the market could be in transition and that the direction previously seen could end. We really have seen much of a rally so that isn’t a good thing. The 5-day exponential moving average is at 83.74. The top of the Bollinger band is at 93.79 and the bottom edge is seen at 79.46. Both the Market Profile charts and the point and figure charts indicate that if the 81 area doesn’t hold, we have a liability to the mid to lower 70’s. Crude oil continues to look weak.

Gold has a rounding bottom, well for now it does anyway. We traded into the Ichimoku Clouds in the Friday session. We are in the Ichimoku Clouds for the weekly time-frame and above the clouds for the monthly time-frame. All the indicators that we follow herein continue to point higher albeit with less momentum. The 5-day exponential moving average is 1617.42. The top of the Bollinger band is at 1643.63 and the lower edge is seen at 1540.45. For the bulls, the Market Profile chart shows that danger lurks below 1526. If we could close above 1639.70 we would scare some of the shorts into covering their positions. Right now, this is a show me market and this product needs to regain some of its previous strength to get the momentum players back into the game. Although we continue to like gold, we see lots of pain below 1526 and would expect to see the market trade below 1500 and to 1482 if the 1526 level does not hold.